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M/s. A.V. Industries, 201, Bhagtani Krishna,A Wing,Dattaray Road,Santacruz (W),Mumbai 400 054 Vs. Asstt. Commissioner of Income Tax -24(3), Mumbai
November, 16th 2015
                IN THE INCOME TAX APPELLATE TRIBUNAL,
                       MUMBAI BENCH "A", MUMBAI

          BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND
               SHRI SANJAY GARG, JUDICIAL MEMBER

                                ITA No.3469/M/2010
                              Assessment Year: 2005-06

        M/s. A.V. Industries,                    Asstt. Commissioner of Income
        201, Bhagtani Krishna,                   Tax -24(3),
        "A" Wing,                                Mumbai
                                         Vs.
        Dattaray Road,
        Santacruz (W),
        Mumbai ­ 400 054
        PAN: AAFFA 1100L
             (Appellant)                           (Respondent)

      Present for:
      Assessee by                 : Shri K. Shivaram, A.R.
      Revenue by                  : Shri Sanjay Singh, D.R.

      Date of Hearing             : 23.07.2015
      Date of Pronouncement       : 06.11.2015

                                    ORDER

Per Sanjay Garg, Judicial Member:

      The present appeal has been preferred by the assessee against the order
dated 25.03.2010 of the Commissioner of Income Tax [hereinafter referred to
as the CIT] relevant to assessment year 2005-06, passed under section 263
of the Act whereby he has annulled the assessment made u/s 143(3) of the
Act by the Assessing Officer (hereinafter referred to as the AO) and has
directed the AO for denovo assessment in the case of the assessee.

2.    The facts in brief are that the Ld. CIT exercising his revisional
jurisdiction under section 263 called for and examined the assessment records
and was of the view that the order of the AO was erroneous in so far as it was
prejudicial to the interest of Revenue on the following grounds:
                                           2                             ITA No.3469/M/2010
                                                                          M/s. A.V. Industries


      "(1) Purchase of tools and implements of Rs.62,44,802/-, which was in the
      nature of capital expenditure, was debited in the profit & loss
      account as revenue expenditure and same was allowed by the
      Assessing Officer without any verification.

      (2)    Assessee had claimed depredation on dies at the rate of 40% and same
      was allowed by the Assessing Officer in assessment without any examination,
      although the depreciation allowable as per the I. T. Rules was 25%.

      (3)    The total depreciation allowable on motor car as per the details filed was
      Rs.7,53,906/- whereas the assessee's claim of depreciation of Rs.9,42,382/- was
      allowed without any verification.

      (4)    The deduction claimed u/s.80G of the I. T. Act on account of donation was
      allowed by the Assessing Officer although the assessee had not filed any evidence."




3.    In view of the above, the Ld. CIT issued show cause notice dated
11.03.10 to the assessee asking him to submit an explanation as to why not the
order passed by the AO be not revised/set aside as per provisions of section
263 of the Act. In compliance to the said notice, the assessee filed
written submissions and explained that so far as the expenditure incurred
on tools and implements was concerned, the assessee was in the business
of manufacture of automobile parts made of rubber and some of the raw
materials used for production of automobile parts was of revenue nature
and as such the same was debited in the profit and loss account. The
assessee also relied upon the decision in the case of "CIT vs. Mysore
Spun Concrete Pipe (P) Ltd." 194 ITR 159 (Kar.) and "CIT vs. Jagatjit
Industries Ltd." 241 ITR 556 (Del.). In respect of depreciation on dyes
and moulds the assessee explained that the same at the rate of 40% was
rightly claimed.      The assessee submitted a depreciation chart in this
respect. In respect of the third item i.e. depreciation allowable on motor
car, the assessee submitted that depreciation had rightly been claimed at
Rs.9,42,382/- and submitted the required details in this respect.
                                          3                           ITA No.3469/M/2010
                                                                       M/s. A.V. Industries



      So far as the fourth issue in relation to the deduction under section
80G was concerned, the assessee submitted that he had not given any
such donation. However, the assessee had given an amount of Rs.601/-
towards subscription to various persons at the time of festivals etc. and
the same had rightly been claimed as business expenditure. It was also
submitted before him that all the required details were submitted before
the AO and the AO, after duly examining the accounts and records of the
assessee, has passed the assessment order.

4.    The Ld. CIT, after considering the submissions made by the Ld. A.R. of
the assessee, observed that the AO had not made proper verification of the
claims made by the assessee in the return of income in relation to the above
stated issues. He observed that on proper verification, certain claims of the
assessee may be found allowable or disallowable either in part or full. But if
such verification has not been made at the time of assessment, such assessment
is liable to be treated as erroneous in so far as it is prejudicial to the interest of
Revenue. The AO should have given a specific finding as to whether the
particular claim of the assessee was allowable or disallowable. However, no
such finding was given by the AO. He, therefore, concluded that the claim of
the assessee has not been allowed after proper verification. He, therefore,
treated the assessment made by the AO as erroneous in so far as it was
prejudicial to the interest of Revenue. He accordingly set aside the assessment
with a direction to do it denovo. Being aggrieved by the order of the Ld. CIT,
the assessee has come in appeal before us.

5.    We have heard the rival contentions and have also gone through the
records. To arrive at the correct conclusion of the case, we deem it necessary
to reproduce the relevant provisions of section 263 of the Act.
                                             4                              ITA No.3469/M/2010
                                                                             M/s. A.V. Industries


      "Section 263(1) in The Income- Tax Act:

      (1) The Commissioner may call for and examine the record of any proceeding under
      this Act, and if he considers that any order passed therein by the 2 Assessing] Officer
      is erroneous in so far as it is prejudicial to the interests of the revenue, he, may,
      after giving the assessee an opportunity of being heard and after making or causing
      to be made such inquiry as he deems necessary, pass such order thereon as the
      circumstances of the case justify, including an order enhancing or modifying the
      assessment, or cancelling the assessment and directing a fresh assessment. ........."

6.    The sum and substance of the above reproduced section 263(1) can be
summarized in the following points:
      1)     The Commissioner may call for and examine the record of any
             proceeding under the Act;

      2)     If he considers that the order passed by the AO is
             (i) erroneous; and
             (ii) is prejudicial to the interest of Revenue;
      3)     He has to give an opportunity of hearing in this respect to the
             assessee; and

      4)     He has to make or cause to make such enquiry as he deems
             necessary;

      5)     He may pass such order thereon as the circumstances of the case
             justify including,

             (i)     an order enhancing or,
             (ii)    modifying the assessment or
             (iii)   cancelling the assessment and directing a fresh assessment.

7.    Now in the light of above words, we have to examine as to whether the
order of the Ld. CIT is a valid order in the light of the above stated
points/provisions of section 263 of the Act.               In the case in hand, the
assessee had submitted all the requisite details before the AO. It has been
mentioned in the assessment order that the books of the accounts were
                                         5                            ITA No.3469/M/2010
                                                                       M/s. A.V. Industries



produced and were subjected to test check. The case was discussed with
the assessee.       Thereafter, the AO proceeded to make certain
disallowances and assessed the income of the assessee at Rs.1,98,14,370/-
against the returned income of Rs.1,95,45,368/-. The Ld. A.R. of the
assessee has drawn our attention to the notice issued by the AO under
section 142(1) dated 22.01.07 in relation to the scrutiny assessment
proceedings under section 143(3) of the Act. We find that the AO vide
letter dated 22.01.07 had called for the following details from the
assessee.
      "1.   Nature of Business activity
      2.    Details in respect of air freight, courier charges, donation, die &
            repairs, Insurance, electrical maintenance & repairs.
      3.    Details of factory maintenance and repairs, foreign agency
            commission, freight outward, tools and implements, machinery repairs, tour
            abroad etc.
      4.    Details in respect of business promotion.
      5.    Capital account of partners
      6.    Details of bank accounts held with account numbers and their respective
            balances
      7.    Photocopies of bills to be furnished in respect of addition to fixed assets
      8.    Details of expenses like telephone expenses with telephone numbers and
            place of installation.
      9.    Complete Details of sundry debtors and creditors with name, address and
            amount.
      10.   Details of other major heads of expenses.
      11.   Details of TDS outstanding with gross amount and date of payment in
            treasury.
      12.   Copy of bank account to be furnished with bank reconciliation statement."

8.    The assessee submitted the required details including ledger
account of tools and implements and copies of bills etc. The Ld. A.R. of
the assessee has further invited our attention to copies of the various other
letters addressed to the AO to show that from time to time the AO called
for various records which were duly submitted and the relevant
                                         6                           ITA No.3469/M/2010
                                                                      M/s. A.V. Industries



explanation was given to the AO. After duly examining the records of
the assessee, the AO proceeded to pass the assessment order.
The Ld. A.R. has further invited our attention to the copy of letter dated
05.03.08 addressed to the AO, the contents of the said letter reveal that
the assessee in the said letter has explained that the assessee had not
claimed any special rate of depreciation on the plants and machinery
purchased during the year but had claimed the same only on moulds
purchased during the year and that there was no mistake or error in the
order passed under section 143(3) while allowing the claim of
depreciation to the assessee. The contents of the letter reveal that after
the passing of the assessment order dated 26.07.07, the AO perhaps
sought to amend the order as he was of the view that the excess claim of
depreciation on plant machinery has been allowed to the assessee.
However, the assessee explained that he had made a correct claim.
Pursuant to that no rectification order under section 154 was passed by
the AO. The Ld. A.R. has further invited our attention to the notice issued
by the Ld. CIT in relation to the proceedings under section 263 raising the
following queries:
      "i)    You have debited an amount of Rs.62,44,802/- under the head Tools
             & Implements. Since these are in the nature of capital expenditure,
             only the depreciation part on the said expenses could only be allowed as
             revenue expenditure. This amount should have been included in the
             block of assets under the head Plant & Machinery or Dies & Tools
             Equipments.
      ii)    You have claimed depreciation on dies & moulds @40%. However,
             depreciation on dies is allowable only @25%. The assessing officer has
             allowed the same @40% as claimed in refund.
      iii)   Depreciation on motor cars is claimed and allowed at Rs.9,42,382/-. -
             However, as per the provisions of law, depreciation allowable is
             Rs.7,53,906/- only.
      iv)    Even though you have claimed deduction U/s.80-G for the
                                        7                            ITA No.3469/M/2010
                                                                      M/s. A.V. Industries


            donation of Rs.601/- no valid receipt was submitted by you. Therefore, no
            deduction can be allowed on this payment.
      V)    You have claimed depreciation on "Factory land & Building". For land,
            no depreciation can be allowed."

9.    In response to the above stated queries, the assessee filed a detailed
written reply dated 19.03.10 wherein the assessee duly explained the
genuineness of the claim made and that the claim was rightly allowed by
the AO.     The assessee not only explained about each and every
claim/query but also produced the necessary details, charts etc. justifying
his claim in this respect. The Ld. CIT has also mentioned in the impugned
order that the assessee had given the explanation regarding the items of claim
disputed by the Ld. CIT.

10.   As per the provisions of section 263 as enumerated above, after
getting the explanation from the assessee, the Ld. CIT was supposed to
examine the contention of the assessee. Before passing an order of modifying,
enhancing or cancelling the assessment, he was supposed either to himself
make or cause to make such an enquiry as he deems necessary. The words "as
he deems necessary", in our view, do not mean that the Ld. CIT is left with a
choice either to make or not to make an enquiry.             As per the relevant
provisions of section 263, it was incumbent upon the Ld. CIT to make or
cause to make an enquiry. So far as the words "as he deems necessary" are
concerned, the said words suggest that the enquiries which are necessary to
form a view as to whether the order of the AO is erroneous and prejudicial to
the interest of Revenue or not? A perusal of the above reproduced queries
numbering (i) to (v) reveals that the Ld. CIT had asked the assessee about the
genuineness/validity of various claims to which the assessee had given a
detailed reply. Once a point wise reply was given by the assessee, then a duty
                                       8                         ITA No.3469/M/2010
                                                                  M/s. A.V. Industries



was cast upon the Ld. CIT to examine the reply of the assessee and form a
prima-facie opinion as to whether the order of the AO was erroneous so far as
it was prejudicial to the interest of Revenue. We further note that the Ld. CIT
did not raise any query as to what enquiries were made by the AO before
proceeding to pass the assessment order in question. The Ld. CIT, in fact, had
made queries regarding the validity of the claim of the assessee under different
heads, however, has proceeded to hold that the order of the AO is erroneous so
far as its prejudicial to the interest of Revenue on the ground that the AO had
not made proper enquiries in this respect. In our view, once the Ld. CIT had
proceeded to make an enquiry regarding the genuineness of the claim of the
assessee, he was supposed to make a prima-facie opinion which may not be a
concluding opinion to hold that the order of the AO in his view was erroneous
so far as it was prejudicial to the interest of Revenue. The opinion of the
Commissioner that the AO had not made proper enquiries or verifications
should be based on his objective satisfaction and not a substantive satisfaction
from the assessment order. Merely because, the assessment order in question
is not a detailed order and the AO has not mentioned item wise findings
regarding the claims of the assessee, that itself, does not mean that the AO had
not made enquiries in this respect. As per the relevant provisions as they stood
during the relevant period i.e. for A.Y. 2005-06, whatever required by the AO
was to look into the claim of the assessee. Admittedly, the AO asked the
assessee to furnish the necessary details from time to time which were duly
furnished by the assessee and after considering the same the AO passed the
assessment order.

11.   It is pertinent to mention here that a deeming fiction has been created in
section 263 of the Act by the amendment made by Finance Act, 2015 w.e.f.
01.06.15 wherein it has been mentioned that where the Commissioner is of the
                                       9                          ITA No.3469/M/2010
                                                                   M/s. A.V. Industries



opinion that the AO had passed the order without making enquiries or a claim
has been allowed without enquiring into the claim or that the same is not in
accordance with any order or direction or instruction issued by CBDT, that
shall be deemed to be erroneous in so far as its prejudicial to the interest of
Revenue. The said deeming provisions, in our view, are not applicable for the
assessment year under consideration.

12.   In our view, when the assessee shows from the record that the necessary
enquiries were made by the AO and the AO had applied his mind and the view
adopted by him was one of the possible views, then it cannot be said that the
order of the AO is erroneous.

13.   In the case in hand, after getting the necessary details and explanation
from the assessee, the Ld. CIT has not given his opinion regarding the validity
or genuineness of the claims made by the assessee. He has simply opined that
the AO had not made the necessary enquires.          He has neither asked the
assessee to show as to what enquiries were made by the AO nor himself has
looked into the explanations submitted by the assessee.

14.   Now coming to the various case laws relied upon by both the parties.

15.   The Ld. D.R. has relied upon the following authorities to stress the point
that if the Commissioner finds that there was a lack of enquiry on the part of
the AO regarding the claim made by the assessee, the order can be treated as
erroneous and the Commissioner exercising his powers under section 263 can
direct the AO to make appropriate enquiries/verifications etc.:
      (i)     CIT vs. Infosys Technologies Ltd. (2012) 17 taxmann.com 203
              (Karnataka ­ HC).
      (ii)    CIT vs. Maithan International (2015) 56 taxmann.com 283
              (Calcutta)
      (iii)   Malabar Industrial Co. Ltd. vs. CIT (2000) 109 Taxman 66 (SC).
                                       10                          ITA No.3469/M/2010
                                                                    M/s. A.V. Industries



      (iv)     Manmohak Properties (P.) Ltd. vs. CIT (2013) 39 taxmann.com
               105 (Mumbai ­ Trib.)

16.   The Ld. A.R., on the other hand, has relied upon the following
authorities to stress that there is a difference between lack of enquiries and
inadequate enquiries. The Commissioner must give a finding of fact or of law
that the order is erroneous so far as it is prejudicial to the interest of Revenue
by making proper enquiries after seeking explanation from the assessee.

      (i)      CIT vs. Sunbeam Auto Ltd. 227 CTR 133 (Delhi ­ HC)
      (ii)     CIT vs. Vikas Polymers (2010) 194 taxman 57 (Delhi ­ HC)
      (iii)    CIT vs. Gupta Spinning Mills Ltd. ITA No.410 OF 2003 DATED
               13.09.2013
      (iv)     CIT vs. Amit Corporation (2013) 213 taxman 19 (MAG) (Gujarat-
               HC)

17.   The Ld. A.R. has further relied upon the following case laws to stress
that where the AO has applied his mind and the view taken by him is one of
the possible views, then the order cannot be said to be erroneous or prejudicial
to the interest of Revenue, even, if the Commissioner has a different view from
that of the AO; where the AO has made enquiries in respect of the claim of the
assessee, order cannot be said to be erroneous even if the details of enquiries
made do not find mention in the assessment order.
      (i)      CIT vs. Fine Jewellery (I) Ltd. (2015) 372 ITR 303 (Mumbai-HC)
      (ii)     CIT vs. Ashish Rajpal (2010) 320 ITR 674 (Delhi-HC)
      (iii)    CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Delhi-HC)
      (iv)     CIT vs. Gabriel India (1993) 203 ITR 108 (Bombay-HC)
      (v)      Grasim Ind. Ltd. vs. CIT (2010) 321 ITR 92 (Bombay-HC)
      (vi)     CIT vs. Malabar Industries (1993) 203 ITR 108 (Bombay-HC)
      (vii)    Malabar Industrial Co. Ltd. vs. CIT (2000) 109 Taxman 66 (SC)
      (viii)   CIT vs. Arvind Jewellers (2002) 124 taxman 615 (Guj.-HC)
      (ix)     CIT vs. Vikas Polymers (2010) 194 taxman 57 (Delhi ­ HC)
      (x)      ITO vs. DG Housing Projects Ltd. (2012) 343 ITR 329 (Delhi ­
               HC)
      (xi)     CIT vs. Goetz (I) Ltd. 2014 361 ITR 505 (Delhi ­ HC)
                                       11                         ITA No.3469/M/2010
                                                                   M/s. A.V. Industries



18.   We have heard the rival contentions and have also gone through the the
relevant case laws submitted by the Ld. Representatives of the parties. Firstly,
we discuss the case laws relied upon by the Ld. D.R.
There is no doubt that the Hon'ble Karnataka High Court in the case of
"Infosys Technology" (supra) has held that where the AO has not made it
explicit as to the entitlement of a claim of the assessee, the Commissioner has
the jurisdiction in directing the AO to make enquiries in the matter and give a
specific finding in this respect. Further, in the case of "Maithan International"
(supra) the Hon'ble Calcutta High Court has held that where it was established
on record that credits shown by the assessee were based on loan from parties
who were not possessed of sufficient means and the AO had not made
sufficient enquiries regarding the creditworthiness of the parties then the
Commissioner was justified in exercising his power under section 263 and
directing the AO to make enquiries about the creditworthiness of the parties.
In the case of "Manmohak Properties (P.) Ltd." (supra), the Mumbai Tribunal
has held that the absence or lack of enquiry, or not so, is a matter of fact and
where the Commissioner on an examination of the record issued definite
finding of the fact which clearly exhibited that the assessee may be trading in
shares and that he could not be regarded as an investor without further enquiry
in the matter, bringing further material on record, the CIT was justified in
exercising his jurisdiction under section 263. The Ld. D.R. has also relied
upon the decision of the Hon'ble Supreme Court in the case of "Malabar
Industrial Co. Ltd." (supra) which incidentally has also been relied upon the
Ld. A.R. which we will discuss in the subsequent paras of this order.

19.   Now coming to the case laws relied upon by the Ld. A.R.
The Hon'ble Delhi High Court in the case of "Sunbeam Auto Ltd." (supra) has
held that there is a distinction between lack of enquiry and inadequate enquiry.
                                      12                         ITA No.3469/M/2010
                                                                  M/s. A.V. Industries



If there is an enquiry even inadequate that would not by itself give occasion to
the CIT to pass order under section 263 merely because he has a different
opinion in the matter. The AO is not required to give detailed reasoning in
respect of each and every item of deduction in the assessment order. Where
the AO had called for an explanation regarding the claim made by the assessee
and the assessee had furnished its explanation, then it cannot be said to be a
case of lack of enquiry.
In the case of "Vikas Polymers" (supra) the Hon'ble Delhi High Court has held
that for exercising powers under section 263, it is pre-requisite that
Commissioner must give reasons to justify exercise of revisional powers under
section 263 to reopen a concluded assessment. The exercise of the power
being quasi judicial in nature, the reasons must be such as to show that the
enhancement or modification of the assessment or cancellation of the
assessment or directions issued for a fresh assessment was called for and must
irresistibly lead to the conclusion that the order of the AO was not only
erroneous but was also prejudicial to the interest of the Revenue. The Hon'ble
High Court has observed that the provisions of section 263 when read as a
composite whole make it incumbent upon the Commissioner before exercising
revisional powers to (i) call for and examine the record and (ii) give the
assessee an opportunity of being heard and thereafter, to make or cause to
make such an enquiry as he deems necessary. It is only on fulfillment of these
twin conditions that the Commissioner may pass an order exercising powers of
revision, the assessee must be called for, his explanation sought for and
examination by the Commissioner and thereafter if the Commissioner still
feels that the order is erroneous and prejudicial to the interest of the Revenue
then he may pass the revisional orders.
The Hon'ble Bombay High Court in the case of "Gabriel India Ltd." (supra)
has held that the Commissioner cannot initiate proceedings with a view to
                                       13                        ITA No.3469/M/2010
                                                                  M/s. A.V. Industries






starting fishing and rowing enquiries in matters or orders which are already
concluded. There must be material on record to show that tax which was
lawfully exigible has not been imposed if the claim was allowed by the Income
Tax Officer (ITO). On being satisfied with the explanation of the assessee,
such decision of the ITO cannot be held to be `erroneous' simply because in
his order he did not make an elaborate discussion in that record. The Hon'ble
Bombay High Court observed in the said case that when the CIT himself , even
after initiating proceedings for revision and hearing the assesse, could not say
that the allowance of the claim of the assessee was erroneous,.....he simply
asked the AO to reexamine the matter; that was not permissible. Almost
similar proposition has been laid down in the case of "Gupta Spinning Mills
Ltd." (supra) and "Amit Corporation" (supra) that Commissioner has to give a
definite finding that the order of the AO is erroneous and that inadequate
enquiries by itself will not make the order as erroneous.

20.   We find that the Hon'ble Delhi High Court in the case of "CIT vs. Goetz
(I) Ltd." (supra) has elaborately discussed the various case laws regarding the
powers of the Commissioner under section 263 including "CIT vs. Nagesh
Knitwars Pvt. Ltd." (2012) 345 ITR 135 (Delhi ­ HC) and of the Hon'ble
Bombay High Court in the case of "Gabriel India Ltd." (supra) and also of the
Hon'ble Delhi High Court in the case of "Sunbeam Auto Ltd." (supra) and has
reached to the conclusion that the Commissioner should be able demonstrate
that the view taken by the AO was not possible being legally unsustainable and
incorrect and this finding must be recorded. The Commissioner cannot remand
the matter to the AO to decide whether the findings recorded are erroneous. In
cases where there is inadequate enquiry but not lack of enquiry, the
Commissioner must give and record a finding that the order/enquiry made is
erroneous. This can happen if an enquiry and verification is conducted by the
                                       14                          ITA No.3469/M/2010
                                                                    M/s. A.V. Industries



Commissioner and he is able to establish and show the error or mistake made
by the AO making the order unsustainable in law. The matter cannot be
remitted for a fresh decision to the AO to conduct further enquiries without a
finding that the order is erroneous and the Commissioner further must also
satisfy the second limb of the provision that the order is also prejudicial to the
interest of the Revenue. The Hon'ble Supreme Court in the case of "CIT vs.
G.M. Mittal Stainless Steel (P) Ltd." (2003) 263 ITR 255 has observed that the
satisfaction by the Commissioner must be one objectively justifiable and based
on material either legal or factual when available, it cannot be mere ipse dixit
of the Commissioner.
Now coming to the decision of the Apex court in the case of "Malabar
Industrial Co. Ltd. vs. CIT" (2000) 109 Taxman 66 (SC) which has been relied
by both the parties, the Ld. A.R. of the assessee has strongly relied upon the
observation of the Hon'ble Supreme Court that where two views are possible
and the AO adopts one of the views permissible in law, then the order cannot
be treated as erroneous or prejudicial to the interest of Revenue, unless the
view taken by the ITO is unsustainable in law. On the other hand, the Ld. D.R.
has stressed upon the finding of the Hon'ble Supreme Court that where the AO
had accepted entry in the statement of account filed by the assessee in the
absence of any supporting material without making any enquiry, exercise of
jurisdiction by Commissioner under section 263(1) of the Act was justified.
The facts before the Hon'ble Supreme Court were that the assessee company
entered into an agreement for sale of estate of rubber plantation. The sale
consideration was agreed to be paid in installments. The purchaser could not
adhere to the schedule and on his request the parties agreed to the extension of
time for payment of the installments on condition of vendee paying
compensation/damage for loss of agricultural income and other liabilities.
Accordingly, the purchaser paid the damages to the assessee company. In the
                                        15                           ITA No.3469/M/2010
                                                                      M/s. A.V. Industries



return filed, the assessee company claimed the said compensation and damages
received as agricultural income.         The AO accepted the same.                  The
Commissioner, however, exercising his jurisdiction under section 263 held that
the said amount was unconnected with any agricultural operation activity and
was liable to be taxed under the head `Income from other sources'. The matter
ultimately travelled to the Hon'ble Supreme Court. The Hon'ble Supreme
Court held that as per the provisions of section 263(1) the Commissioner has to
be satisfied with twin conditions namely; (i) the order of the AO sought to be
revised is erroneous, (ii) it is prejudicial to the interest of Revenue. If one of
them is absent, viz., if the order of the ITO is not erroneous but it is prejudicial
to the interest of Revenue or if it is erroneous but is not prejudicial to the
interest of Revenue, recourse cannot be had to section 263(1).

21.   From the above facts, it is revealed that even in the case "Malabar
Industrial Co. Ltd. (supra), the CIT had made enquiries and thereafter
concluded that the income received by the assessee on account of
compensation damages for extending the period of installments was not an
agricultural income. The Ld. CIT, in fact, had examined the contention of the
assessee and was of the view that the claim made by the assessee was not right,
and that under these circumstances, it was held that the order of the AO was
erroneous and prejudicial to the interest of Revenue.

22. There is no doubt about the proposition of law laid down in the other case
laws relied upon by the Ld. AR that where there are two views possible and the
view taken by the AO is one of the possible views, the Commissioner is not
justified in exercising the power under section 263 of the Act only because he
is of the different view.
                                          16                            ITA No.3469/M/2010
                                                                         M/s. A.V. Industries



23.      In view of the above discussion of the various case laws, we find that
except in the lone decision of the Hon'ble Karnataka High Court in the case of
"Infosys Technology" ( supra), the Hon'ble Supreme court and various other
High Courts including our Jurisdictional High Court have been                      almost
unanimous in holding that before enhancing or annulling or modifying or
cancelling the assessment while exercising his powers under section 263 of the
Act, the Commissioner must record a finding of fact or of law that the order of
the AO is erroneous and is also prejudicial to the interest of Revenue as
discussed above. In the case in hand, as discussed above, this prerequisite
condition has not been satisfied as the Commissioner after calling for the
explanation from the assessee has failed to make necessary exercise in
examining or cause to examine the explanation/details submitted by the
assessee for the justification of its claim. Hence, in the light of the various
case laws as analyzed above, the order of the Commissioner exercising
jurisdiction under section 263 of the Act cannot be held to be sustainable in
law and the same is accordingly set aside.

24.      In the result, the appeal of the assessee is hereby allowed.


                  Order pronounced in the open court on 06.11.2015.


         Sd/-                                                 Sd/-
    (G.S. Pannu)                                         (Sanjay Garg)
ACCOUNTANT MEMBER                                    JUDICIAL MEMBER

Mumbai, Dated: 06.11.2015.
* Kishore, Sr. P.S.



Copy to: The Appellant
        The Respondent
        The CIT, Concerned, Mumbai
        The CIT (A) Concerned, Mumbai
                                          17                      ITA No.3469/M/2010
                                                                   M/s. A.V. Industries


        The DR Concerned Bench
//True Copy//                         [




                                               By Order



                             Dy/Asstt. Registrar, ITAT, Mumbai.

 
 
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