Updater Services Pvt. Ltd., CHENNAI v. ITO, CHENNAI

ITA 840/CHNY/2009 | 2004-2005
Pronouncement Date: 29-07-2011 | Result: Dismissed

Appeal Details

RSA Number 84021714 RSA 2009
Assessee PAN AAACU6845J
Bench Chennai
Appeal Number ITA 840/CHNY/2009
Duration Of Justice 2 year(s) 2 month(s) 1 day(s)
Appellant Updater Services Pvt. Ltd., CHENNAI
Respondent ITO, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-07-2011
Date Of Final Hearing 26-07-2011
Next Hearing Date 26-07-2011
Assessment Year 2004-2005
Appeal Filed On 28-05-2009
Judgment Text
IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI A BENCH CHENNAI. BEFORE SHRI U.B.S. BEDI J.M. & SHRI N.S. SAINI A. M. I.T.A. NO. 840/MDS/2009 ASSESSMENT YEAR: 2004-05 UPDATER SERVICES PVT. LTD. 7-21 SHAKTI GARDEN D.B. JAIN COLLEGE ROAD THORAIPAKKAM CHENNAI 600 097. [PAN:AAACU6845J] VS. THE COMMISSIONER OF INCOME TAX I 121 N.H. ROAD CHENNAI 600 034. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI N. QUADIR HOSEYN REVENUE BY : SHRI SHAJI P. JACOB SR. DR. ORDER PER U.B.S. BEDI J.M. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED UNDER SECTION 263 BY THE LD. CIT I CHENNAI DATED 20.03.2 009 RELEVANT TO THE ASSESSMENT YEAR 2004-05. 2. DURING THE EXAMINATION OF ASSESSMENT RECORDS FO R THE YEAR UNDER CONSIDERATION THE LD. CIT HAS FIND THAT THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AND PRE-JUDICIAL TO THE INTEREST OF THE R EVENUE AND WHILE INVOKING THE PROVISIONS OF SECTION 263 ISSUED NOTICED TO THE ASS ESSEE AND REASONS FOR ISSUING SUCH NOTICE ARE AS UNDER: THE ASSESSEE-COMPANY HAD TAKEN OVER THE BUSINESS OF A PARTNERSHIP FIRM NAMELY UPDATER SERVICES. UNDER SEC TION 47(XIII) OF THE INCOME TAX ACT ANY TRANSFER OF CAPITAL ASSET OR ANY TANGIBLE ASSET BY A FIRM TO A COMPANY AS A RESULT OF SUCCESSION OF THE FIRM BY A COMPANY SHALL NOT BE SUBJECT TO CAPITAL GAINS TAX PROVIDED CERTAI N CONDITIONS ARE MET. ONE OF THE CONDITIONS IS THAT PARTNERS OF THE FIRM DO NO RECEIVE ANY CONSIDERATION OR BENEFIT DIRECTLY OR INDIRECTLY IN ANY FORM OR MANNER OTHER THAN BY WAY OF ALLOTMENT OF SHARES IN THE COM PANY. THE ASSESSEE-COMPANY HAS MADE A PAYMENT OF ` .1.25 CRORE IN ITA ITAITA ITA NO. NO. NO. NO.840 840840 840/MDS/ /MDS/ /MDS/ /MDS/0 00 09 99 9 2 CONSIDERATION OF THE TAKEOVER OF THE FIRM AND THIS AMOUNT WAS CLASSIFIED AS GOODWILL IN THE ACCOUNTS OF THE COMPA NY. THEREFORE THE EXEMPTION GIVEN U/S 47(XIII) WILL NOT APPLY AND THE INCOME SHOULD BE ASSESSED IN THE HANDS OF THE ASSESSEE-COMPANY AS DE EMED INCOME UNDER SEC.47A(3). THE ASSESSMENT HAS BEEN COMPLETED BY THE ASSESSING OFFICER WITHOUT VERIFICATION OF APPLICATI ON OF SEC.47A(3) IN THE CASE OF THE ASSESSEE COMPANY. 3. THE ASSESSEE FILED ITS REPLY AND THE LD. CIT HA S DISCUSSED THE REPLY AND ISSUE IN HAND AS UNDER: THE ASSESSEE HAS OBJECTED TO THE PROCEEDINGS ON TH E GROUND THAT THE ASSESSEE'S CASE IS NOT GOVERNED BY SEC.47( XIII) AS IT IS NOT A CASE OF SUCCESSION BUT CONVERSION OF PARTNERSHIP FI RM INTO A COMPANY. ACCORDING TO THE ASSESSEE THERE IS NO TRA NSFER OF ASSET. THE ASSESSEE HAS RELIED ON THE DECISION OF BOMBAY H IGH COURT IN THE CASE OF CIT VS. TEXPIN ENGINEERING MANUFACTURIN G WORKS 263 ITR 345. THE ASSESSEE HAS ALSO CLAIMED THAT THE ASS ESSING OFFICER'S DECISION CANNOT BE CONSIDERED TO BE ERRONEOUS FOLLO WING THE DECISION OF SUPREME COURT IN THE CASE OF MALABAR IN DUSTRIES CO. VS. CIT (243 ITR 83) AND THEREFORE CIT CANNOT EXERCISE HIS JURISDICTION UNDER SECTION 263. ON MERITS THE ASSESSEE CONTENDED THAT EVEN BEFORE THE CONVERSION OF THE PARTNERSHIP INTO COMPA NY THE ASSESSEE HAD ALLOTTED TO THE SHARE HOLDERS SH A RES EQUAL TO THE CREDIT BALANCE INCLUDING SHARE OF GOODWILL. THUS THERE WAS NO PAYM ENT BY THE COMPANY TO THE ER STWHILE PARTNERS IN CONSIDERATION OF THE TAKEOVER OF THE FIRM . AND THEN THE LD. CIT CONCLUDED AS UNDER: I HAVE CAREFULLY CONSIDERED THE ASSESSEE'S CONTENT IONS. IN MY VIEW THE DECISION IN THE CASE OF MALABAR INDUSTRIE S CO. VS. CIT IS NOT APPLICABLE TO THE PRESENT CASE AS THERE IS NO CONSC IOUS DECISION TAKEN BY THE ASSESSING OFFICER CHOOSING EITHER OF THE TWO ALTERNATIVE VIEWS. THERE IS NO DISCUSSION ABOUT THIS ISSUE IN THE ASSE SSMENT ORDER OR IN THE CORRESPONDENCE IN THE COURSE OF THE ASSESSMENT PROCEEDINGS APART FROM A FACTUAL STATEMENT IN THE ASSESSMENT ORDER TH AT THE ASSESSEE COMPANY IS SAID TO HAVE BEEN FORMED ON CONVERSION O F PARTNERSHIP FROM IN TO A COMPANY. THE ASSESSEE'S CONTENTION THA T THIS IS NOT A CASE OF SUCCESSION IS ALSO NOT CORRECT. THE ASSESSEE HAS CLEARLY STATED IN THE PART II NOTES ON ACCOUNTS OF SCHEDULE XVII THAT THE COMPANY WAS INCORPORATED ON 13.11.2003 UNDER PART IX OF THE COM PANIES ACT FOR CARRYING ON AND CONTINUING THE BUSINESS OF PARTNERS HIP FIRM NAMELY UPDATER SERVICES AND HAS ALLOTTED ONE LAKH EQUITY S HARES TO THE PARTNERS. IF IT IS A CASE OF CONVERSION OF FIRM INT O COMPANY THE ITA ITAITA ITA NO. NO. NO. NO.840 840840 840/MDS/ /MDS/ /MDS/ /MDS/0 00 09 99 9 3 ASSESSEE SHOULD HAVE FILED RETURN IN THE STATUS OF FIRM FOR THE PERIOD FROM 01.04.2003 TO 12.11.2003 IN THE STATUS OF THE FIRM. IT HAS BEEN ASCERTAINED FROM THE ASSESSING OFFICER HAVING JURIS DICTION OVER THE CASE OF THE FIRM THAT THE FIRM HAS NOT FILED ANY RE TURN. IN THE CASE DECIDED BY THE BOMBAY HIGH COURT (SUPRA) RELIED ON BY THE ASSESSEE ACTION TO ASSESS THE CAPITAL GAINS WAS TAKEN IN THE CASE OF THE FIRM AND THE FIRM HAD FILED RETURN FROM 1.4.1995 TO 7.11.199 5 THE DATE ON WHICH IT WAS SAID TO HAVE BEEN DISSOLVED AND CONVER TED INTO A COMPANY. THE ASSESSEE HAS ADMITTED THAT THE RETURN IN THE STATUS OF FIRM HAS NOT BEEN FILED AND ONE RETURN ALONE HAS BE EN FILED FOR THE ENTIRE TWELVE MONTHS FROM 01.04.2003 TO 31.03.2004 IN THE STATUS OF THE COMPANY. THE TAX DEDUCTED AT SOURCE ON PAYMENT MADE TO THE FIRM HAS BEEN GIVEN CREDIT IN THE CASE OF THE ASSES SEE COMPANY. AS THE BOOKS OF ACCOUNTS IN THE STATUS OF THE FIRM DO NOT APPEAR TO HAVE BEEN MAINTAINED THE ASSESSEE IS UNABLE TO CORROBORATE I TS CLAIM THAT IT HAS ALLOTTED THE PARTNERS THEIR SHARE OF GOODWILL BEFOR E THE TAKE OVER OF THE BUSINESS OF THE FIRM BY THE COMPANY. THE ASSESS ING OFFICER'S ORDER IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE IN TEREST OF REVENUE AS HE HAS COMPLETELY OVERLOOKED THE PROVISIONS OF SEC. 47(XIII) AND ALSO SEC.47A(3) WHICH CLEARLY PROVIDES THAT ANY AMOUNT R ECEIVED BY THE PARTNERS IN EXCESS OR WHERE THERE IS ANY VIOLATION OF CONDITIONS PRESCRIBED U/S 47(XIII) THE CAPITAL GAINS ARISING FROM THE TRANSFER SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YE AR IN WHICH THE REQUIREMENT OF THE PROVISO TO CLAUSE (XIII) OF SEC. 47 ARE NOT COMPLIED WITH. THE ASSESSING OFFICER'S ORDER THEREFORE IS SE T ASIDE WITH A DIRECTION TO VERIFY WHETHER THE ASSESSEE HAS COMPLI ED WITH THE PROVISIONS OF SEC.47(XIII) AND IF NOT APPLY THE PR OVISIONS OF SEC.47A(3) IN ACCORDANCE WITH LAW. IT WOULD BE OPEN TO THE ASSESSEE TO PUT FORTH ANY CLAIM ON MERITS BEFORE THE ASSESSI NG OFFICER. IF THE CAPITAL GAIN ARISING ON TRANSFER IS ADMITTED BY THE FIRM BY FILING THE RETURN AND IT HAS NOT AVAILED THE EXEMPTION U/S.47( XIII) THE ASSESSING OFFICER MAY TAKE A DECISION IN ACCORDANCE WITH LAW TO AVOID DOUBLE TAXATION OF INCOME BOTH IN THE CASE OF THE FIRM AS WELL AS IN THE COMPANY. 4. AGGRIEVED BY THIS ORDER OF THE LD. CIT THE ASS ESSEE HAS COME IN APPEAL AND SUBMITTED FOLLOWING GROUNDS: I JURISDICTION : 1.1 THE ORDER OF THE COMMISSIONER OF INCOME-TAX PASSED UNDER SEC.263 IS CONTRARY TO LAW ERRONEOUS AND UNSUSTAIN ABLE ON THE FACTS OF THE CASE. ITA ITAITA ITA NO. NO. NO. NO.840 840840 840/MDS/ /MDS/ /MDS/ /MDS/0 00 09 99 9 4 1.2 THE CIT ERRED IN DIRECTING THE OFFICER TO RE-E XAMINE THE PROVISIONS OF SEC.47(XIII) AND 47A(3) IN AS MUCH TH ERE WAS NEITHER ANY ERROR NOR PREJUDICE CAUSED TO THE REVENUE IN THE ASSESSMENT COMPLETED UNDER SEC.143(3). 1.3 THE CIT FAILED TO APPRECIATE THAT IN THE COURS E OF ASSESSMENT PROCEEDINGS THE OFFICER HAD CONSIDERED THE FACTS O F THE ASSESSEE'S CASE AND WAS SATISFIED THAT THE CONVERSION OF FIRM INTO COMPANY DOES NOT FALL WITHIN THE MEANING OF 'TRANSFER' U/S. 2(47) FOR APPLICATION OF SEC.45 AND HENCE THERE WAS NO ERROR IN THE OR D ER WARRANTING ACTION U/S.263 OF THE ACT. 1.4 THE CIT FURTHER FAILED TO APPRECIATE THAT IN A S MUCH AS THE TAX RATE WAS THE SAME FOR THE FIRM AND COMPANY THE TAKE OVE R THE FIRM'S BUSINESS BY THE COMPANY DID NOT RESULT IN ANY PREJU DICE TO THE INTERESTS OF THE REVENUE AND HENCE THE ACTION U/S.263 LAK H S IN JURISDICTION. 1.5 THE CIT FURTHER FAILED TO APPRECIATE THAT REVI SION UNDER SEC.263 IS NOT PERMISSIBLE MERELY BECAUSE HE DISAGREES WITH TH E CONCLUSION REACHED BY THE OFFICER AND THEREFORE THE DIRECTIONS GIVEN TO THE OFFICER TO RE-EXAMINE AND ASSESS IS UNTENABLE IN LA W. 1.6 THE CIT FURTHER FAILED TO APPRECIATE THAT IN T HE LIGHT OF THE SUPREME COURT DECISION IN MALABAR INDUSTRIES CO. (2 43 ITR 83) THE PROCEEDINGS U/S.263 ARE UNTENABLE IN LAW. 1.7 THE CIT IN ANY EVENT OUGHT TO HAVE SEEN THAT THE ASSESSEE'S CASE IS OF CONVERSION FALLING UNDER CHAPTER IX OF C OMPANIES ACT 1956 AND THAT THE QUESTION OF 'TRANSFER' DOES NOT ARISE SINCE IT IS A STATUTORY VESTING OF PROPERTIES OF FIRM ON THE COMP ANY AND HENCE DROPPED THE PROCEEDINGS U/S.263 CONSIDERING THAT THE OFFICER IN HIS ORDER PASSED U/S. 143(3) HAD RIGHTLY APPLIED THE PROVISIONS OF THE ACT. II MERITS 2.1 THE CIT ERRED IN HIS DIRECTIONS TO THE OFFICER TO EXAMINE AND APPLY THE PROVISIONS OF THE ACT WITH REGARD TO THE CONVER SION OF THE FIRM M / S UPDATER SERVICES INTO A PRIVATE LIMITED COMPANY - UPDATER SERVICES PRIVATE LIMITED UNDER PART IX OF THE COMPA NIES ACT 1965. 2.2 THE CIT FAILED TO APPRECIATE THAT ON THE CONVE RSION OF FIRM TO A PRIVATE LIMITED COMPANY THE ENTIRE BUSINESS AND PR OPERTIES OF THE FIRM VESTED WITH THE COMPANY STATUTORILY AND THERE IS NO TRANSFER WITHIN THE MEANING OF SECTION 2(47) AND CONSEQUENTL Y PROVISIONS OF SECTION 45(1) WOULD NOT BE ATTRACTED IN THE ASSESSE E'S CASE. 2.3 THE CIT ERRED IN SETTING ASIDE THE ORDER OF TH E ITO AND DIRECTING ITA ITAITA ITA NO. NO. NO. NO.840 840840 840/MDS/ /MDS/ /MDS/ /MDS/0 00 09 99 9 5 HIM TO VERIFY THE COMPLIANCE WITH THE PROVISIONS OF SECTION 47 (XIII) AND TO APPLY THE PROVISIONS OF SECTION 47A(3). 2.4 THE CIT FAILED TO APPRECIATE THAT THE CONDITIO NS ENUMERATED IN THE PROVISO TO SEC.47(XIII) ARE SATISFIED AND HENCE THE APPLICATIO N OF SEC.47A(3) TO THE FACTS OF THE CASE DOES NOT ARISE. 2.5 THE CIT HAS ERRED IN NOT RELYING ON THE FOLL OW ING JUDICIAL PRECEDENTS RELIED UPON BY THE APPELLANT IN THE COURSE OF THE P ROCEEDINGS UNDER SECTION 263: * CIT VS . TEXSPIN ENGG. AND MFG. WORKS (263 ITR 345) * ACIT VS. UNITY CARE AND HEALTH SERVICES 286 ITR 1 21 I MISCELLANEOUS GROUNDS 3.1 FOR THESE AND SUCH OTHER GROUND OR GROUNDS AS M AY BE RAISED DURING THE COURSE OF THE HEARING IT IS HUMBLY PRAY ED THAT THIS HONOURABLE TRIBUNAL MAY BE PLEASED TO SET ASIDE THE ORDER PASSED BY THE LEARNED CIT UNDER SECTION 263 DATED 20 MARCH 2009 AND THUS RENDER JUSTICE. 3.2 THE APPELLANT PRAYS THAT DIRECTIONS BE GIVEN TO GRANT ALL SUCH RELIEF ARISING FROM THE PRECEDING GROUNDS AS ALSO ALL RELI EF CONSEQUENTIAL THERETO. 5. THE ASSESSEE CHALLENGED SUCH ACTION OF THE LD. CIT WHILE RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F MALABAR INDUSTRIES CO. 243 ITR 83 IT WAS PLEADED FOR QUASHMENT OF THE ORDER O F THE LD. CIT. THE ASSESSEES COUNSEL FURTHER PLEADED THAT SINCE THE ASSESSEE IS TRANSFEREE AND NOT TRANSFEROR SO THE ASSESSEE DOES NOT COME WITHIN THE PURVIEW OF THE TAXABILITY AND THE ORDER OF THE LD. CIT COULD NOT BE SAID TO BE ERRONEOUS AT ALL. THEREFORE INVOCATION OF PROVISIONS OF SECTION 263 IS UNWARRANTED AND UNCALL ED FOR AND MOREOVER THE ASSESSING OFFICER HAS ALSO TAXED THE SAME PAYMENT I N FIRMS CASE OF M/S. UPDATERS SERVICES AND BY FILING COPY OF THE ORDER O F THE ASSESSMENT DATED 31.12.2009 IT WAS PLEADED THAT SAME AMOUNT HAS BEE N TAXED BY THE ASSESSING OFFICER IN THE CASE OF THE FIRM SO THERE WAS NO OC CASION FOR THE LD. CIT TO TREAT ITA ITAITA ITA NO. NO. NO. NO.840 840840 840/MDS/ /MDS/ /MDS/ /MDS/0 00 09 99 9 6 THE ORDER AS ERRONEOUS AS THERE CANNOT BE DOUBLE TA XATION AND THE SAME MAY BE QUASHED. 6. THE LD. DR STRONGLY PLEADED THAT THE ORDER OF T HE ASSESSMENT PASSED IN THE CASE OF THE ASSESSEE IS DATED 17.11.2006 IN TH AT ORDER THERE IS NO MENTION ABOUT THE ISSUE ON WHICH PROVISIONS OF SECTION 263 HAVE BEEN INVOKED. THERE IS NO SPECIFIC PROVISION PROVIDED UNDER SECTION 47(XII I) OF THE INCOME TAX ACT WHICH PROVIDE THAT ANY TRANSFER OF CAPITAL ASSET OR ANY T ANGIBLE ASSET BY THE ASSET BY THE FIRM TO A COMPANY AS A RESULT OF SUCCESSION OF THE FIRM BY A COMPANY SHALL NOT BE SUBJECT TO CAPITAL GAINS TAX PROVIDED CERTAIN CONDI TIONS ARE MET AND ONE OF THE CONDITIONS IS THAT PARTNERS OF THE FIRM DO NOT RECE IVE ANY CONSIDERATION OR BENEFIT DIRECTLY OR INDIRECTLY IN ANY FIRM OR MANNER OTHER THAN BY WAY OF ALLOTMENT OF SHARES IN THE COMPANY. THE COMPANY HAS MADE THE PAY MENT OF ` .1.25 CRORE IN CONSIDERATION OF THE TAKEOVER OF THE FIRM AND THIS AMOUNT WAS CLASSIFIED AS GOODWILL IN THE ACCOUNTS OF THE COMPANY. THEREFORE THE EXEMPTION GIVEN UNDER SECTION 47(XIII) WILL NOT APPLY AND INCOME SHOULD B E ASSESSED IN THE HANDS OF THE COMPANY AS DEEMED INCOME UNDER SECTION 47A(3). SINC E THE ASSESSING OFFICER WITHOUT VERIFICATION OF THE APPLICATION OF THE SECT ION 47A(3) HAS COMPLETED THE ASSESSMENT THEREFORE THIS MAKES THE ORDER TO BE ER RONEOUS. MOREOVER THE ORDER OF ASSESSMENT IN THE CASE OF THE FIRM AS FILED BY T HE ASSESSEE DURING APPEAL PROCEEDINGS WAS PASSED ON 31.12.2009 SO THIS DOCUM ENT WAS NEITHER IN EXISTENCE NOR BEFORE THE LD. CIT WHILE INVOKING THE PROVISIONS OF SECTION 263. THEREFORE THE LD. CIT IS JUSTIFIED IN SETTING ASID E THE ORDER OF THE ASSESSING OFFICER AND RESTORING THE MATTER BACK ON HIS FILE W ITH THE DIRECTION TO VERIFY WHETHER THE ASSESSEE HAS COMPLIED WITH THE PROVISIO NS OF SECTION 47(XIII) AND IF ITA ITAITA ITA NO. NO. NO. NO.840 840840 840/MDS/ /MDS/ /MDS/ /MDS/0 00 09 99 9 7 NOT TO APPLY THE PROVISIONS OF SECTION 47A(3) IN AC CORDANCE WITH LAW AND IT WAS GIVEN OPTION TO PUT FORTH ANY CLAIM BEFORE THE ASSE SSING OFFICER AND CAPITAL GAINS ARISING ON TRANSFER IS ADMITTED BY FILING RETURN AN D IS NOT AVAILED THE EXEMPTION UNDER SECTION 47(XIII) THE ASSESSING OFFICER MAY TA KE A DECISION IN ACCORDANCE WITH LAW TO AVOID DOUBLE TAXATION OF INCOME BOTH IN THE CASE OF FIRM AS WELL AS IN THAT OF THE COMPANY. SO FOR WANT OF PROPER ENQUIRY AND APPLICATION OF MIND BY THE ASSESSING OFFICER WHILE MAKING THE ASSESSMENT THE ISSUE HAS BEEN SET ASIDE FOR CONSIDERING THE SAME AFRESH IN THE LIGHT OF THE DIRECTIONS ISSUED SO IT CANNOT BE SAID THAT THE LD. CIT IS NOT REASONABLE I N PASSING SUCH ORDER WHOSE ACTION BEING LEGALLY CORRECT NEEDS TO BE UPHELD WH ICH MAY BE UPHELD. 7. AFTER HAVING HEARD BOTH THE SIDES CONSIDERING THE MATERIAL ON RECORD WE FIND THAT THE ASSESSING OFFICER PASSED THE ASSESSME NT ORDER DATED 17.11.2006 UNDER SECTION 143(3) AND PARA 5 OF THE ORDER CONTAI NS COMPUTATION OF INCOME AND TAX LIABILITY WHEREAS OPERATIVE PORTION FROM PARA 1 TO 4 READS AS UNDER: THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INTEGRATED FACILITY MANAGEMENT SERVICING. IT FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004-05 ON 01.11.2004 ADMITTING AN INCOME OF ` .1 58 54 482/-. THE RETURN WAS PROCESSED UNDER SEC. 143(1) ON 31.03.2006. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED. 2. IN RESPONSE TO THE NOTICE SHRI L.SUKUMAR C.A. APPEARED AND FILED THE DETAILS CALLED FOR. AFTER EXAMINING THE DETAILS FILED BY THE REPRESENTATIVE AND AFTER DISCUSSING THE CASE WITH THE REPRESEN T ATIVE THE ASSESSMENT IS FINALISED. 3. THE ASSESSEE WHICH WAS RUNNING THE BUSINESS SIN CE 1990 AS A PARTNERSHIP FIRM WAS CONVERTED INTO A PRIVATE COMPA NY W.E .F . 13.11.2003. IT IS CLAIMED BY THE ASSESSEE'S REPRESE NTATIVE THAT THERE WAS NO TRANSFER AND THAT THE CONTINUITY OF BUSINESS HAS BEEN ESTABLISHED. THE ASSESSEE THEREFORE ADMITTED THE INCOME FOR THE WHOL E YEAR IN THE HANDS OF THE COMPANY. 4. ON THE PERUSAL OF THE ACCOUNTS IT IS NOTICED TH AT THE ASSESSEE HAS ITA ITAITA ITA NO. NO. NO. NO.840 840840 840/MDS/ /MDS/ /MDS/ /MDS/0 00 09 99 9 8 CLAIMED SUBSTANTIAL EXPENSES TOWARDS ESTABLISHMENT EXPENSES AND ADMINISTRATIVE EXPENSES. A TEST CHECK OF THE EXPENS ES WAS MADE AND SOME OF THE EXPENSES ARE SUPPORTED BY MERE SELF MAD E VOUCHERS. THE VERACITY OF THE EXPENDITURE IN SUCH EXPENSES COULD NOT BE VERIFIED. THEREFORE AN ESTIMATED EXPENDITURE OF ` .10 00 000/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME. 8. FROM THE ABOVE REPRODUCED PORTION OF THE ORDER OF ASSESSMENT IT TRANSPIRES THAT THE ISSUE RAISED IN THE NOTICE UNDE R SECTION 263 AND FINAL ORDER PASSED BY THE LD. CIT THE ASSESSING OFFICER HAS NO T CONSIDERED SUCH ISSUE AT ALL AND THE LD. CIT HAS REMANDED SUCH ISSUE TO THE FILE OF THE ASSESSING OFFICER GIVING DIRECTION TO EXAMINE THE ISSUE AFRESH. FROM THE CONTENTS OF THE ORDER IT BECOMES AMPLY CLEAR THAT THE ENQUIRY HAS NOT BEEN C ONDUCTED BY THE ASSESSING OFFICER AND THERE IS NO APPLICATION OF MIND OF THE ASSESSING OFFICER WITH REGARDING TO THE ISSUE RAISED IN NOTICE/ORDER UNDER SECTION 2 63 AND AS PER NON-CONDUCT OF ENQUIRY AND NON-APPLICATION OF MIND IN RELATION TO THE ISSUE MAKES THE ORDER TO BE ERRONEOUS AND PRE-JUDICIAL TO THE INTEREST OF REVEN UE. THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES CO. LTD. VS . CIT 243 ITR 83 HAS OPINED AS UNDER: . HE ACCEPTED THE ENTRY IN THE STATEMENT OF ACCOUNT FILED BY THE APPELLANT IN THE ABSENCE OF ANY SUPPORTING MATERIAL AND WITHOUT MAKING ANY INQUIRY. ON THESE F ACTS THE CONCLUSION THAT THE ORDER OF THE INCOME-TAX OFFICER WAS ERRONEOUS WAS IRRESISTIBLE. THE HIGH COURT HAD RIGHTLY HELD T HAT THE EXERCISE OF JURISDICTION BY THE COMMISSIONER UNDER SECTION 263( 2) WAS JUSTIFIED. 8.1 USEFUL REFERENCE IN THIS REGARD CAN FURTHER BE MADE TO THE HONBLE MADRAS HIGH COURTS DECISION IN THE CASE OF EXPRESS NEWSPA PERS PVT. LTD. VS. CIT 255 ITR 137 HAS HELD AS UNDER: THE COMMISSIONER HAS THE DISCRETION TO SET ASIDE THE ASSESSMENT IN WHILE OR IN PART. THE EXERCISE OF THA T DISCRETION IS NOT TO BE ORDINARILY INTERFERED WITH UNLESS THE FACTS S HOW THAT THE ITA ITAITA ITA NO. NO. NO. NO.840 840840 840/MDS/ /MDS/ /MDS/ /MDS/0 00 09 99 9 9 EXERCISE OF THE DISCRETION ITSELF IS REQUIRED TO BE CHARACTERIZED AS ARBITRARY. 8.2 SIMILARLY IN THE CASE OF CIT VS. KOHINOOR TOBA CCO PRODUCTS P. LTD. REPORTED IN 234 ITR 557 THE HONBLE MADHYA PRADESH HIGH COURT HAS HELD AS UNDER: . THIS FAILURE ON THE PART OF THE ASSESSING OFFICER TO MAKE NECESSARY ENQUIRY RENDERED THE ASSE SSMENT ERRONEOUS AND ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE 8.3 FURTHER THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS. MAHAVAR TRADERS 220 ITR 167 HAS HELD AS UNDER: HELD THAT THE INCOME-TAX OFFICER SHOULD HAVE EXAMI NED THE MATTER IN THE LIGHT OF THE CONDITIONS MENTIONED IN BOTH THE SECTIONS BEFORE GRANTING RELIEF. THE COMMISSIONER OF INCOME- TAX HAD NOT GIVEN ANY FINDING BUT ONLY REMANDED THE CASE TO THE INCOME-TAX OFFICER FOR MAKING ASSESSMENT AFRESH. THE TRIBUNAL INSTEAD OF APPROACHING THE MATTER IN THE PROPER PROSPECTIVE H AD ON THEIR OWN STARTED MAKING ENQUIRIES AND FOUND THAT THE ORDER P ASSED BY THE INCOME-TAX OFFICER WAS CORRECT. THIS WAS ERRONEOUS. THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX WAS VALID. 8.4 YET THE HONBLE DELHI HIGH COURT IN THE CASE O F DUGGAL AND CO. AND CIT 220 ITR 456 HAS HELD AS UNDER: THE INCOME-TAX OFFICER IS NOT ONLY AN ADJUDICATOR BUT ALSO AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN THE FA CE OF A RETURN WHICH IS APPARENTLY IN ORDER BUT CALLS FOR FURTHER INQUIRY. IT IS INCUMBENT ON THE INCOME-TAX OFFICER TO FURTHER INVE STIGATE THE FACTS STATED IN THE RETURN WHEN CIRCUMSTANCES WOULD MAKE SUCH AN INQUIRY PRODUCT AND THE WORD ERRONEOUS IN SECTION 263 OF THE INCOME-TAX ACT 1961 INCLUDES THE FAILURE TO MAKE SUCH AN ENQUIRY. THE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT BECAUSE THERE IS ANYTHING WRONG W ITH THE ORDER IF ALL THE FACTS STATE THEREIN ARE ASSUMED TO BE CO RRECT. 8.5 IN ANOTHER CASE TITLED SWARUP VEGETABLE PRODUCT S INDUSTRIES LTD. VS. CIT 187 ITR 412 THE HONBLE ALLAHABAD HIGH COURT HAS O BSERVED AS UNDER: ITA ITAITA ITA NO. NO. NO. NO.840 840840 840/MDS/ /MDS/ /MDS/ /MDS/0 00 09 99 9 10 IT IS BEYOND DISPUTE THAT UNDER SECTION 263 OF TH E INCOME- TAX ACT 1961 THE COMMISSIONER HAS POWER TO SET AS IDE THE ASSESSMENT ORDER AND SEND THE MATTER FOR FRESH ASSE SSMENT IF HE IS SATISFIED THAT FURTHER ENQUIRY IS NECESSARY AND THA T THE ORDER OF INCOME-TAX OFFICER IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 9. IN VIEW OF THE RATIO OF THE ABOVE NOTED DECISIO NS NON-CONDUCTING OF PROPER ENQUIRY RENDERS THE ORDER ERRONEOUS AS WELL AS PREJ UDICIAL TO THE INTEREST OF THE REVENUE AND NOTHING HAS BEEN PLACED ON RECORD TO SH OW AS TO HOW THE ORDER OF THE LD. CIT IS NOT VALID OR PROPER. THEREFORE IN V IEW OF THE FACTS OF THE CASE AND PRECEDENTS RELIED UPON AND DISCUSSED AS ABOVE WE A RE OF THE VIEW THAT THE ACTION OF THE LD. CIT IS JUSTIFIED AND DOES NOT CAL L FOR ANY INTERFERENCE AT THIS LEVEL. AS SUCH THE SAME IS CONFIRMED AND THE APPEAL OF TH E ASSESSEE BEING DEVOID OF ANY MERIT IS DISMISSED. 10. IN THE RESULT APPEAL OF THE ASSESSEE GETS DIS MISSED. ORDER PRONOUNCED ON 29.07.2011. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (U.B.S. BEDI) JUDICIAL MEMBER VM/- DATED : 29.07.2011. COPY TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.