1. This appeal arises out of the order of the ld. CIT, Allahabad dated 28-7-2005.

2. Though there are ten grounds of appeal but the main and effective ground relates to the alleged error of the ld. CIT in holding that the regular assessment order dated 28-3-2005 is erroneous insofar as it is prejudicial in the interests of revenue and in setting aside the assessment as a whole with the direction that while framing reassessment, the Assessing Officer shall be at liberty to examine other issues also which may come to his notice during the course of reassessment proceedings.

Briefly stated the facts of the case are that the assessee-company had set up an industrial undertaking at Plot No. B-71, Satharia Industrial Estate, Satharia, District Jaunpur. For the assessment year 2003-04, it had filed a return wherein current year’s income was claimed as exempt under section 80-IB. The return so filed by the assessee was selected for scrutiny with the approval of ld. Chief CIT, Allahabad and thereafter regular assessment proceedings were initiated by issue of notice under section 143(2). During the course of regular assessment proceedings, the assessee produced books of account and other relevant records as also the details as were called for from time to time. The assessee’s claim for relief under section 80-IB was also examined and consequent upon such examination it was reduced by a sum of Rs. 3,33,250. After such an examination, the Assessing Officer completed the regular assessment vide order dated 28-3-2005.

3. The notice under section 263 of thedated 7-6-2005 was issued on various grounds summarised as below :

(i)relief under section 80-IB had been allowed without there being on record, the requisite report of an "Accountant" as defined in section 288 of the;

(ii)claim of brokerage amounting to Rs. 10,14,335, which is much higher from the immediately preceding year has not been properly examined;

(iii)premium received on allotment of 7 lakhs equity shares has not been transferred to "Securities Payment Premium Account", for being applied in consonance with the provisions of section 78 of the Companies Act.

(iv)stock of crude soya bean oil was shown in transit at a figure of 127900 Kgs. (127.900 MT), whereas the consignment of imported soya bean oil was for 2,50,000 kgs. (250 MT);

(v)the stock register, as per the qualification appearing in the Auditors report, was under seizure by the Excise Authorities and because of non-availability of the said stock register, the trading and manufacturing results as shown by the assessee were not open to verification.

4. The assessee made extensive submissions on all the issues vide submissions dated 21-7-2005 which as a whole have been quoted by the ld. CIT in his order under appeal. After examining the assessee’s reply, he dropped some of the issues and held the assessment order dated 28-3-2005 to be erroneous inasmuch as the same was prejudicial to the interests of revenue on the following ground :

(i)the claim for exemption under section 80-IB had wrongly been allowed as inspection of records revealed that the Audit report was required to be submitted in Form No. 10CCB (hereinafter to as the "Audit report"), is not available in the file and even if such Audit report is accepted to have been filed after filing the return, the exemption under section 80-IB was still not available as provisions of section 80-IA(7) have not been complied with;

(ii)the assessee neither produced the stock register before its own auditors, as could be seen from their qualification appended to their report of Statutory audit, nor such a stock register had been produced before the Assessing Officer during the course of assessment proceedings and, thus, a very important register had not been examined by the Assessing Officer;

(iii)premium received by the assessee on allotment of 700,000 equity shares had not been transferred to "Securities payment premium account" as per the provisions contained in section 78 of the Companies Act and there was a failure at the part of the Assessing Officer to examine the case from this angle.

However, while setting aside the assessment order, the ld. CIT gave the following directions:

"11. On going through the facts and circumstances of the case, and position of law as discussed above in the foregoing paragraphs, I hold that the assessment order passed under section 143(3) dated 28-3-2005 by TRO, R-II(1), Allahabad is erroneous insofar as it is prejudicial to the interest of the revenue. The ITO has illegally allowed the deduction under section 80-IB of the Income-tax Act, even though the mandatory audit report was not filed alongwith the return. The Assessing Officer did not examine the case properly as discussed above. Therefore, the assessment order is set aside with the direction to the Assessing Officer to pass a fresh order in accordance with law in the light of the observations made in the foregoing paragraphs and after affording the assessee reasonable opportunity of being heard. While framing re-assessment, the Assessing Officer shall be at liberty to examine other issues also which may come to his notice during the course of reassessment proceedings."

Being aggrieved the order of the ld. CIT, the assessee is in appeal before the Tribunal.

5. Sri S.K. Garg, ld. A.R. of the assessee has argued that the report under section 80-IB, although filed separately and on a date subsequent to the date of filing the return, formed part of the ‘Return’ itself. In any case, the same was available on records of the Assessing Officer, who had even examined the same before the completion of assessment and even computing the relief under section 80-IB as was available to the assessee. The ld. A.R. further argued that the stock register was not available with the assessee at the time of statutory audit/tax audit (for this reason the same could not be produced before them), quantitative tally had been prepared and submitted also as forming part of the "Annual Statement of account". On examination of such a quantitative tally no discrepancy was found by the Auditors as there is no qualification attached to the audit report in this respect. In any case, during the course of assessment proceedings, there was a specific requisition from the Assessing Officer for all the relevant details in support of the quantitative tally, valuation of closing stock, and stock in transit etc., as was amply borne out from the assessment record and the same were duly submitted. It was only after necessary verification that the Assessing Officer had accepted the assessee’s version with regard to the same. The ld. A.R. of the assessee argued that misclassification of ‘share premium account’ had no bearing on the computation of taxable income of the assessee, as computed as per the provisions contained in the Companies Act and, therefore, no prejudice can be said to have been caused to the revenue, even if it is found and held that the Assessing Officer has failed to discuss the said matter elaborately in the regular assessment order dated 28-3-2005. The ld. A.R. of the assessee further argued that in any case, the said order stands wholly vitiated as in terms of his direction contained in para 11 of the impugned order, the ld. CIT had widened the scope of set aside proceedings, beyond the limits as had been laid down in the notice under section 263 dated 7-6-2005. In support of various contentions, Paper Books in three volumes were filed. References were made to the same as also to the order sheet entries which already formed part of the Memo of appeal itself, as Annexure-1 thereto.

6. As far as the first issue is concerned, he invited my attention to the letter dated 28-11-2003, a copy of which appears at page 40 of the Paper Book, which bears the acknowledgement of the same date from the office of the concerned Income-tax Officer and also to the copy of Audit Report in Form No. 10CCB as prescribed in Income-tax Rules for the purposes of making claim under section 80-IB also and other relevant documents copies of which appear at pages 41 to 49 of vol. 1 of Paper Book. It was very candidly admitted fry Sri Garg, as had been admitted by him before the ld. CIT also during the course of proceedings under section 263, that the audit report could not be filed alongwith the return and it was filed on the following day. However, he hastened to add that the date of filing the audit report was still within the time limit as prescribed under section 139(1) and it related back to the return itself as per the narration given in the audit report. He further submitted that the date of Audit report was 11-8-2003, which was also the date of statutory audit report. It was just because of inadvertence that the audit report under section 80-IB could not be attached alongwith the return itself and no motive could have been attached for such inadvertence. The audit report so filed by the assessee on the subsequent date was available before the Assessing Officer, when the proposal was sent to the ld. Chief CIT for selecting the case for scrutiny, much before the completion of assessment. This is evident from this fact alone that in the proposal sent to the Chief CIT for his approval there was no mention of the audit report having not been filed alongwith the return. On the other hand, the case was recommended for scrutiny only for ‘proper examination of accounts’ and for no other purposes. The ld. A.R. drew my attention specifically to para 4 of the impugned order wherein the said proposal has been reproduced.

7. It was further submitted by the ld. A.R. of the assessee that on the face of such an official document, the ld. CIT could not have held that the audit report had not been filed even on 28-1-2003, without bringing on record any material to show that the acknowledgement, as appearing on the said letter itself, was not genuine. It was for the Income-tax authorities to keep the record in tact, and in case the said letter dated 28-11-2003 alongwith audit report were not available in the records of the Assessing Officer at the time of inspection by the CIT, the blame lies at the door of the Income-tax department itself for which the assessee cannot be penalised.

8. In the impugned order, the ld. CIT has mentioned that even if the audit report is held to have been filed on 28-11-2003, the provisions of section 80-IA(7) as amended with effect from the assessment year 2003-04 which provide that an assessee must furnish the audit report alongwith the return, has not been complied with. The ld. A.R. of the assessee has submitted that filing of audit report, just a day after the date of filing the return itself and that too within the time prescribed for filing the return under section 139(1) was liable to be treated as a part of return itself. In any case, from a sequence of events given earlier, it is evident that the audit report was available before the Assessing Officer , right from the stage at least at the time when the proposal to select case for scrutiny was sent to the Chief CIT. The availability of report before the Assessing Officer before the completion of assessment is also proved from the manner in which the Assessing Officer made his own re-computation of relief under section 80-IB. The availability of report before the completion of assessment is sufficient compliance of the provisions of section 80-IA(7) and in support of this contention, he referred to a large number of case laws, gist of which appears at pages F to R of Vol. III of the Paper Book and full text of the case laws also appear in the said Vol. of the Paper Book. In nutshell, the contention of Sri Garg was that the assessee had duly filed the audit report in the manner laid down in the and well within the time limit prescribed for filing the return and even it is taken to have been filed belatedly still there is sufficient compliance of the provisions of section 80-IA(7). The said provisions are directory in nature and not mandatory. If the audit report is available before the Assessing Officer, before completion of assessment as is the case here, the claim for relief under section 80-IA(7) cannot be negated on the technical ground that the said audit report remained to be tagged with the return itself. Reliance was placed on the principle laid down by the Hon’ble Supreme Court in the judicial pronouncement in the matter of CIT v. Nagpur Hotel Owners’ Association [2001] 247 ITR 201 [LQ/SC/2000/2039] which is in the context of furnishing Form No. 10 under Rule 17 of the Income-tax Rules for the purposes of claiming benefit of section 11 of the.

9. As far as the second issue is concerned, the ld. A.R. relied upon the submissions made before the C.I.T. to the effect that non-compliance with the provisions contained in section 78 of the Companies Act, which merely prescribes the manner in which the premium collected on issue of shares to be utilised. The assessee’s failure to transfer the premium amount to a separate ‘Share Premium Account’, had no bearing on the computation of taxable income of the assessee under the Income-tax Act and merely because the accounting entry was not in accordance with the provisions of section 78 of the Act, no adverse inference could have been drawn. In support of this contention, he referred to the written submissions placed before the ld. CIT which are reproduced in the impugned order itself. It was emphatically stated that even the ld. CIT has not refuted in any manner, the said contention. In any case, the CIT has wrongly held that the issue relating to share premium account, had not been examined by the Assessing Officer. The entry with regard to the receipt of premium on issue of shares appeared at the face of Balance Sheet itself and the said Balance Sheet and other statements accompanying the return were got verified from the books of account and as have been repeatedly produced before the Assessing Officer. As the share premium account did not have any bearing on the computation of taxable income under the Income-tax Act, there was no necessity for the Assessing Officer to deal with the accounting treatment of the same, as was referred to be given according to the provisions of the Companies Act.

10. As regards the third issue of non-availability of stock register at the time of statutory/tax audit it was pleaded that no doubt the same could not be produced before the auditors as it was in the possession of the Excise department at that time for the purposes of finding out the tariff item as mentioned in Excise laws. But in view of the fact that on a requisition being made by the Assessing Officer during the course of assessment proceedings as by that time the said register had been returned by the Excise Authorities, the same was duly produced before him during the course of assessment proceedings. Thereafter, the Assessing Officer made detailed enquiries about the inventory or the stock-in-hand, stock in transit and method of valuation thereof and in compliance with such enquiries all the relevant details were submitted before the Assessing Officer. In support of this contention, the ld. A.R. referred to the order sheet entries, copy of which appears at pages 84 to 93 of the Vol. III of the Paper Book and other relevant documents.

11. The ld. A.R. of the assessee further submitted that the assessment order dated 28-3-2005 accorded fully with the provisions of law and the same, therefore, could not have been termed as erroneous and prejudicial to the interests of revenue. The said term received extensive examination by the Hon’ble Bombay High Court in the case of CIT v. Gabriel India Ltd. [1993] 203 ITR 108 wherein it has been held that only such an order can be subject-matter of revision under section 263 which is not in accordance with the provisions of law. The principle now represents law of land as that has received approval of the Apex Court also in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83. [LQ/SC/2000/302 ;] As there was no legal infirmity in the regular assessment order passed by the Assessing Officer, or any of the specific issues on which the order has been finally found to be erroneous and prejudicial to the interests revenue by the ld. CIT. In support of this contention too large number of case laws were cited, gists of which appear at pages A to E of Vol. III of the assessee’s compilation.

12. The ld. A.R. of the assessee further submitted that the impugned order stands wholly vitiated as it had exceeded the limit as had been laid down by the CIT himself in his notice under section 263. As per the overall scheme of the, CIT has been given the authority to revise only such an order which is both erroneous as well as prejudicial to the interest of revenue. Before exercising such a jurisdiction, he has to give a notice to the assessee spelling out therein the grounds on which revisionary jurisdiction is proposed to be exercised. In the present case, such a jurisdiction was sought to be assumed on five grounds only mentioned in paragraph 3 of the order. After hearing the assessee, the ld. CIT himself has dropped two of the said grounds and expressed his opinion only in relation to three issues mentioned in para 4 above. It meant that in final analysis, the order was found to be erroneous and prejudicial to the interests of revenue only on three issues, viz. (i) non-availability of audit report in support of claim under section 80-IB, (ii) non-verification of stock register and (iii) non-examination of share premium account. After having recorded his finding on these three issues, he could not have cancelled the assessment order as a whole with further direction to the Assessing Officer to examine other issues also which may come to his notice during the course of reassessment proceedings. The ld. CIT could not have given such directions, as has been done here, so as to widen the scope of fresh assessment, beyond the scope of notice under section 263 of the. Reliance in this regard was placed, besides other case laws, on the decision of the Apex Court in the case of Sirpur Paper Mill Ltd. v. CWT [1970] 77 ITR 6. [LQ/SC/1970/208]

13. Sri Subedar Ram, Joint CIT (DR) appeared on behalf of the revenue and argued that the assessee should not have any grievance against the order dated 28-7-2005 passed by the ld. CIT in his revisionary jurisdiction under section 263, as he himself has held in para 11 of his order that the assessee shall be afforded reasonable opportunity of being heard. The ld. CIT has merely set aside the assessment in his supervisory jurisdiction and the assessee is at liberty to make all his objections before the Assessing Officer himself.

14. Proceeding further, the ld. D.R. submitted that it was mandatory for the assessee to file the audit report in the prescribed form alongwith the return itself. It is evident from the very language of section 80-IA(7) which is applicable to the relief admissible under section 80-IB also. It nowhere says that such a compliance can be made later on. In the present case, admittedly, the audit report had not been filed alongwith the return itself. Even if, section 80-IB is a beneficial provision, the assessee has to make a strict compliance, in order to avail the benefit as is provided in the said section. The ld. CIT has, therefore, rightly held the assessment order to be erroneous and prejudicial to the interests of revenue on this count.

15. As regards non-availability of stock register, it was pleaded by the ld. D.R. that the same was not available for scrutiny and examination by the Auditors at the time of audit and they had even qualified their report by saying that stock register was not produced. Although, such stock register had been produced during the course of assessment proceedings, it is not understood as to why the assessee chose not to make compliance at the stage of audit itself. Further, the ld. CIT has not expressed any opinion either way on the verifiability or otherwise of the stock register. He has merely set aside the assessment for the purposes of necessary verification. If on such verification, no discrepancy is found, the assessee will get a fair deal at the reassessment stage.

16. As regards share premium account, there is a glaring violation of the provisions of section 78 of the Companies Act. The assessee is a company and it has to necessarily draw its accounts on the basis of provisions as contained in Companies Act. Failure to observe the rules of Company Law, make the accounts themselves unreliable which called for suitable action from the ld. CIT in his supervisory jurisdiction. At this stage, a specific query was made from the ld. D.R. as to whether there is any dispute about the source of share application money and/or premium received on the same. After consulting the assessment records, he fairly conceded that the allotment of shares had taken place against the credit balance in the account of allottee who is also assessed to tax with the same Assessing Officer. The source of such receipts is, therefore, not in dispute. He, however, submitted that non-compliance with the provisions of Companies Act in drawing the Annual statement of account and failure of the Assessing Officer to take note of the same, itself makes the assessment order as erroneous and prejudicial to the interests of revenue.

17. Finally, the ld. D.R. tried to counter the appellant’s submissions to the effect that the order of the CIT got vitiated as the same was far in excess of the term of notice under section 263, by saying that the section itself lays down that the CIT in his revisionary jurisdiction can pass such order as is justified on the circumstances of the case, which includes an order exercising or modifying the assessment or cancelling the assessment. In the present case also, the ld. CIT has held that owing to various errors of omission and commission at the part of the Assessing Officer, the assessment order as a whole deserved to be made afresh. In any case, the assessee will get due opportunity of being heard at the reassessment stage, as per the specific directions given by the ld. CIT and no prejudice can be said to have been caused to the assessee, by the directions as are contained in paragraph 11j of the ld. CIT’s order.

18.1 In rejoinder, Sri Garg submitted that the law itself has laid down built in safeguard against arbitrary action of the ld. CIT. He cannot interfere with the finality of assessment unless requisite conditions are satisfied. As per other scheme of the, the Commissioner is precluded to pass any order under section 263 without confronting the assessee with material on which the order passed by the Assessing Officer has been found to be erroneous and prejudicial to the interests of revenue. This is the essence of principles of natural justice which have to be observed and followed in all walks of life. In the present case, the assessee was confronted with some specific grounds, but the assessment as a whole has been cancelled, which being undisputedly in excess of the scope of notice under section 263 of the Act, is wholly illegal.

18.2 Further, the very jurisdiction of the ld. CIT to pass order under section 263 in this case has been challenged and on such a challenge being made, the grounds are to be examined by the Tribunal before whom such an order is appealable. Therefore, if on such an examination, the order under section is not found to be tenable on the grounds on which notice had been issued, the order has to be quashed by the Tribunal. Reliance in this regard has been placed on the decision of Hon’ble Punjab and Haryana High Court in the case of CIT v. Jagadhri Electric Supply & Industrial Co. [1983] 140 ITR 490 [LQ/PunjHC/1981/122] on the ground not specified. Therefore, if on an examination of three specific issues on which the ld. CIT has held the order to be erroneous and prejudicial to the interests of revenue, the order of CIT is not found to be maintainable, the same has to be quashed and the assessee’s fate cannot be put into wilderness on such issues and grounds which never formed part of the proceedings under section 263.

18.3 Further, misclassification of share allotment account has nothing to do with the reliability or otherwise of the books of account as such. During the course of assessment proceedings, detailed enquiries were made on various issues which have a bearing on the computation of taxable income of the assessee. Undisputedly, the receipts under the head ‘share premium account’ is a part of capital of the company. So long as such a capital contribution is fully verifiable, as is the case here, the Share Premium Account did not have any bearing on the computation of taxable income of the assessee. Simply on the ground that such receipts have not been classified as per the provisions of section 78 of the Companies Act, no adverse inference can be drawn against the assessee.

18.4 Similarly, the Assessing Officer on the face of qualification in the Auditors’ report about the non-availability of stock register at the time of audit, had made extensive queries on all the aspects of the closing stock which included quantitative tally as well as valuation thereof. If the stock register was available during the course of assessment proceedings and the same had duly been placed also before the Assessing Officer, no adverse inference could be drawn against the assessee, on the ground that the same was not available at the time of audit and/or was not produced before the auditors. Thus, the assessment order cannot be said to be erroneous and prejudicial to the interests of revenue within the meaning of section 263 of theor any of the counts and the order passed by the ld. CIT deserves to be quashed.

19. I have carefully considered the rival submissions and the material on record as also the assessment records as had been produced by the Assessing Officer at an earlier date of hearing as per requisition. It is seen that the case has been picked up for scrutiny on the following grounds:

"The assessee has declared an income of Rs. 1,12,54,279. The deduction under section 80-IB Chapter VIA has been claimed in full. Gross profit declared is 6.58 per cent. Expenditure has been claimed at Rs. 25,46,34,152 as against claimed during the previous year at Rs. 15,67,65,062. For proper examination of accounts the case is being recommended for scrutiny."

Which has been noted by the ld. CIT also in para 4 of his order under section 263. A bare perusal of the said proposal goes to show that the case was picked up for scrutiny, for proper examination of accounts. In the said proposal itself, the Assessing Officer has clearly noted the assessee’s claim for exemption under section 80-IB. Had the audit report in the prescribed for being not there on the records at that time, it would have been natural for him to make a mention of the same in his proposal, as non-filing of such a report would have attracted disqualification of the said claim. In the said proposal, the Assessing Officer has not even mentioned that the assessee’s claim for exemption under section 80-IB needed verification. Then, the said proposal was sent to the Chief CIT for his approval and as per the usual practice the proposal is accompanied by the assessment record. Non-availability of such a vital document on which the admissibility of claim under section 80-IB was dependent could not have escaped the attention of the Authority concerned. Nothing has been brought on record to show that the Chief CIT even noted such a deficiency. Such a factual position itself clinches the issue of availability of report on the records of the Assessing Officer, at least at the time when the proposal of selecting the case for scrutiny was sent to the Chief CIT and the Chief CIT accorded his approval.

20. Moreover, the assessee has placed before the ld. CIT as well as before me in Vol. 1 of the Paper Book a copy of letter dated 28-11-2003 alongwith which the audit report had been filed. It has been noted by the ld. CIT himself that the said letter bears the acknowledgement also from the office of theO. No material whatsoever has been brought on record, either by the ld. CIT himself or even by the ld. Sr. D.R. during the course of hearing before me, which could go to show that the acknowledgement was not genuine, nor any other material has been placed on record to refute the assessee’s claim that the said report had duly been filed before the Assessing Officer on 28-11-2003, a day subsequent to the date of filing the return. On the other and, the assessee had placed on record strong evidences both direct as well as circumstantial which go to prove that the audit report had duly been filed and the same was well within the purview and knowledge not only of the Authorities starting from the stage of the Assessing Officer, but upto the stage of Chief CIT at least ever since the proposal was sent for selecting the case for scrutiny. Not only this, the tenor of the assessment order in question goes to show that the said audit report received due attention of the Assessing Officer before completion of assessment.

21. Further, no adverse inference can be drawn from this fact also that the letter dated 28-11-2003 did not bear the acknowledgement No. etc. from the office of the Income-tax department. During the course of present proceedings, it was explained before me that acknowledgement No. is given only at the time when the documents are presented at the dak counter. No such acknowledgement bearing the distinctive number is given when the documents are filed before the Assessing Officer and any other authority. This procedure followed in the Income-tax department, has not been disputed even by the ld. D.R. In fact, he could not have done so, for the reason that pages 70-71 of First Vol. of the Paper Book, which are the photo copies of letters filed in the office of the CIT himself also do not bear any acknowledgement number. Still the authenticity of the said documents is not in dispute. By the same token, the authenticity of the letter dated 28-11-.2003 alongwith which the audit report had been filed, cannot be disputed.

22. It is also seen from the assessment order dated 28-3-2005 itself that the Assessing Officer himself had extensively examined the claim under section 80-IB which includes quantification parts of the same. After such an examination, the assessee’s claim for exemption was allowed, though at a reduced figure. There is force in the assessee’s contention that such an examination was not possible in the absence of audit report being there before the Assessing Officer. Therefore, on a due consideration of the totality of the facts and circumstances of the case, the assessee’s claim that the report had been duly filed alongwith the letter dated 28-11-2003 on that very date, has to be accepted and I hold so.

23. It is also not without significance that the letter dated 28-11-2003 reads as under:

"This has reference to the return of income filed by the applicant assessee on 27-11-2003 acknowledgement No. 0203015276 for the assessment year 2003-04. On going through the records, we found that negligently the audit report prescribed in Form No. 10 CCB required to be filed under provision of section 80-IB was not filed with the said return of income. A copy of audit report in prescribed Form 10CCB alongwith a certificate issued by Mukhya Karyapalika Adhikari, Satharia Industrial Development Authority for running the edible business in the specified industrial area under the provision of section 80-IB of Income-tax Act, 1961 is enclosed, which may please be attached with the return of income filed earlier by us i.e., on 27-11-2003 and the same should be treated as part of the return of income earlier filed. Audited financial statement, TDS certificate are filed with the return of income.

Kindly acknowledge the receipt."

The audit report was filed as a part of the return itself. Since such a report has been filed within the time limit prescribed under section 139(1), it is liable to be treated as having been filed alongwith return itself, the provisions of section 80-IA(7) stood fully complied with. Thus, no error of law has been committed by the Assessing Officer while allowing the claim for exemption on the basis of such a report.

24. After having held that the audit report in the prescribed form had been duly filed on 28-11-2003 as a part of the return and the assessee’s claim had been allowed by the Assessing Officer, after full examination, it is not necessary to go into the part of the objection of the CIT which says that "even if I accept the contention of Sri Garg that he had filed the audit report subsequently, the deduction cannot be allowed in view of the amendment made to section 80-IA(7) effective from assessment year 2003-04." However, for the sake of completeness of discussion, I proceed to examine as to whether there is any effect of such a delay so to say in filing the audit report on the maintainability of assessee’s claim for exemption under section 80-IB and whether the Assessing Officer has committed any error of law by accepting the assessee’s claim for exemption under section 80-IB, although at a reduced level. The ld. A.R. of the assessee has referred to a catena of case laws as mentioned in the gist of case laws as appearing at pages F to R of the III Vol. of the Paper Book, which are as under :

(1)CIT v. Gupta Fabs [2005] 274 ITR 620 (Punj. & Har.),

(2)CIT v. Shivanand Electronics [1994] 209 ITR 63 (Bom.) [LQ/BomHC/1993/741] ,

(3)CIT v. Shiva Rice & Dal Mills [2005] 273 ITR 265 (Punj. & Har.),

(4)CIT v. Panama Chemical Works [2000] 245 ITR 684 (MP),

(5)CIT v. Gujarat Oil & Allied Industries [1993] 201 ITR 325 (Guj.),

(6)CIT v. Punjab Financial Corpn. [2002] 254 ITR 6 (Punj. & Har.),

(7)CIT v. Jayant Patel [2001] 248 ITR 1994A (Mad.),

(8)CIT v. B.L. Murarka [2001] 250 ITR 714 (Raj.),

(9)CIT v. Hemsons Industries [2001] 251 ITR 693 (AP),

(10)CIT v. A.N. Arunachalam [1994] 208 ITR 481 (Mad.),

(11)CIT v. Shahzadanand Charity Trust [1997] 228 ITR 292 (Punj. & Har.),

(12)Zenith Processing Mills v. CIT [1996] 219 ITR 721 (Guj.),

(13)CIT v. Magnum Export (P.) Ltd. [2003] 262 ITR 10 (Cal.),

(14)Addl. CIT v. Murlidhar Mathura Prasad [1979] 118 ITR 392 (All.) [LQ/AllHC/1978/413] .

Finally, the ld. A.R. of the assessee referred to and relied upon the principle laid down by the Apex Court in the case of CIT v. Nagpur Hotel Owners Association [2001] 247 ITR 201. [LQ/SC/2000/2039]

25. Although the said case laws are not on the issue of exemption under section 80-IB, the underlying principle as culled out from them is that filing of audit report wherever it is so required to be filed in support of a claim for exemption/deduction, alongwith the return itself, is not mandatory. It is sufficient compliance of law if such a report becomes available to the Assessing Officer before completion of assessment. In the earlier part of this order, it has already been held by me, as a matter of fact, that such a report was available on records of the Assessing Officer and the claim under section 80-IB was allowed only after proper verification and examination of the same. As availability of audit report on the assessment records of the Assessing Officer has been accepted by me, I hold that there is no infirmity in the Assessing Officer’s approach in allowing the assessee’s claim for exemption under section 80-IB, even if such a report is held to be filed belatedly and not alongwith the return itself. Therefore, the order of the Assessing Officer cannot be said to be erroneous and prejudicial to the interest of revenue on this count and the order of the ld. CIT in this respect is reversed.

26. Now, I come to the second ground on which the assessment order has been held to be erroneous and prejudicial to the interests of revenue, which is referable to non-consideration by the Assessing Officer of the issue of classification of share premium Account, which was not in accordance with the provisions of the Companies Act. The ld. A.R. of the assessee has submitted that such a non-compliance has no bearing on the computation of income as such a collection was merely a part of share capital. So long as source of such a collection is not in dispute, it does not affect the computation of taxable income. The submissions made by the assessee during the course of revisionary proceedings are, therefore, held to be having sufficient force. Under the Income-tax Act, income has to be computed as per the provisions contained in the itself. In support, the reliance was placed on the decision of the Hon’ble Supreme Court in the matter of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT227 ITR 172 [LQ/SC/1997/918] , wherein it was held as under:

"In the case before us, the company had surplus funds in its hands. In order to earn income out of the surplus funds, it invested the amount for the purpose of earning interest. The interest thus earned is clearly of revenue nature and will have to be taxed accordingly. The accountants may have taken some other view but accountancy practice is not necessarily good law. In B.S.C. Footwear’s case, 83 ITR 269, the House of Lords had no hesitation in holding that the accounting practice for calculating its profit followed by the assessee and accepted by the revenue for 30 years could not be treated as sanctioned by law and was not acceptable for the purpose of computation of taxable income.

It is true that this court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to he principles of law and not in accordance with accountancy practice. Accounting practice cannot override section 56 or any other provision of the. As was pointed out by Lord Russell in the case of B.S.C. Footwear Ltd. [1970] 77 ITR 8857,860 (CA), the income-tax law does not march step by step in the footprints of the accountancy profession."

As such a classification or wrong classification has not caused any ‘prejudice to the interest of revenue, the assessment order could not be subjected to revision by the ld. CIT in exercise of his jurisdiction under section 263 of theon this score too.

27. Another ground on which revisionary jurisdiction has been specifically exercised by the ld. CIT refers to non-production of stock register before the auditors and again before the Assessing Officer. The finding of the ld. CIT is as under:

"9. The next most important reason for taking action under section 263 is the absence of stock register. The assessee did not produce the stock register before its own auditors and the auditors announced in the meeting of shareholders that the stock register was not produced by the assessee. The assessee did not produce stock register during the course of assessment proceedings also. Thus the very important register was not examined by the Assessing Officer. Mr. Garg only stated that the stock register could not be produced before the Company Auditors because it had been taken away by the Excise Authorities but the date on which the stock register was taken away and the date on which the same was returned to the assessee have not been disclosed before me. It is not the case of the assessee that the stock register was with the Excise Authorities throughout the audit proceedings and the assessment proceedings. The submissions being vague cannot be accepted. There is no supporting evidence for the stock shown by the assessee. From this angle also, the action under section 263 is absolutely called for."

However, from a perusal of assessment records, I find that the aforesaid finding insofar as the same relates to non-production of stock register before the Assessing Officer during the course of assessment proceedings, is a mistaken one. On the other hand, it is seen from the said records that not only the stock register was produced before the Assessing Officer, he, in turn made detailed queries on all the aspects of the quantitative tally of stock as well as valuation thereof as also the stock in transit. For the sake of ready reference, the extract from the order sheet entries are given below:

"17-1-2005 Sri Navneet Agarwal, CA attended with Sri Amit Agarwal. Filed reply dated 17-1-2005 and produced cash book, ledger, journal book and purchase vouchers which have been test-checked. They are further required to furnish-

(1)Details of stock in transit, quantity of price-wise.

(2)Details of closing stock.

(3)Produce vouchers and expenses

(4)Produce books of A/c and vouchers for purchase and sales.

Date fixed; for compliance 28-1-2005.

23-2-2005Sri Navneet Agarwal, CA attended with Sri Amit Kumar, Director. Produced cash book, ledger, stock register and vouchers, which have been test checked. Case partly examined. They are further required to furnish/produce—

(i)Bank statement with reconciliation

(ii)Why income from tankers has not been disclosed, furnish details of tankers.

(iii) P & L and Balance sheet of Financial Officer 2001-02.

(iv)Proof regarding commencement of business & period from which deduction under section 80-IB is being claimed.

(v)Why income under the head other income be not taxed as income from other sources and the claimed under section 80-IB on such income be not taxed as income from other sources and the claim under section 80-IB on such income be not disallowed.

(vi)Produce books of account and vouchers for further examination of A/cs.

Date fixed for compliance 9-3-2005.

23-3-2005Sri Navneet Agrawal attended with Sri Amit Agarwal. Filed reply and produced cash book, ledger, stock register and vouchers which have been test checked and examined."

28. It is also seen from Vol.-1 of the Paper Book (pages 52 to 69) that voluminous details had been placed on record alongwith letter dated 14-2-2005, which reads as under:

"From

AmitVegetableOilLtd., 27/95, Dharbhanga Colony, Lowther Road, Allahabad.

14-2-2005

To

The Assessing Officer, Range II(1), Income-tax Department, Allahabad.

Sir,

Sub :Notice under section 143(2) of the Income-tax Act, 1961.

Ref. :M/s. AmitVegetableOils Limited, assessment year 2003-04.

This has reference to the assessment proceedings of AmitVegetableOils Limited for the assessment year 2003-04, whereby certain queries were raised by you, point-wise reply is as under :

1.Books of account, stock register, vouchers for sales, purchase and expenses: Books of accounts, stock register and vouchers, bills in support of the sales, purchase and expenses are produced herewith for your kind perusal.

2.Details of stock in transit: Details of stock in transit at the balance sheet date is placed at Annexure A.

3.Details of closing stock: Details showing closing stock and its value is produced herewith for your kind perusal.

Hope, the above shall meet your requirements in completing the assessment proceedings of the captioned assessee-company, in case of any other details the assessee may kindly be given opportunity to furnish the same.

Thanking you,

Even the stock register was produced before the Assessing Officer. Thus, it is proved from the assessment records themselves that not only the stock register was produced before the Assessing Officer, all the relevant information was placed before him. Not only this, the Assessing Officer had examined also, all such details and records. Thus, the action has been taken by the ld. CIT on non-existent ground, which cannot be supported. Further, there being no failure at the part of the Assessing Officer to examine quantitative tally of finished products, as obtained from the purchases of raw material, stock-in-transit, valuation of stocks etc. and no error much less an error of law has crept in the assessment order. Therefore, the CIT’s order in this respect also is not tenable.

29. On a due consideration of the facts and circumstances of the case in their entirety, the only conclusion that emerges is that the regular assessment order dated 29-3-2005 accorded fully with the provisions of law on all the issues on which the revision under section 263 was considered necessary by the ld. CIT. Therefore, following the principle laid down by the Hon’ble Bombay High Court in the case of Gabriel India Ltd. (supra) and other case laws which have been approved by the Apex Court in the case of Malabar Industrial Co. Ltd. (supra) as may be seen from the following extract from the judgment:

"The phrase "prejudicial to the interests of the revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interest of the revenue, for examine, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue, Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC) (p. 88).

The phrase "prejudicial to the interests of the revenue" is not an expression of art and is not defined in the. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadbhoy and Co. v. S.P. Jain [1957] 31 ITR 872 [LQ/CalHC/1956/186] , the High Court of Karnataka in CIT v. T. Narayana Pai [1975] 93 ITR 422, the High Court of Bombay in CIT v. Gabriel India Ltd. [1993] 203 ITR 108 [LQ/BomHC/1993/366] and the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81 treated loss of tax as prejudicial to the interest of the revenue."

I, therefore, hold that assumption of revisionary jurisdiction under section 263 by the ld. CIT was not proper either on facts or in law in relation to the regular assessment order dated 28-3-2005. The said order is, therefore, quashed.

30. Before parting with the matter, I deem it necessary to deal with the assessee’s objection to the effect that the CIT’s order stands vitiated as para 11 of the same, which has been reproduced above, contains the directions which are in excess of the scope of the proceedings as stood laid down in the notice under section 263. The cardinal principle of assumption of jurisdiction under section 263 is that these are the quasi-jurisdictional proceedings and the Commissioner cannot allow himself to pass an order in relation to the issues, which have not been disclosed to the assessee. In the decision in the case of Sirpur Paper Mill Ltd. (supra), the Hon’ble Apex Court held as under:

"The power conferred by section 25 is not administrative, it is quasi-judicial. The expression "may make such inquiry and pass such order thereon" does not confer any absolute discretion on the Commissioner. In exercise of the power the Commissioner must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice, he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority. Section 13 of the Wealth-tax Act provides that all officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board. These instructions may control the exercise of the power of the officers of the department in matters administrative, but not quasi-judicial. The proviso to section 13 is somewhat obscure in its import. It enacts that no orders, instructions or directions shall be given by the Board so as to interfere with the discretion of the Appellate Assistant Commissioner of Wealth-tax in the exercise of his appellate functions. It does not, however, imply that the Board may give any directions or instructions to the Wealth-tax Officer or to the Commissioner in exercise of his quasi-judicial function. Such an interpretation would be plainly contrary to the scheme of the and the nature of the power conferred upon the authorities invested with quasi-judicial power. The power conferred by section 25 is not administrative: it is quasi-judicial. The expression "may make such inquiry and pass such order thereon" does not confer any absolute discretion on the Commissioner. In exercise of the power, the Commissioner must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice, he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority."

The above decision lends full support to the said principle. Undisputedly, the ld. CIT had issued notice under section 263 on five grounds as has been listed in beginning. After hearing the assessee, he has not recorded any adverse finding on two, out of five issues. Therefore, he could not have proceeded to give blanket direction to the Assessing Officer to reframe the assessment in the manner laid down by him in para 11 of his order as the same are not covered by his notice under section 263. Such a transgression has the effect of rendering the order itself as invalid and I hold so.

31. This controversy has got another aspect also. The proceedings under section 263 are peculiar in nature and different from other kind of appeals which come up for consideration before the Tribunal, as in relation to order under section 263, the revenue has no right to appeal. Therefore, the Tribunal has the power to examine only such issues on which the assessee has been given an opportunity of being heard at the stage of the CIT and on which the order of the Assessing Officer has been found by him to be erroneous and prejudicial to the interests of revenue. The same cannot be supplemented by the Tribunal. In case the grounds specifically referred to and relied upon by the CIT are not found to be tenable, as has been held in this case, the Tribunal has no option but to quash the order under section 263. The decision of the Hon’ble Punjab and Haryana High Court in the case of Jagadhari Electric Supply & Industrial Co. (supra), goes to fortify the said view. The relevant portion of the judgment is reproduced below:

"The jurisdiction vested in the Commissioner under section 263(1) of theis of a special nature or in other words, the Commissioner has the exclusive jurisdiction under the to revise the order of theO if he considers that any order passed by him was erroneous insofar as it was prejudicial to the interests of revenue. Before doing so, he is also required to give an opportunity of being heard to the assessee. If after hearing the assessee in pursuance of the notice issued by him under section 263(1) of the Act, he is not satisfied, he may pass the necessary orders. Of course, the order thus passed will contain the grounds for holding the order of theO to be erroneous, as contemplated under section 263(1) of the. Feeling aggrieved, therefore, the assessee may file an appeal against the same, as provided under section 253(1)(c) of the. In the memorandum of appeal, the assessee is supposed to attach the order of the Commissioner and to challenge the grounds for decision given by him in his order. At the time of the hearing, if the assessee can satisfy the Tribunal that the grounds for decision given in the order by the Commissioner are wrong on facts or are not tenable in law, the Tribunal has no option, but to accept the appeal and to set aside the order of the Commissioner. The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well. If the Tribunal is allowed to find out the grounds available to the Commissioner to pass an order under section 263(1) of the Act, then it will amount to a sharing of the exclusive jurisdiction vested in the Commissioner, which is not warranted under the. It is all the more so because the revenue has not been given any right of appeal under the against an order of the Commissioner under section 263(1) of the."

From this view point also, the CIT’s order in the present case, which has the effect of re-opening the entire assessment cannot be allowed to be sustained.

32. Thus, as the order under section 263 has not been found to be maintainable on any of the three grounds which the ld. CIT has finally picked up for decision against the assessee, the only consequence that follows is that the order under appeal is liable to be declared as wholly without jurisdiction and I hold so.

33. In the result, the appeal is allowed.