Section 263 – There is a distinction between “lack of enquiry” and “inadequate enquiry”. If the totality of facts indicate that assessment was made after obtaining necessary details from the assessee and further the same were examined, then, even if the same has not been spelt elaborately in the assessment order, it cannot be said that there is a “lack of enquiry” or `prejudice’ has been caused to the Revenue.

3.  Small Wonder Industries vs. CIT (Mum)

Members : Joginder Singh
(JM) and Ramit Kochar (AM)

ITA No.: 2464/Mum/2013

A.Y.: 2009-10.   Date
of Order: 24^th February, 2017.

Counsel for assessee /
revenue: Prakash Jotwani / Debasis Chandra

FACTS  

The assessee, engaged in the business of manufacturing
feeding bottles and accessories, filed its return of income showing total
turnover of Rs. 2,40,72,048 and offered gross profit of Rs. 99,20,394, at the rate
of 41.21% of the total turnover. The assessee claimed deduction u/s. 80IB of
the Act at the rate of 25% of the total profit of Rs.65,39,181 after reducing
brought forward losses of Rs. 3,44,910. The assessee declared income of Rs.
49,04,386. 

The case of the assessee was selected for scrutiny.  Various details were called for vide
questionnaires issued which were complied with by the assessee.  The Assessing Officer (AO) in the assessment
order made an elaborate discussion with respect to disallowance of deduction
u/s. 80IB on interest income, disallowance out of interest u/s. 36(1)(iii), set
off of unabsorbed losses, etc. 

Subsequently, the CIT invoked revisional jurisdiction u/s.
263 with respect to commission of Rs. 2,12,136 @ Rs. 25 per piece to Rajendra
Jain and Kiran Jain by observing that no such commission was paid in earlier
year for similar sales.  The assessee
explained that commission was paid to these parties for looking after logistic
issues. 

Aggrieved, the assessee preferred an appeal to the Tribunal.

HELD  

The Tribunal noted that the assessee vide letter dated
11.7.2011, addressed to the DCIT, in response to notice u/s. 142(1) clarified
the factual matrix and again vide letter dated 26.7.2011, addressed to
DCIT, furnished the party-wise details of commission paid with name, address
and purpose.  The photocopies of the
agreements and credit notes were also enclosed along with the MOU dated 19.4.2008. 

The Tribunal observed that it is expected to ascertain
whether the AO had investigated / examined the issue and applied his mind
towards the whole record made available by the assessee during assessment
proceedings.  It held that since the
necessary details were filed / produced and the same were examined by the AO,
it is not a case of lack of enquiry by the AO. 

The Tribunal observed that the provisions of section 263
cannot be invoked to correct each and every type of mistake or error committed by
the AO.  It is only when the order is
erroneous and also prejudicial to the interest of the revenue that the
revisional jurisdiction is attracted.  It
noted that it is not the case that the assessment was framed without
application of mind in a slipshod manner. 

It held that there is a distinction between “lack of enquiry”
and “inadequate enquiry”. In the present case, the AO collected the necessary
details examined the same and framed the assessment u/s. 143(3) of the
Act.  Therefore, in such a case, the
decision of the Delhi High Court in CIT vs. Anil Kumar Sharma [2011] 335 ITR
83 (Delhi) comes to the rescue of the assessee. 

The Tribunal held that it was satisfied that the assessment
was framed after making due enquiry and on perusal / examination of documentary
evidence. It held that in such a situation, invoking revisional jurisdiction
u/s. 263 cannot be said to be justified. 
The Tribunal set aside the order of the CIT and decided the appeal in
favor of the assessee and observed that, by no stretch of imagination, the
assessment order can be termed as erroneous and prejudicial to the interest of
the revenue.