PER R.P. TOLANI, JM This is an appeal filed by the assessee against the order of the ld. CIT-(Central), Jaipur dated 18-03-2014 for the assessment year 2009-10 u/s 263 of the Act where in the assessee has raised following grounds. (1) On the facts and in the circumstances of the case, the order under s. 263 of the Act passed by the CIT is illegal, void ab initio and not justifiable, therefore deserve to be annulled.
2) That learned CIT erred in holding that the order under s. 143(3) passed by the AO was erroneous and prejudicial to the interest of Revenue.
3) On the facts and in the circumstances of the case, the CIT is not justified in invoking the proceedings of section 263 of Income Tax Act, 1961 and setting aside the order passed by the AO u/s 143(3) of Income Tax Act and directing the AO to verify the deduction claimed u/s 10AA of Income Tax Act, 1961. ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 2
4) On the facts and in the circumstances of the case, the CIT is not justified in not considering the various case law relied before her and holding that the case laws cited are distinguishable from the facts of this case.
2.1 Brief facts are the assessee is engaged in the business of manufacturing & trading of Gold, Gold ornaments and setted Jewellery. During the year the assessee started a manufacturing unit in SEZ-II, Sitapura, Jaipur for manufacturing and export of Gold Jewellery. The assessees books of account were audited u/s 44AB of Income Tax Act; separate books of account, separate Profit and Loss account and balance sheet are maintained for SEZ unit which are placed on record. Return of income was E-filed in ITR-5 on 29.09.2009 declaring total income of Rs.59,61,290/- after claiming exemption u/s 10AA of the I T Act of Rs. 70,55,269/-. The case was selected for scrutiny under CASS and notices u/s 143(2) and 142(1) of the I T Act along with a series of other notices and queries were issued by AO which are claimed to be duly complied with. According to assessee ld. AO after due consideration of books of accounts including the separate books from time to time and verification of CA certificates for eligibility u/s 10AA of SEZ unit, stock registers, bills, vouchers, bank statements, supporting evidences various enquiries, compliances and discussions framed the assessment of income u/s 143(3) vide order Dtd.28.12.2011 allowing the claim u/s 10AA.
2.2 According to 263 order based on the audit objections, the ld CIT- Central Jaipur issued show cause notice u/s 263 dated 22/02/2013, alleging following errors which are prejudicial to the interest of revenue as exemption u/s 10AA was granted without verification and keeping basic documents on record: ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 3 (i) Certificate issued by the Development Commission (SEZ) not placed on file. (ii) Three conditions for exemption u/s 10AA have also not been examined by AO (iii) Net profit from exempt unit is high than the profit from regular business. The AO ought to have examined the possibility of diversion of expenditure from SEZ unit to the regular unit. (iv) Certain expenditures in consolidates trading and Profit and Loss account required proper verification. The assessee filed detailed reply to this show cause notice vide letter dated 11/03/2013 objecting to the proceedings u/s 263 contending that the assessment was framed and exemption granted after various hearings and due verification of record. Following documents were on record or called for by AO during assessment proceedings: i). Copy of certificate issued by the Development Commissioner (SEZ). (ii) Copy of allotment of plot by RIICO for establishing of industry in special economic Zone. iii). Copy of Report u/s 10AA(8) of Income Tax Act in prescribed Form No 56F with Annexure A (under Paragraph 2 of Form 56F) issued by Chartered Accountant. It was further submitted that all other necessary information was furnished along with books of accounts, vouchers and supporting evidences including ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 4 the separate record of SEZ unit were produced before the ld AO which were duly examined by the ld. AO during the course of assessment proceedings and exemption was granted after due verification of claim. Thereafter, ld CIT further issued a show cause notice dated 29-01-2014 mentioning while claiming exemption relevant sub clause of section 10AA was not mentioned in return and evidence of date of registration and commencement of manufacture by the SEZ unit was not furnished by the assessee. Besides no proof of purchasing new plant and machinery for SEZ unit was placed on record. The assessee filed detailed reply to this show cause notice also vide letter dated 05/02/2014 along with the supporting enclosure claiming that as long as a valid claim quoting sec. 10AA was made, mere non mentioning of a sub clause cannot be a detriment for granting the exemption. It was first year of manufacturing for which sub clause (i) to section 10AA only was applicable. The date of registration of unit was mentioned in the registration certificate furnished with AO and the evidence of commencement of manufacture by SEZ unit and export of goods was demonstrated from the books of accounts. These dates along with nature of manufacturing activities and export were examined by AO during the course of assessment proceedings. These aspects were also evident from the report in Form No. 56F from assesses auditors which also is on record and was examined by the ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 5 ld.AO. Original bills/vouchers of plant & machinery purchased along with photocopies were produced before the AO along with books of accounts. Whatever copies in this behalf were desired by AO for keeping on record, were duly supplied. Thus there was no justification for hold an adverse inference that exemption was granted without verification and assessment order was erroneous and prejudicial to the interest of revenue. Ld. AO duly examined this record and documents and thereafter allowed the claim of exemption u/s 10AA after verifying the relevant parameters.
2.3 Ld CIT Central, Jaipur further issued show cause notice dated 03/03/2014 asking to file certified evidence of beginning of manufacture and export of goods and proof of new plant and machinery brought for the Unit.
2.4 It was explained to ld CIT that vide order sheet entry dated
26.12.2011 the ld AO examined this evidence and kept on record the copies he deemed fit. Regarding the date of start of manufacture the assessee submitted copy of the Certificate issued by the Government of Rajasthan, District Industries Centre, Jaipur mentioning that these activities commenced in the factory on 15.07.2008. It was submitted that after testing of machinery it was started on 30.07.2008 and finally the first output of finished goods in the shape of Bangles came on 22.09.08 which is evident from the stock register of Sitapura SEZ unit. Apropos the new purchase of Plant ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 6 &Machinery, the total addition in fixed assets was of Rs. 1,85,58,417/-, which also included addition on account of plant & machinery was of Rs. 16,43,466/-. Copy of ledger a/c of plant & machinery along with supporting invoices to demonstrate that the plant & machinery so purchased was new. All these facts were reflected by audited statements, schedule of fixed assets and accounts. Assesseees reply did not find favor with ld CIT and held that the assessment order was erroneous and prejudicial to the interest of revenue and passed order u/s 263 of Income Tax Act, setting aside the assessment order by following observations:- Para 8
It is seen that all the case laws cited are distinguishable from the facts of this case as there is no material on record to show that the assessing officer has applied his mind on deduction claimed u/s 10AA, as the assessee had not even mentioned the relevant clause of section 10AA for claiming deduction and had neither submitted all proofs. The AO had neither placed any material on record which confirmed that inflated profit was not claimed on exempt unit or all the expenditure claimed (on exempt unit and with respect to regular business) was genuine, therefore, the assessment order dated 28.12.2011is erroneous in so far as it is prejudicial to the interest of the revenue, and is set aside back to the file of the AO- for necessary verification.
2.5 Aggrieved, assessee is before us.
2.6 Ld. Counsel for the assessee contends that ld AO has passed the assessment order after proper examination of books of account, supporting ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 7 evidence, hearings on the concerned issues, proper inquiries and after due application of mind. The premises of SEZ unit are separate from regular unit; the maintenance of stock and manufacturing activities are also separate. It is not disputed that assessee maintains separate books of account and bank account for its regular business and SEZ unit; separate manufacturing and P & L A/c, balance sheet and other record are maintained. The books of account of the assessee were audited by Chartered Accountant u/s 44AB of Income Tax Act. The accounts of SEZ unit audited u/s 10AA(8) as provided by the Income Tax Act. The copies of Audit Reports u/s 44AB in Form No 3CD Report u/s 10AA(8). The auditors have certified them to be true and fair profits without any qualification. These reports are neither disputed by ld. AO nor ld. CIT. The auditors have certified the eligibility of exemption u/s 10AA to the assessee. It is not correct on the part of ld. CIT that AO did not conduct proper verification and inquiries. During the course of assessment ld AO in order to verify the correctness of the claim of exemption raised queries from time to time; in reply thereto assessee filed replies vide letter dated 24/10/2011, 01/11/2011 and 15/12/2011.Vide order sheet entry dated 26.12.2011 the ld. AO examined the books of accounts and supporting records such as bills & vouchers, documents as regard establishment of unit in SEZ and machinery being new. For verification of ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 8 the exports ld. AO examined the sales, export-sales, shipping bills, realization of export bills, purchases, production and expenses of the assessee. After examining the books of accounts the ld. AO kept on the record those copies which were deemed necessary by him for record. It is emphasized that assessee has no authority to direct the ld. AO as to which copies should be kept on the record. The relevant findings of Ld AO in Assessment order in this regard are referred to as under:-
In compliance to said notices, Shri GulshanAgarwal CA & AR of the assessee attended hearings during the course of assessment proceedings produced books of account and filed details/information. The information/detail(s) so filed was examined on a test-check basis and other points/issues that cropped up during the course of hearing(s) were discussed with the Authorized Representative of the assessee and he was heard.It is contended by ld. Counsel that these categorical findings of the ld AO, make it is clear that books of account and various other details filed before ld. AO viz. audited Trading Account, Profit and Loss Account Balance Sheet and claim of deduction u/s 10AA was examined by the AO and after proper application of mind, the deduction u/s 10AA was allowed.
2.7 Apropos the CIT observation that relevant clause of section 10AA has not been mentioned for claiming deduction. It is pleaded that for claiming the deduction u/s 10AA, law has prescribed Form No 56F under Rule 16D ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 9 of Income Tax Rules. This form does not require any condition to mention the sub clause of section 10AA of Income Tax Act for claiming the exemption. There are two sub clauses of section 10AA (1). The sub clause (i) is applicable for the first five years wherein 100% deduction of profit is allowed and for next five years wherein 50% deduction of profit is allowed. The sub clause (ii) is applicable for five consecutive year. In the case of the assessee, this year is first year and this fact is clear from the audit report in Form No 56F wherein the date of initial registration is mentioned as
03.07.2006 and date of commencement of production is mentioned as 30/07/2008. Therefore, only and only sub clause (i) of section 10AA(1) is applicable in the case of the assessee; ld. CIT in an attempt to willy nilly recourse to revision u/s 263 has created unnecessary confusion in this regard. The exemption u/s 10AA is applicable for the units which commence the production on or after 01-04-2006. The fulfillment of this condition is apparent from the books of accounts and record produced before the AO as well as ld. CIT. It is held by Honble Rajasthan High Court in the case of CIT Vs Rajasthan Fasteners (P) Ltd (2014) 363 ITR 271 that non- mentioning of section or wrong mentioning of section cannot come in way by disallowing the otherwise allowable/eligible for deduction. The observations of ld. CIT are vehemently denied by assessee that AO has not ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 10 placed proper copies of material on record which confirmed that profits of eligible unit were inflated or all the expenditure was not claimed. It is contended that it is not in the hands of assessee to interfere in proceedings as to which copies should be kept by AO on record. AO is a quasi judicial authority and law also does not provide the nature of copies to be kept by AO on record. The assessees obligation is over after complying with the AOs queries and requirements. The record supports the assessees stand as there is no allegation of any non-cooperation. Assessee having produced relevant account books, record and documents,; the facts being so demonstratively obvious; the logical inference lead to a conclusion that they were properly examined. During the course of proceedings u/s 263, the documents produced before AO were again filed. The ld CIT has found no defect in the documents produced before her, in this eventuality ld. CIT should not have set aside the assessment for doing the same exercise. The twin conditions of error in the order and prejudice to revenue must co- exist in material terms as held in S. Murugan v. ITO (2012) 135 ITD 527 (Chennai) (Trib.).The assessment order cannot be held as erroneous and prejudicial to the interest of revenue u/s 263 merely on assumption, presumption, probabilities, possibilities or on guess work as has been done in this case. The requirement of section 263 is that the commissioner should ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 11 record a finding about lack of inquiry, a vague assertion that inquiries were not made in a proper manner is insignificant. It has no propensity to hold the assessment order as erroneous. A valid assessment order passed by the A.O cannot be said to be erroneous or prejudicial to the interest of the revenue merely because satisfy audit objections ld. commissioner attempted to substitute his perception of inquires over what has been properly done by AO. Thus the assessment order passed by the A.O cannot be said to be erroneous or prejudicial to the interest of the revenue on such presumptive findings as arrived at by ld. CIT. The scope of interference under section 263 is not meant to have second innings by administrative measures qua the orders which are viewed as unfavorable by department. Alternative methods like section 147 exist for the same. Reliance for these propositions is placed on following decisions:- (i) CIT vs Jain Construction Co (2013) 257 CTR (Raj)/ 84 DTR (Raj) 369 Revision u/s 263Order erroneous and prejudicial to interest of revenueCIT issued a notice u/s 263 to assessee on ground that assessment order of AO passed u/s 143 (3) was an order erroneous and prejudicial to interest of revenueTribunal allowed appeal of assesseeHeld, safeguard provided to assessee in section 263 is that mere erroneous orders are not revisable but revisional authority has to further establish with material on record that such erroneous order is ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 12 also prejudicial to interest of revenueTwin conditions of assessment order being erroneous and it also being prejudicial to interest of revenue, keeps initial burden on Commissioner, who invokes such jurisdictionPremise for invoking revisional jurisdiction on the ground that the Assessing Authority made insufficient enquiry or improper enquiry and failed to verify closing stocks in record of assessee, before passing assessment order, falls flat by a bare perusal of assessment order itselfThus, Tribunal was justified in holding that Commissioner was in error in invoking revisional jurisdiction u/s 263Mere alleged insufficiency of enquiry in opinion of Commissioner by Assessing Authority, could not permit him to invoke revisional jurisdiction u/s 263Therefore, essential twin conditions for invoking revisional jurisdiction, were not satisfied Order of tribunal upheldRevenues appeal dismissed. (ii) CIT vsGanpat Ram Vishnoi (2008) 296 ITR 292 (Raj) Held :- Undoubtedly, the jurisdiction under s. 263 is wide and is meant to ensure that due revenue ought to reach the public treasury and if it does not reach on account of some mistake of law or fact committed by the AO, the CIT can cancel that order and require the concerned AO to pass a fresh order in accordance with law after holding a detailed enquiry. But when enquiry in fact has been conducted and the AO has reached a particular conclusion, though reference to such enquiries has not been made in the order of the assessment, but the same is apparent from the record of the proceedings, in the present case, without anything to say how and why the enquiry conducted by the AO was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. As the exercise of jurisdiction by the CIT is founded on no material, it was liable to be set aside. Jurisdiction under s. 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something. ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 13 In CIT vs. Shri Ganesh Print Fab.(P) Ltd, (ITAT, Jodhpur), ITA No. 357/ JU/2010. Dated 13.01.2012, the ITAT, Jodhpur:The ratio of this judgment is squarely applicable to the facts of the case of the assessee as all material pertaining to eligibility of assessee for exemption u/s 10AA of the Act was available with the AO before concluding the assessment proceedings. (iii) CIT Vs Deepak Real Estate Developers (I) (P) Ltd (2014) 107 DTR (Raj) 259 RevisionRevision by commissioner of orders prejudicial to revenueAO observed that return submitted by Assessee was duly supported by necessary evidence and accepted Assessees return CIT in exercise of his power u/s 263, issued notice to Assessee being of opinion that assessment of AO was erroneous and prejudicial to interest of RevenueITAT viewed that CIT could not have formed any opinion that assessment order was erroneous and no reasons had been recorded to demonstrate that assessment order was prejudicial to interest of revenueHeld, perusal of Order of ITAT would testify that AO had consciously examined all relevant records in accepting return submitted by AssesseeCIT did not find fault with any findings of AO, culminating in ultimate conclusion that return of Assessee was acceptableDecision of CIT authenticates that Assessee furnished all relevant records and documents in support of its return accepted by AOCIT did not reject documents to be irrelevantCIT only remanded matter to AO observing that documents ought to have been laid before him and examined at time of assessmentRevisional jurisdiction available to Commissioner u/s 263 subject to condition that Order of AO was erroneous and prejudicial to interest of RevenueAny exercise of revisional jurisdiction, bereft of such satisfaction was impermissible rendering resultant order voidNo interference with impugned order of ITAT was warrantedAppeal dismissed ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 14 (iv) Bongaigaon Refinery & Petrochemicals Ltd. Vs. Union Of India & Ors. (2006) 287 ITR 120 (Gau) RevisionErroneous and prejudicial orderDirection to recompute deduction under ss. 80HH and 80-IPower of computation of profits and gains for the purpose of determining the deduction allowable to assessee under ss. 80HH and 80-I is located in the AO and is exercisable by himIf on the basis of the facts and data available to the AO, computation of the profit and loss in terms of the procedure sanctioned by s. 80HH(6) and s. 80-I(8) is possible and the AO is not confronted with any exceptional difficulty, computation of the profit and loss on reasonable basis would not be warrantedIntervention of CIT in purported exercise of powers under s. 263 to suggest any mode of computation different from the one adopted by the AO is not permissibleCIT has issued direction to the AO to bifurcate the profits of three units of the assessee in proportion of their turnover and recompute the deductions under ss. 80HH and 80-ISuch direction is beyond the limits of his jurisdiction under s. 263Order passed by CIT is set aside (V) CIT v. SmtTasneem Z Madraswala reported in 324 ITR 67 (Mad.), Honble Madras High Court held as under :
While cancelling the order of assessment, there was no power Vested with the Commissioner to direct the Assessing Officer to complete the assessment in a particular manner. Therefore, the Tribunal had correctly set aside that portion of the order passed by the Commissioner, directing the Assessing Officer to complete the assessment by recourse to the provisions contained u/s.50C(2)(b) of the Act.(vi) CIT vs. DLF Ltd. [2013] 350 ITR 555 (Delhi) [LQ/DelHC/2012/4651] Honble Delhi High Court has accepted the arguments of the assessee that the Tribunals order should not be interfered with because if ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 15 enquiries are conducted by Commissioner, he cannot go into or scrutinize the question of appropriateness of the previous proceedings before the Assessing Officer. CIT v. Sunbeam Auto Ltd.[2011] 332 ITR 167 (Delhi) holding that there can be no roving and fishing enquiry by the Commissioner and he has to merely confine himself to the materials on record of the proceedings called for by him. In other words, if the Assessing Officer makes an assessment acting in accordance with law that cannot be branded as erroneous. CIT v. Anil Kumar Sharma [2011] 335 ITR 83 (Delhi). CWT v. Prithvi Raj and Co. [1993] 199 ITR 424 (Delhi) for the proposition that any order of revision which does not specify clear prima facie error in the order or approach of the Assessing Officer, it would be beyond the jurisdiction of sec 263. Malabar Industrial Co Ltd Vs CIT (2000) 243 ITR 83 (SC) RevisionErroneous and prejudicial orderConditions precedent CIT can invoke s. 263 if the order of AO is erroneous and it is also prejudicial to interests of the RevenueBoth conditions must co- existPhrase prejudicial to the interests of the Revenue is of wide import and is not confined to loss of taxIf due to an erroneous order of the AO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the RevenueHowever, every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of Revenue. (vii) CIT v. ArvindJeweller, 259 ITR 502 (Guj.), Honble Court held that the assessee had produced relevant material and offered explanations in pursuance of the notices issued u/s.142(1) as well as u/s.143(2) of the Act and after considering the materials and explanations, the Income-tax Officer had come to a definite conclusion. Merely because the Income-tax Officer had taken ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 16 a particular view with which the Commissioner did not agree cannot form the basis for an action u/s.263 of the Act and as such order of Revision was not justified. The Gujarat High Court applied the principles laid down by the Supreme Court in the case of Malabar Industrial Co. Ltd, case mentioned above and decided the case in favour of the assessee (viii) CIT v. Honda Seil Power Products Ltd. (2011) 333 ITR 547 (Del): HonbleDelhi High Court upheld the decision of the Tribunal and held as under: (i) In cases where the Assessing Officer adopts one of the courses permissible, in law, or where two views are possible and the Assessing Officer has taken one of the possible views, the Commissioner cannot exercise his powers u/s.263 to differ with the view of the Assessing Officer, even if there has been a loss of revenue. (ii) It is also clear that while passing an order u/s.263, the Commissioner has to examine not only the assessment order, but also the entire record. Since the assessee has no control over the way an assessment order is drafted and since generally the issues which are accepted by the Assessing Officer, do not find mention in the assessment order and only those points are taken note of on which the assessees explanations are rejected and additions/disallowances are made, in the instant case, the mere absence of the discussion of the provisions of S. 80-IB(13), r/w. S. 80-IA(9), would not mean that the Assessing Officer had not applied his mind to the said provisions. (iii). When a regular assessment is made u/s. 143(3), a presumption can be raised that the order has been passed upon an application of mind. No doubt, this presumption is rebuttable, which should be strong enough to indicate that the Assessing Officer had not applied his mind. (ix) CIT VsSohanaWollen Mills (2008) 296 ITR 238 (P&H) [LQ/PunjHC/2006/3142] ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 17 RevisionErroneous and prejudicial orderAO taking possible viewMere audit objection, and merely because a different view can be taken are not enough to hold that the order of the AO is erroneous or prejudicial to the interest of the RevenueAO accepted the case of the assessee that out of sale consideration of the machinery sold by it, sum of Rs. 1 lakh was received for the sale of permit in respect of 1,200 spindlesThere was no error in the view taken by the AO CIT not justified in invoking jurisdiction under s. 263 on the strength of an audit note. (x) CIT Vs Smt. D Valliammal (1998) 230 ITR 695 (Mad). It has been held that setting aside the ITOs order on the ground that verification of account was needed after obtaining clarification from the assessee is not a valid ground for invoking the jurisdiction under section 263. (xi) CIT Vs Hastings Properties (2002) 253 ITR 124 (Cal). It has been held that the assessment order having been made after due verification and all relevant material was collected by the AO, the assessment orders cannot be said to be erroneous and prejudicial to the interest of revenue. (xii) CIT Vs Denso Haryan (P) Ltd (2010) 42 DTR (Del) 187 Held that CIT was not justified in invoking provisions of s.263 to add back sales commission paid by the assessee which was debited in the P & L Account and the P & L account was audited and duly certified by the statutory auditors. (xiii) CIT Vs Max India Ltd (2007) 295 ITR 282 (SC), wherein Honble Apex Court held that when two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue unless the view taken by the ITO is shown to be unsustainable in law. ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 18
2.8 It is contended that the facts explained by the assessee have not been controverted by ld. CIT; besides assessee relied on a catena of judgments none of which is objectively distinguished. Ld CIT without distinguishing the facts or any of the case law, summarily under the influence of audit objections held the assessment order to be erroneous and prejudicial to the revenue. The law ordains that the ld. CIT must judge the issue independently and judicially and should neither allow it to be influenced by opinion of audit party nor by instructions of other authority. Reliance is placed on the judgment of Honble Supreme Court in the case of Sirpur Paper Mill Ltd Vs CWT (1970) 77 ITR 6 (SC). It is pleaded that the assessment order has been passed after due inquiries, verification and compliance, it cannot be held erroneous or prejudicial to the interest of revenue, therefore, the impugned order passed u/s 263 by ld. CIT may be quashed.
2.9 Ld. CIT(DR) on the other hand contends that the scope of powers of CIT for revision u/s 263 is fairly wide and can be exercised not only when order contains some apparent error or reasoning of law or of fact but also when AO passes a stereo typed order which simply accepts what has been stated in return of income without making proper inquiries. Reliance is placed on CIT v Nihal Chand Rekhyan 242 ITR 45 [LQ/DelHC/1999/554] (Del). In this case the ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 19 returned income of the assessee has been accepted by AO in stereotype manner without referring even to exemption u/s 10AA. Being first year of claim u/s 10AA it was obligatory on AO to make proper inquiries and arrive at a finding of allow ability of 10AA after considering the material available on record. Thus the AO has failed to discharge his functions as a quasi judicial officer which makes the impugned order erroneous. Since the error has lead to unverified claim of exemption u/s 10AA, apart from being erroneous the order becomes prejudicial to the interest of revenue; consequently twin conditions prescribed by sec. 263 exist in this case. Reliance for the proposition that terms erroneous and prejudicial to the interest of revenue to be widely construed is placed on: i. Tara Devi Agarwal v CIT 88 ITR 323 [LQ/SC/1972/564] (SC) ii. Hindu Bank Karur Ltd. 103 ITR 553 [LQ/MadHC/1975/204] (Mad) iii. Exportos India v CIT 246 ITR 1 [LQ/DelHC/2000/699] (Del)
2.10 Ld. AO should have verified that in respect of same manufacturing activity assessee has shown more profits from exempt unit. This was possible either because of inflation of such profits or deflation of relevant expenses to yield more tax free income; thus the issues which required proper verification and findings by AO to frame a proper assessment have not been considered. Having not discharged his duties in respect of ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 20 investigation of these issues as an assessing officer, the order passed by ld. Officer becomes erroneous and prejudicial to the interest of revenue.
2.11 Apropos the audit information, ld CIT DR contends that the power to revise the order u/s 263 is derived by CIT after calling and verification of the record. The record may be called on the basis of information from audit or even by the AO. Reliance for this proposition is placed on Renusagar Power Co. Ltd. 234 ITR 782 (AP). It is pleaded that the impugned order passed by ld. CIT is valid, tenable and satisfies the twin conditions prescribed by sec 263 and deserves to be upheld.
2.12 We have heard the rival contentions and perused the materials available on record. It will be desirable to consider the nature of error in the AOs order which is agitated by the ld. CIT(A). A perusal reveals that it is mainly to the effect that basic and crucial documents required for verification of claim u/s 10AA have neither been called for, nor verified and placed on record by the AO including the certificate issued by the Development Commissioner (SEZ). Besides conditions of Section 10AA(4) have not been examined and compliance placed on record. The net profit from exempt unit is claimed at Rs. 70.55 lacs for the turnover of Rs. 317.10 lacs, which is 22.24%. While for the balance turnover of business, the profit ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 21 is merely Rs. 54.96 lacs for a turnover of Rs. 1098.34 lacs, which is just 5%. Thus net profit exempt unit is abnormally high at 4.5 times of profit from regular business. This is despite the fact that the business of unit in SEZ was the new business, in this eventuality the AO ought to have examined the possibility of diversion of expenditure from the SEZ unit to the regular unit, or the profits were inflated in the SEZ unit to avail the higher benefit of exemption u/s 10AA. Besides there were certain expenditures in the consolidated trading and profit and loss account which required proper verification viz. interest expenses (whether there was any diversion of interest bearing funds), bad debts, repair and maintenance, salary and allowances etc. The notice u/s 263 of the Act was issued by considering these aspects as prejudicial to the interest of the Revenue. In response to the notice, the assessee appeared before the ld. CIT and explained the facts claiming that all the relevant information was called by the AO and verified and relevant copies desired by the AO were provided and the claim of the assessee was allowed after due enquiry and verification. The catena of judgments were filed by the assessee. The ld. CIT held the impugned assessment order erroneous and prejudicial to the interest of the Revenue and came to following conclusion. ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 22 8. It is seen that all the case laws cited are distinguishable from the facts of this case as there is no material on record to show that the AO had applied his mind on deduction claimed u/s 10AA, the assessee had not even mentioned the relevant clause of Section 10AA for claiming deduction and had neither submitted all proofs. The AO had neither placed any material on record which confirmed that inflated profit was not claimed on exempt unit or al the expenditure claimed (on exempt unit and with respect to regular business) was genuine, therefore, the assessment order dated 28-12-201 is erroneous in so far as it is prejudicial to the interest of the Revenue and is set aside back to the file of the AO for necessary verifications.
2.13 The errors prejudicial to the interest of the Revenue as per observation of the ld. CIT is as under:- (i) There is no material on record to show that the AO has applied his mind on claim of deduction u/s 10AA of the Act as relevant clause of 10AA has not been submitted with all the proof. (ii) The AO had neither placed any material on record which verifies that inflated profit was not claimed by exempted unit or the expenditure claimed in exempted unit was genuine.
2.14 Apropos first mistake the ld. counsel has draw our attention to the assessment proceedings. (i) The assessment order in question was passed on 28-12-
2011. The assessee vide letter dated 24-10-2011 gave an explanation regarding claim of deduction u/s 10AA which was by claimed by it u/s 10B by following submissions. 1. Explanation regarding profit claimed exempted u/s 10B of the I.T. Act, 1961. ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 23 In F.Y. 2008-09, the assessee stated a manufacturing unit in SEZ-II, Sitapura, Jaipur which was engaged in the business of manufacturing and export of Gold Jewellery. The profit earned from this unit is exempt u/s 10AA of I.T. Act , 1961. The copy of report of Chartered Accountants in support of exemption of profit of this unit u/s 10AA is enclosed herewith. In computation of total income due to typing error the deduction of income earned from this unit wrongly claimed u/s 10B of I.T. Act, 1961 in place of section 10AA of I.T. Act, 1961. You are therefore, requested to kindly rectify this typing mistake and allow the exemption u/s 10AA of I.T. Act , 1961 which is duly allowable to assessee and report in support of which is enclosed herewith. The revised computation of total income and return form duly signed by partner of assessee is also enclosed herewith. (ii) Again vide letter dated during assessment proceedings qua the claim u/s 10AA of the Act, the assessee submitted as under:- 4Audit report in prescribed form for deduction allowable u/s 10AA. The detail submission along with necessary reports and enclosures has been submitted along with our letter dated 24-10-2011.
2.15 The ld. Counsel for the assessee contends that the allegation that primary documents for eligibility of claim u/s 10AA were neither asked by the nor given by the assessee and consequently they are not verified is not correct. Relevant statements, eligibility certificates and audit reports were filed along with return of income with questionnaire. Our attention is drawn to paper book pages 69 to 71 which are audit reports filed along with return ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 24 of income which contains relevant information about the establishment of SEZ Zone as to allowable claim. Annexure A enclosed thereto contends the date of registration, amount of export and other relevant information. Thus there is no merit in the allegation of the ld. CIT in this behalf. With these documents on record, we are unable to subscribe the view of the ld. CIT. The crucial documents were not asked by the AO not produced by the assessee.
2.16 The next question which is raised by the ld. CIT is that relevant sub- clause 10AA has not been mentioned. To this allegation, the assessee has contended that form No. 56F and Annexure A thereto does not prescribe any mentioning of sub-clause. Besides, the Honble Rajasthan High Court in the case of CIT vs. Rajasthan Fasteners (P) Ltd. (2014) 363 ITR 271 held that non-mentioning of section and wrong mentioning of Section cannot come in the way of allowing claim which is otherwise eligible to the assessee. Since the requisite form does not require mentioning of sub-clause besides the Honble Jurisdictional High Court does not consider it to be a requirement which can disentitle the assessee. Respectfully following Honble jurisdictional High Court judgment we have to overrule this allegation. ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 25
2.17 Apropos the inflated profits and expenditure, the ld. Counsel for the assessee has contended that separate books of account for SEZ Unit are maintained along with profit and loss account , expenses vouchers etc. The books of account of the assessee have been upheld by the AO, ld. CIT has not considered upholding of the accounts by AO to be an error. This leads to a very vague situation when the books of account of the assessee are upheld and not challenged at the same time allegations are raised about contents thereof. The ld. CIT while passing the order u/s 263 of the Act has not referred to any other mistake. In consideration of the foregoing facts, we are of the view that the order passed by the AO is neither erroneous nor prejudicial to the interest of Revenue. We may add that Honble Delhi High Court in the cases of CIT vs. Sunbeam Auto and CIT vs. DLF (supra) has held that revision proceedings cannot be initiated to make roving enquiries. There is no prescribed proforma of an assessment order in IT Act which prescribed how the assessment order should be passed. Thus the contents of the body of the assessment order depend on the discretion of quasi judicial authority i.e. AO. The order does not become erroneous as long as record reflects that relevant enquiries were made. Therefore, no adverse inference can be drawn in this behalf as the assessee has been able to demonstrate conducting of relevant enquiries and compliance during the course of ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 26 assessment proceedings. The Honble Delhi High Court in the case of CIT vs. Vikas Polymers (2010) 236 CTR 476 held that if the CIT is of the view that the some documents ought to have been placed on record by the AO. which are produced by the assessee before CIT, in that case the ld. CIT himself should decide the matter on the material made available. In this case if in the perception of ld CIT some documents were not placed on record they were forthwith supplied by the assessee. Consequently, no case is made out for setting the assessment to frame the same denovo. We find merit in the contentions of assessee that it has no control over AO as to what copies should be placed on record or in which manner assessment order should be passed. Our views are fortified by decisions of Honble Apex Court in the cases of CIT vs. Max India Ltd. (2007) 295 ITR 282 [LQ/SC/2007/1339] and M/s. Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) and other Honble High Court judgements. Thus in view of the entirety of the facts and circumstances of the case, we are of the view that impugned assessment order is neither erroneous nor prejudicial to the interest of Revenue which is upheld. Hence, order passed u/s 263 of the Act by ld. CIT is quashed. ITA No. 289/JP/2014 Motions Jewellers vs. CIT, Central Jaipur 27
3. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 19/02/2015. Sd/- Sd/- Vh-vkj-ehuk vkj-ih-rksykuh (T.R. Meena) (R.P.Tolani) ys[kk lnL;@ Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 19 th FEB. 2015 *Mishra vknsk dh izfrfyfi vxzsfkr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s. Motisons Jewellers, Jaipur
2. izR;FkhZ@ The Respondent- The CIT-Central, Jaipur
3. vk;dj vk;qDr@ CIT,
4. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
5. xkMZ QkbZy@ Guard File (ITA No.280/JP/2014) vknskkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar
