Income Tax Appellate Tribunal - Chandigarh
Virbhadra Singh (Huf), Shimla vs Cit, Shimla on 8 December, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES : A : CHANDIGARH
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
AND
SHRI I.C. SUDHIR, JUDICIAL MEMBER
ITA No.486/Chandi/2014
Assessment Year : 2010-11
Virbhadra Singh (HUF), Vs. CIT,
Holly Lodge, Shimla.
Jakhoo,
Shimla.
PAN : AACHV0223N
(Appellant) (Respondent)
Assessees By : Shri Ajay Vohra, Sr.Advocate,
Shri Rohit Jain &
Shri Chander Shekhar Verma,
Advocates
Department By : Shri Ravi Sarangal, CIT, DR
Date of Hearing : 29.11.16 to
30.11.2016
Date of Pronouncement : 08.12.2016
ITA Nos.486, 216 & 215/Chandi/2014
ITA No.408/Chandi/2015
ITA Nos.216 & 215/Chandi/2014
Assessment Years : 2010-11 & 2009-10
Shri Anand Chauhan, Vs. CIT,
C/o LIC of India, Shimla.
Manta Building, Sanjauli,
Distt. Shimla.
PAN : ADFPC3964R
(Appellant) (Respondent)
Assessees By : Shri Sudhir Sehgal & Shri Chander
Shekhar Singh Verma, Advocates
Department By : Shri Ravi Sarangal, CIT, DR
Date of Hearing : 01.12.2016
Date of Pronouncement : 08.12.2016
ITA No.408/Chandi/2015
Assessment Year : 2011-12
Shri Anand Chauhan, Vs. PCIT,
S/o Shri Kishan Chand, Shimla.
Kailash Niwas,
Inder Nagar, Dhalli,
Shimla.
PAN : ADFPC3964R
(Appellant) (Respondent)
Assessees By : Shri Sudhir Sehgal & Shri Chander
Shekhar Verma, Advocates
Department By : Shri Ravi Sarangal, CIT, DR
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ITA Nos.486, 216 & 215/Chandi/2014
ITA No.408/Chandi/2015
Date of Hearing : 02.12.2016
Date of Pronouncement : 08.12.2016
ORDER
PER R.S. SYAL, AM:
These four appeals by the two connected assessees against the orders passed u/s 263 of the Income-tax Act, 1961 (hereinafter also called 'the Act') relate to assessment years 2009-10 to 2011-12. Since common issues are raised in these appeals, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience. We are espousing the appeals for consideration and decision in the same order in which these were argued. Sh. Ajay Vohra, Senior advocate argued the appeal of Virbhadra Singh (HUF) and Sh. Sudhir Sehgal argued the appeals of Sh. Anand Chauhan. Sh. Ravi Sarangal, CIT-DR, argued the appeals of both the assessees on behalf of the Revenue.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 VIRBHADRA SINGH (HUF) - (A.Y. 2010-11)
2. Briefly stated, the facts of the case are that the assessee filed original return of income on 29.7.2010 declaring total income of Rs.44,67,584/- plus agricultural income of Rs.15 lac. Notice dated 24.8.2011 u/s 143(2) for scrutiny assessment was served on the assessee. The assessee filed revised return on 2.3.2012 declaring total income of Rs.44,67,584/- plus agricultural income of Rs.2,80,92,500/-. Assessment in this case was completed u/s 143(3) of the Act on 28.3.2013 at the income declared in the revised return. The ld. CIT, on perusal of records, observed that the assessment was completed in a routine and casual manner without making any effective inquiry. Notice u/s 263 was issued. After entertaining objections and replies from the assessee, the ld. CIT came to hold that the Assessing officer passed an erroneous order prejudicial to the interests of the Revenue, inter alia, on the ground that the revision of return was wrongly accepted; accounting principles were wrongly considered and accepted inasmuch as the agricultural income was not declared on the basis of mercantile system of accounting, being, the 4 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 method followed by the assessee; directions issued by the Addl. CIT u/s 144A of the Act were not fully complied with; no requisite inquiry was conducted; and the genuineness of the declared agricultural income was not examined by the AO. The ld. CIT summarised his view justifying the exercise of revisionary power u/s 263, as under :-
i. "After the case was selected for scrutiny vide notice u/s 143(2) dated 24.08.2011, the assessee filed his revised return on 02.03.2012 at an enhanced agriculture income of Rs. 2.80 crores against Rs. 15 Lakh shown in the original return to cover up the huge investment of Rs. 2.65 crores made in LIC policies during the relevant year. ii. The assessee has claimed that it had been declaring its income on the basis of Mercantile system and when he finalized its accounts with Mr. Anand Chauhan he came to know about its additional income and accordingly filed the revised return.
iii. As per the facts on record, earning of additional income of Rs.
2.65crores shown in the revised return was already within the knowledge of the assessee because the same was accrued, received and invested by the assessee in LIC policies during the financial year itself.
In no case, income which has already been received and invested by the assessee during the financial year itself, its accrual can be said to have been deferred or come to the knowledge of the assessee at a later stage. iv. There is no material on record to justify that earning of additional income of Rs, 2.65 crores was not within the knowledge of the 5 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 assessee but discovered by it at a later stage, so there was no bonafide omission in the original return but the assessee had knowingly and willfully filed its false or incorrect original return which was revised after the case was selected for scrutiny. v. A.O. had accepted the invalid revised return which caused loss to the revenue due to tax-affect and also due to non-initiation of penalty proceedings u/s 271(l)(c) on the additional income disclosed by the assessee in the revised return.
vi. Assessee had invested Rs. 3,84,92,500/- in LIC policies whereas additional income declared in the revised return was only Rs.2,65,92,500/-. So A.O. had further failed to enquire from the assessee about the source of Rs.1.19 crores invested in LIC policies over and above the additional income declared in the revised return. vii. A.O. had blindly accepted the agricultural income of the assessee by relying upon the statement of Mr. Anand Chauhan as well as MOU between the assessee and Mr. Anand Chauhan for maintaining the Orchards belonging to the assessee without making any enquiry about the bills, vouchers, books of accounts and their authenticity in relation to agriculture income declared by the assessee. So A.O. relied upon the self made internal documents between the assessee and his agent Mr. Anand Chauhan. Since the benefit of agriculture income was claimed by the assessee so onus was on the assessee to establish the earning of agriculture income with the help of genuine bills, vouchers, documents, books of accounts and their authenticity. The assessee cannot save himself by simply stating that records were maintained by his agent/manager.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 viii. A.O. has not applied his own mind but blindly accepted the findings of ITO, Ward-1, Shimla in the case of Mr. Anand Chauhan, in relation to agriculture income declared by the assessee. A.O. had to make his own enquiry in respect of agricultural income, because agricultural income was declared by assessee himself, not by Mr Anand Chauhan, who was assessed with ITO, Ward-1, Shimla.
ix. A.O. has not complied with the directions given by the Addl.
CIT, Shimla Range, Shimla u/s 144A specifically regarding details of income and expenditure account, agriculture income of the assessee in the immediate preceding and succeeding years. A.O. has simply obtained the month wise expenditure account which was not supported by any Muster roll, bills/vouchers or any documentary evidences of expenses. Regarding quantum of income of preceding and succeeding years, A.O. has simply accepted the reply of the assessee that the quantum of crops of a particular year depends upon the climatic conditions of a particular year. A.O. has not even tried to place on record any material to justify the manifold increase in agriculture income as compared to earlier year.
x. Even after giving Show Cause Notice in the case of proceedings u/s 263, the assessee has not produced any evidence regarding the query raised in the Show Cause Notice except reiterating that all the issues were explained at the time of assessment proceedings."
3. It was, therefore, concluded that the order passed by the Assessing officer u/s 143(3) was erroneous as well as prejudicial to the interests of 7 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the Revenue and the same was consequently set aside. The Assessing officer was directed to frame a fresh assessment in accordance with the law, facts and after making due inquiries. The assessee is aggrieved against the impugned order.
4. We have heard the rival submissions and perused the relevant material on record. Before proceeding with the matter, we consider it expedient to record that the case is on Board since 2014 and getting adjourned for one reason or the other. When the case was taken up for hearing on 7.11.2016, the Revenue filed detailed written submissions along with other documents. The appeal was adjourned to 8.11.2016. On such later date, the ld. AR, Shri Sudhir Sehgal appeared for the assessee and objected to the filing of written submissions and paper book by the Revenue at such a late stage. He sought time for going through the same and also for filing a rebuttal to the ld. DR's written submissions. His request was accepted and the case was adjourned to 29.11.2016.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 I. EVIDENCE IN APPEAL i. Evidence in appeal against the order u/s 263 5.1. Shri Ajay Vohra, Sr. Advocate, appeared for the assessee on 29.11.2016 and objected to certain portions of the written submissions of the ld. DR and the accompanying additional evidence fortifying such written submissions. Shri Vohra submitted that the discussion made from the middle of page 19 onwards of the written submissions filed by the Revenue refers to certain events and documents pertaining to the period posterior to the passing of the impugned order by the ld. CIT and, hence, the same should not be taken into consideration. The sum and substance of his submissions was that the parties can rely only on such evidence before the tribunal which was considered by the CIT and nothing beyond that. This preliminary objection was raised by the ld. AR on the strength of the definition of the term 'Record' given in Explanation 1(b) to Section 263(1) of the Act. The ld. AR also relied on the judgment in CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC) to bolster this submission. This was vehemently opposed by the ld. DR. 9
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 5.2. Since this is a preliminary objection raised by the ld. AR, we deem it useful to first deal with the same. The contention is primarily founded on the definition of the term 'Record' given in Explanation 1(b) to Section 263(1), which provides that : `"record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner'. The Explanation containing this definition has been appended to section 263, which section deals with the revision of orders prejudicial to the Revenue. Sub-section (1) of this section provides that the : `The Principal Commissioner or 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 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.' A conjoint 10 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 reading of the above provisions manifests that the definition of 'Record' given in Explanation 1 is applicable in so far as the exercise of power of revision by Principal CIT or CIT is concerned.
5.3. Here it is pertinent to mention that sub-section (1) of section 263 was interpreted by certain judicial bodies as restricting the power of the CIT to the material as was available with the AO at the time of making assessment and not extending to new material coming into existence after the passing of the assessment order up to the passing of the revisionary order. The legislature stepped into elucidate that the term "record" shall include all records relating to any proceeding under this Act available at the time of examination by the Commissioner and this provision has been given retrospective effect, which is apparent from the words `and shall be deemed always to have included'. It is an enabling provision insofar as the exercise of power of CIT u/s 263 is concerned. By virtue of the definition of the term `record', the CIT, for seeing if the assessment order is erroneous and prejudicial to the interests of the Revenue, is no more restricted to considering only such 11 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 record as was available with the Assessing officer. He can also look into other material which comes to his knowledge even though it was not earlier existing or existing but not considered by the Assessing officer. The crux of the matter is that the CIT can take cognizance of anything available before him at the time of his examination in terms of section
263. Thus it is plain that the definition of the term `record' has been given in the context of the exercise of power by the CIT. Placement of the definition of the term `record' in section 263 and which is only : `for the purposes of this sub-section' leaves nothing to doubt that it is confined only to the revisionary power to be exercised by the CIT u/s 263(1) of the Act. This provision has neither been placed nor referred to in Chapter XX-B dealing with `Appeals to the Appellate tribunal'. It has no relation with the right of the parties to rely on evidence during the appellate proceedings before the tribunal and such right to file additional evidence is not circumvented by this provision.
5.4. The reliance of the ld. AR on the case of Max India (supra) is misplaced. In that case, the AO interpreted the word `profits' in section 12 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 80HHC in assessee's favour by relying on certain judicial decisions. The CIT revised the order interpreting the word `profits' in section 80HHC in favour of the Revenue. After the passing of the revisionary order, the law was amended retrospectively in favour of the Revenue. When the Department tried to rely on the retrospective amendment, the Hon'ble Court held that the view taken by the AO was a possible view and hence the same could not have been disturbed in the exercise of power u/s 263 because : ` Different views existed on the day when the CIT passed the above order'. The later amendment was ignored because at the time of the passing of the revisionary order, the issue was debatable. Material later coming into existence, diametrically opposite to the legally possible view taken by the AO at the time of passing the order, was held to be irrelevant. Thus it is clear that the ratio decidendi of the judgment is that there can be no revision when two views are possible and the AO has followed one of such possible views. The later retrospective amendment in the case was opposite to the conscious possible view taken by the AO. It is in this context that the new evidence, in the form of a later retrospective amendment, jeopardizing the debatable nature of issue at 13 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the time of passing of the order by the AO/CIT, was held to be not relevant. It has no where been laid down that the parties to an appeal are debarred from relying on additional evidence before the tribunal even on a non-debatable issue which was specifically taken note of by the CIT in the revisionary order on which the assessment order is silent. It will be seen infra that the additional evidence relied by the ld. DR is not in contradiction of any possible view taken by the AO, but merely supports the CIT's view of non-application of mind by the AO. 5.5. Similar position follows insofar as the reliance of the ld. AR on G.M. Mittal Stainless Steel P. Ltd. vs. CIT (2003) 263 ITR 255 (SC) is concerned. In that case, the AO treated the power subsidy as a capital receipt by relying on the judgment of the jurisdictional High Court. The CIT revised the order by relying on a contrary judgment of another High Court. It was contended before the Hon'ble Court that the decision relied by the AO was later on reversed by the Hon'ble Supreme Court and hence the revisionary order be declared as valid. Repelling such contention, the Hon'ble Apex Court held that power of the CIT 14 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 under section 263 must be exercised on the basis of the material that was available to him when he exercised the power. At that time, the issue whether power subsidy was capital receipt had been concluded against the Revenue by the jurisdictional High Court of the assessee and the fact that the Supreme Court had subsequently reversed the decision of the High Court, would not justify the CIT in treating the AO's decision as erroneous.
5.6. It is patent that the position prevailing in this case is more or less similar to what was there in the case of Max India (supra). In both the cases, the AO decided the issue before him in favour of the assessee by relying on a possible legal view, with which the CIT did not agree on the basis of a contrary possible view. In both the cases, the issue was debatable at the time of passing the orders by the AO as well as CIT. Whereas in Max India (supra), there came a later retrospective amendment upsetting the view of the AO, in G. M Mittal (supra), the AO's view was frustrated by a later judgment of the Hon'ble Apex Court. In both the cases, the Hon'ble Summit Court held that since the 15 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 issue was debatable and the AO took one possible view based on the judgment of some High Court, the assessment order could not be revised due to later developments.
5.7. In the extant case, it will be seen infra that there is no debatable issue decided by the AO taking one possible view and the additional evidence, sought to be relied by the ld. DR, does not disturb such possible view of the AO or supports the contrary view of the CIT. Here is a case of non-application of mind by the AO and the ld. CIT setting aside the assessment order to be passed afresh as per law and in the light of the observations made in the impugned order. The additional evidence simply supports the finding of the CIT that the AO did not conduct inquiry. In view of the foregoing discussion, the contention of the ld. AR that the Department cannot rely on any evidence coming into existence after the passing of the order u/s 263 by the CIT, therefore, deserves the fate of dismissal.
5.8. However, we find that there is one inherent limitation on the filing of evidence by the parties before the tribunal in an appeal against 16 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the order u/s 263. Such limitation is that the Revenue cannot build a new case before the tribunal in support of the revisionary order. Validity of the order, in the light of regular or additional evidence, can be examined by the tribunal only on the touchstone of the issues considered by the CIT. The Department cannot set up a new ground to strengthen the order u/s 263. If this is allowed, it would mean that the DR is allowed to share the revisionary power, which, in fact, vests exclusively with the CIT. The natural corollary is that the evidence, including additional evidence, that can be filed by the parties should confine to the issues considered by the CIT in holding the assessment order erroneous and prejudicial to the interests of the revenue. We, therefore, hold that there is no embargo on the power of the Department to file any evidence, whether existing before or after the order of the CIT, so long as it is germane to the issues considered by the CIT in exercising the revisionary power and which does not disturb the otherwise debatable nature of issue, if any, involved in the case. The preliminary objection by the ld. AR in this regard fails.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 ii. Additional evidence 6.1. The ld. AR seriously objected to the filing of additional evidence by the Department. It was also submitted that there was no compliance by the ld. DR of Rule 29 of the ITAT Rules, 1963.
6.2. In order to deal with this contention, we deem it necessary to refer to rule 29 of the ITAT Rules, 1963, with the caption : `Production of additional evidence before the Tribunal'. It provides that : `The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.' A bare perusal of the Rule exposes that the parties are not 18 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 entitled to produce additional evidence before the Tribunal. The same can be filed if the Tribunal, inter alia, requires "to enable it to pass orders". We are not concerned with other parts of the Rule 29. The contention raised by the ld. AR that the Department has no right to file additional evidence under Rule 29 is partly correct in the sense that no right vests in any party to press for the admission of additional evidence before the Tribunal. It is the prerogative of the Tribunal to entertain additional evidence for enabling it to pass order etc. 6.3. The ld. DR has filed all the evidence, including additional evidence, in a common paper book. Albeit, no written application was technically filed for acceptance of additional evidence under rule 29, which ought to have been, yet the ld. DR orally prayed that such additional evidence be admitted. It goes without saying that an oral request can also be validly made. We, therefore, treat such an oral request as an application in terms of the rule 29.
6.4. Such additional evidence was filed well in advance and the assessee was given a time of more than 10 days to go through the same. 19
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 Correctness of such additional evidence, to the extent it deals with the issues considered by the ld. CIT, has not been controverted by the ld. AR. It will be seen infra that no debatable issue is involved in this case as it is a case of the AO not applying his mind before concluding the assessment. Such additional evidence, to the extent it concerns the issues taken note of by the ld. CIT, in our considered opinion, has an important bearing and is not alien to them. These facts bring the additional evidence within the ambit of the expression "to enable it to pass orders"
as employed in the rule 29 making it eligible for admission. 6.5. The Hon'ble Delhi High Court in CIT VS. Text Hundred India P.Ltd. (2011)239 CTR (Del.) 263 has held that the `discretion lies with the tribunal to admit additional evidence in the interest of justice once the tribunal affirms the opinion that doing so would be necessary for proper adjudication of the matter. This can be done even when application is filed by one of the parties to the appeal and it need not to be a suo motto action of the Tribunal.' It further observed that the true test in this behalf is whether the Appellate Court is able to pronounce 20 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 judgment on the material before it without taking into consideration the additional evidence sought to be adduced. The legitimate occasion, therefore, for exercise of discretion under this rule is not before the Appellate Court which hears and examines the case before it, but arises when on examining the evidence as it stands, some inherent lacuna or defect becomes apparent to the Appellate court coming in its way to pronounce judgment'. From the above judgment it is manifest that additional evidence can be admitted on the request by the appearing parties and also at the suo motu discretion of the tribunal, if it considers necessary to entertain the additional evidence for enabling it to pass order or for any other substantial cause. The additional evidence sought to be relied by the ld. DR, to the extent it does not set up a new case and is in support of the broader reasons noted by the ld. CIT in holding the assessment order to be erroneous and prejudicial to the interest of the revenue, is, ergo, admitted.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 iii. Whether any separate order is required before admitting additional evidence.
7.1. The ld. AR pressed into service the judgment in Maruti Udyog Ltd. vs. ITAT & Ors. (2000) 244 ITR 303 (Del) to contend that if the tribunal was inclined to accept the additional evidence, then, it must first pass a separate order indicating the reasons for acceptance of such additional evidence and only then it can proceed with the matter on merits.
7.2. We fail to comprehend how this judgment supports the assessee's view point of passing a separate order for admission of additional evidence. The Hon'ble High Court in that case was dealing with the admission of additional ground in terms of rule 11 of the ITAT Rules, 1963. It was on appreciation of the relevant legal position that the Hon'ble High Court held that while admitting additional ground of appeal, Tribunal is required to indicate the reasons first and then take up the appeal for final disposal. In the oppugnation, we are dealing with the admission of additional evidence, which is governed by rule 29 of the 22 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 ITAT Rules. There is an underlying difference between the two provisions in terms of their ambit and consequence. Whereas an additional ground may end in taking up a new issue requiring separate adjudication, additional evidence simply supports the existing issue already pending before the Bench. As the additional ground may also set up a new case, that is why, the Hon'ble High Court held that a separate order should be passed first for its admission facilitating the aggrieved party to exercise its legal right of assailing such admission. Au contraire, the additional evidence is on an altogether different footing as it simply relates to the issues already before the Bench and merely encompasses a new material concerning such pending issues before it. Thus, there is no justification in the ld. AR's argument that a separate order should be passed before the admission of additional evidence. On a specific query, the ld. AR admitted that there was no precedent supporting his proposition requiring the tribunal to pass a separate order before accepting additional evidence. This contention, is therefore, repelled.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015
8. Now, we will deal with the issues considered by the ld. CIT for holding the assessment order erroneous and prejudicial to the interests of the Revenue.
II. REVISION OF RETURN 9.1. The ld. CIT noticed that the asessee was following mercantile system of accounting as per which whole of the agricultural income including the one arising from Shrikhand Orchard, Damrali, should have been shown in the original return. He held that the acceptance of the revised return by the AO as also including the income already accrued to the assessee but not disclosed in the original return, was a clear indicator that the revised return did not satisfy the conditions of section 139(5) of the Act inasmuch as it amounted to the earlier intentional non-disclosure of the correct income.
9.2. This was opposed by the ld. AR on the premise that in mercantile system of accounting, income is offered on accrual basis. He submitted that in the facts of the instant case, the assessee could have shown the agricultural income either at the end of the third year on final settlement 24 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 of account with Sh. Anand Chauhan, who was managing its Shrikhand Orchards, Damrali or on the basis of its accrual on year to year basis. He stated that the assessee initially opted for the first course of action, being an intention to disclose income at the end of the third year, but later on resorted to the second course of action, being disclosure of income on year to year basis. He submitted that both the courses have the legal backing and hence the ld. CIT himself erred in dislodging the mercantile system of accounting rightly followed by the assessee at the time of filing the original return of income. This was strongly opposed by the ld. DR.
9.3. It has been noticed above that the assessee filed its original return declaring, inter alia, agriculture income amounting to Rs. 15.00 lac. Notice dated 24.8.2011 u/s 143(2) for scrutiny assessment was served on the assessee. A revised return was filed on 2.3.2012 declaring agricultural income of Rs.2,80,92,500/- without altering the taxable income as declared in the original return. In support of such enhanced agricultural income shown in the revised return, the assessee contended 25 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 before the Assessing officer during the course of assessment proceedings that it had entered into Memorandum of Understanding (hereinafter also called `the MOU') dated 15th June, 2008 with one Shri Anand Chauhan for managing its apple orchard measuring 105 bighas known as Shrikhand Orchards, situated at village Damrali, Chak Shyarla-Varshol, Taklesh, Tehsil Rampur, Bushhahar, District Shimla, HP, for a period of three years. It was explained that the entire activity of managing the orchards and selling the crop was entrusted to Shri Anand Chauhan. It was also claimed that Shri Chauhan sold whole of the apple crop to M/s Universal Apple Associate, Parvano (UAA) in cash and deposited such receipts in his own bank account, which were utilized for purchasing LIC policies in favour of the assessee in terms of the MOU. It was still further stated that the account with Shri Anand Chauhan was to be and was actually settled after a period of three years in September, 2011 and that was the reason for revising the return on 2.3.2012, after the issue of notice u/s 143(2) for scrutiny assessment, declaring additional income arising from Shrikhand Orchards relating to the year under consideration.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 9.4. This argument of the ld. AR can be appreciated on having a glance at the MOU dated 15.6.2008, a copy of which has been filed by the assessee on page 29 onwards of its paper book. The MOU provides that Shri Anand Chauhan is a horticulturist having vast experience of apples and managing orchards and that he and his family members are engaged in the activity of growing apples and managing orchards since sufficiently long time. It has been mentioned in the MOU that Shri Anand Chauhan: "has agreed to manage and look after the orchards of the First Party in lieu of a commission to be paid by the First Party to the Second Party which has been agreed upon @ 2% on the net proceeds/income earned from the orchard." Clauses (1) and (2) of the MOU read as under :-
"1. That in consideration of the commission hereinbefore agreed upon to be paid by the First Party to the Second party on the net proceeds of the apple orchard, the second party shall manage & look after in all respect, the orchard of the First Party known as "Shrikhand Orchard"
situated at Village Damrali, Chak Shyarla-Varshol, Taklech, Tehsil Rampur Bushahr, Distt. Shimla, H.P.
2. That the Second Party shall bear all the expenses of managing 27 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 this apple orchard, which includes the use of spray, pesticides, incidental & ancillary acts required to be done in growing the apple crop and for obtaining better yield from the orchard, to harvest the crop, grading & packaging the same and sell the apples in the market, to receive the proceeds/income from selling the apples, to invest the proceeds so obtained from the sale of apples in Government securities, Mutual Funds, in schemes of LIC or to invest the money in the products of Scheduled Banks by ensuring the safe & better returns." 9.5. Clause 5 of the MOU, which is also relevant for our purpose, reads as under:-
"That the commission hereby agreed to be paid shall be paid @ 2% on the net sale proceeds after deducting all other expenses spent upon the management of the orchard and shall be payable after a period of 3 years by the First Party to the Second Party at the time of settlement of accounts on the completion of the period of this MOU."
9.6. Clause (6) of the MOU provides that Shri Anand Chauhan shall maintain accounts of incurring expenses pertaining to the management of the orchard and shall maintain accounts of the net proceeds. The assessee made out a case before the Assessing officer, as has been contended before us as well, that the agricultural income from such orchard came to be known to it on settling the account with Shri Anand 28 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 Chauhan in September, 2011 and that was the reason for revising the return on 2.3.2012 which was a bona fide and genuine reason in terms of section 139(5) of the Act.
9.7. The assessee was, admittedly, following mercantile system of accounting. In contrast to the cash system of accounting in which income is recognized and charged to tax w.r.t. the time of receipt, under the mercantile system of accounting, income is recognized and charged to tax w.r.t. the time of accrual. Even if actual receipt takes place at a later stage, the chargeability is attracted when absolute and enforceable right to receive such income is finally acquired. The Hon'ble Supreme Court in catena of decisions including Morvi Industries Ltd. vs. CIT (1971) 82 ITR 835 (SC) has held that income can be said to accrue when it becomes due and the date of payment does not affect the accrual of income.
9.8. The ld. AR has contended that Shrikhand Orchards, Damrali, account was settled in September, 2011 and the right to receive the income accrued at that stage only. In our considered opinion, the 29 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 contention is completely devoid of merits. The view canvassed that the assessee is different from Sh. Anand Chauahan and it received income from him, is entirely unfounded insofar as the transactions of Shrikhand Orchard, Damrali, are concerned. We have noticed from the MOU that the assessee is owner of this orchard. The services of Sh. Chauhan were hired only to maintain the orchard, for which he was entitled to two percent commission. Thus, Sh. Chauhan was simply acting as an agent of the assessee in respect of the activities of the orchard. It is the assessee, who was owner of the orchard as a principal of Sh. Chauhan. Any work done by an agent in such capacity is considered as having been done for and on behalf of his principal. A principal cannot claim that the activities done by his agent are separate activities done by the agent in his individual capacity. These are considered as the activities of the principal only. The argument of the ld. AR that the income should be treated to have accrued to the assessee at the end of the three-year period in September, 2011 misses wood from tree. When Sh. Anand Chauhan was earning income from such transactions during the period of three years on behalf of the assessee alone, the argument that the income 30 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 accrued to the assessee only when the account was settled with his agent in September, 2011, becomes wholly untenable. Under no circumstance can be assessee claim that the Sh. Chauhan earned income during the three years on his own behalf and the income accrued to the assessee only at the end of the third year. The contention, if given a logical conclusion, will have the effect of obliterating the relationship between an agent and a principal, which is an absurd proposition. Thus, it follows that the income so accrued in the financial year itself, was required to be shown while filing the original return. Its accrual cannot be claimed to have been deferred to a later stage when settlement of account was made with his agent in September, 2011. We find that not only the sale of crop was shown to have been made but even the sale proceeds were also realized during the financial year itself. This shows that the income not only accrued but was also received during the year.
9.9. Without prejudice to our above finding of accrual of income to the assessee at the end of the year because of its principal character, the least that the Assessing officer should have noticed was that as per 31 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 clause 2 of the MOU, the agricultural income was to be invested on behalf of the assessee in Government securities/LIC policies. Such LIC policies were admittedly purchased in the names of the members of the assessee-HUF during the financial year itself, only after they signed and filed the requisite forms. This fact has not been denied on behalf of the assessee. It shows that the assessee was not oblivious to, but was well aware of such investments in LIC policies having being made from its agricultural income during the relevant financial year itself. 9.10. The fact that assessee had full knowledge of its agricultural operations and resultant income, is further corroborated from the fact that apart from showing agricultural income of Rs.15 lac from some other orchard in the original return, the assessee also gave a foot note in its computation of income mentioning that : "amount of Rs.15,07,841.19 received as compensation of acquisition of agricultural land at Rampur by LAO, HPSEB, Shimla is exempt from tax hence income not taken into account." When the assessee was alert of its other agricultural income that was shown in the return of income and the further fact that 32 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 investment in LIC policies were being made out of its agricultural income arising from Shrikhand Orchards, Damrali, it ought to have also reflected such agricultural income in the original return, at least to the extent of investments made during the year in LIC policies, which fact was well within its plain knowledge without any hassles of settlement of account. Unfortunately, the assessee did not include even such income in its original return. It was only after the assessment proceedings commenced in its hands, that a revised return was filed declaring additional agricultural income of Rs.2.65 crore and odd from Shrikand Orchard, Damrali.
9.11. Relevant portion of sub-section (5) of section 139 provides that : `If any person, having furnished a return under sub-section (1), .... discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier'. A bare perusal of this provision indicates that only if the assessee discovers any omission or wrong statement in the 33 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 return earlier filed by him, that he can furnish a revised return. In other words, if the omission or wrong statement was known to the assessee at the time of filing the earlier return, then it will not fall within the ambit of the term `discovered', so as enable the assessee to obtain the benefit of this provision. Thus it is apparent that the assessee's such plea of getting knowledge of the agricultural income on settlement of account with Sh. Anand Chauhan in September, 2011, does not fall within the pale of the word `discovers' in section sub-section (5) of section 139. This fanciful explanation given before the AO which also came to be accepted, was neither bona fide nor genuine, which is a pre-requisite for revising a return of income. The AO, having full knowledge of the MOU and the declared other agricultural income in the return along with a mention of still some other agricultural income, should have kept his eyes open and not accepted the so-called bona fide of the assessee in filing the revised return, after the issue of notice for scrutiny assessment. 9.12. The ld. AR raised one more interesting argument that income of Rs.2.65 crore was an agricultural income and hence it did not matter the 34 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 year in which it was offered as the same was exempt from tax. This argument deserves the fate of dismissal at the very outset. The ld. CIT, as will be seen hereinafter, has given elaborate reasons for holding the assessment order erroneous and prejudicial to the interests of the revenue for the AO simply accepting the genuineness of this income as agricultural income and hence exempt from tax. He has referred to material at length in holding that the AO should not have accepted this amount as an agricultural income. This argument is, therefore, jettisoned.
III. NON-COMPLAICE OF DIRECTIONS U/S 144A 10.1. The ld. CIT has held that the AO failed to comply with the directions given by the Addl. CIT u/s 144A of the Act, which were binding on him. This issue has been elaborately discussed in the impugned order.
10.2. It can be seen that the Assessing officer, during the course of assessment proceedings, sought directions vide his letter dated 17.1.2013, which has been placed at page 38 of the paper book. In this 35 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 letter, the Assessing officer mentioned that the revised return was filed with an additional agricultural income of Rs.2.65 crore and the reason for revision was given as late finalisation of accounts in respect of agricultural income with Shri Anand Chauhan. The Assessing officer also mentioned in this letter that: "the assessee HUF is not having any evidence in respect of sale of horticulture produce and expenses incurred thereon as all the bills/vouchers are lying with Shri Anand Chauhan." Pursuant to this request made by the Assessing officer, the Addl. CIT gave the following directions vide his letter dated 1.2.2013 :-
`i) To call for and examine the details of income/Expenditure a/c in view of Col, 4 of MOD
ii) To coordinate the proceedings and share the information with ITO Ward-1, Shimla regarding the investigation made by him in the case of Shri Anand Chauhan , who, as per, MOU is looking after the Orchard of M/S Virbhadra Singh (HUF)'.
10.3. Further directions were given by the Addtl. CIT on 7.2.2013, which are as under:-
"I. To tally the receipts of exact amount of income in hands of 36 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the assessee from Sh. Anand Chauhan and exact mode of receipt date wise.
II. To find out the detailed accounts of originally shown agriculture income i.e. Rs. 15 Lacs with dates of receiving sale proceeds.
III. To find the details of Rs. 43,84,396/- income from other sources.
IV. To keep in mind the agriculture income shown in immediate preceding and succeeding year from the years in which the income has been revised i.e. A.Y. 2008-09, 2012-13 while examining the genuineness of the revised agriculture income in the year 2010-11.
10.4. The Assessing officer partly complied with the directions of the Addl. CIT issued u/s 144A seeking certain information from the assessee. Vide reply dated 18.2.2013, the assessee reiterated its earlier submissions, which were accepted as such. It can be seen above that the Assessing officer was specifically directed to find out the detailed account of originally shown agricultural income of Rs.15 lac with dates of receiving sale proceeds. When questioned, the assessee filed a copy of expenditure account in respect of Shrikhand Orchards, Sarahan, being managed by one Shri Narvir Janarta, from which such net agricultural income of Rs.15.00 lac was claimed to have been earned and declared in 37 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the original return. Only the figures of month-wise expenses were given and the same were also not supported by any bills/vouchers. The Assessing officer took such statement on record without tallying the dates on which the agricultural income from Shri Narvir Janarta was received and the authenticity of such expenses, more specifically when there were no supporting bills.
10.5. Similarly, a direction was given to tally the receipts of exact amount of agricultural income earned from Shrikhand Orchards, Damrali, which was being managed by Shri Anand Chauhan as per the MOU and to consider the agricultural income shown in the immediately preceding and succeeding years of the relevant MOU so as to examine the genuineness of the revised agricultural income. No such inquiry was conducted about the earning of agricultural income from Shrikhand Orchards, Damrali, immediately prior to and after the date of the MOU. The ld. DR has submitted the details of agricultural income shown by the assessee in earlier and later years, which is as under:-
A.Y. 2000-01 - Rs. 4,50,000/-
A.Y. 2001-02 - Rs. 5,00,000/-
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ITA No.408/Chandi/2015
A.Y. 2002-03 - Rs. 4,50,000/-
A.Y. 2003-04 - Rs. 6,00,000/-
A.Y. 2004-05 - Rs. 8,00,000/-
A.Y. 2005-06 - Rs. 9,00,000/-
A.Y. 2006-07 - Rs. 12,05,000/-
A.Y. 2007-08 - Rs. 16,00,000/-
A.Y. 2009-10 - Rs. 7,35,000/- (Revised Rs. 2,21,35,000/-)
A.Y. 2010-11 - Rs. 15,00,000/- (Revised Rs.2,80,92,500/-)
A.Y. 2011-12 - Rs. 25,00,000/- (Revised Rs. 1,55,00,000/-)
A.Y. 2012-13 - Rs. 85,00,000/-
A.Y. 2013-14 - Rs. 92,00,000/-
10.6. Veracity of the above statement of agricultural income shown by the assessee in the earlier years has not been controverted by the ld. AR. This shows that the assessee was earning marginal income in the years prior to the AY 2009-10 and after the A.Y. 2011-12, i.e. the period anterior to and posterior to the date of the MOU. When the details of agricultural income for earlier years, as directed to be examined by the Addl. CIT u/s 144A, were available with the AO himself, it was his bounden duty to follow the directions given by the Addl. CIT. 10.7. The Assessing officer accepted the assessee's contention about earning of manifold net agricultural income of Rs.2.65 crore by the assessee during the period relevant to the assessment year under 39 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 consideration without any verification. It is further relevant to note that Shrikhand Orchards, Damrali, is spread over 105 bighas of land. Shri Anand Chauhan, in his statement recorded by his Assessing officer, a copy of which has been placed by the assessee in the paper book before us as was also available to the AO while finalizing assessment of the assessee, admitted that his father has orchards spread over 80-85 bighas and income therefrom was between Rs.15-20 lac. Such a huge difference in the agricultural income earned from the farm of Shri Anand Chauhan's family and Shrikhand Orchards, Damrali, should have instigated the Assessing officer to inquire the genuineness and extent of income shown by the assessee, more so, when the statement of Shri Chauhan was before him. Regrettably, the AO failed to do so and was swayed by the reply of the assessee.
10.8. At this juncture, it is pertinent to have a look at the relevant part of section 144A, which is as under :-
` A Joint Commissioner may, on his own motion or on a reference being made to him by the Assessing Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or 40 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and such directions shall be binding on the Assessing Officer'. 10.9. It is discernible from the mandate of this section that once directions are issued to the Assessing officer, then: `such direction shall be binding on the AO'. Binding nature of the directions given by the Addtl. CIT was given a go by and the Assessing officer did not bother to comply with the same, more particularly, when such a direction could have been easily carried out by examining the assessee's record of income-tax for earlier years. Despite the availability of such material with the Assessing officer himself, he chose to accept the assessee's contention about the quantum of agricultural income on flimsy ground.
He did not conduct any independent inquiry at his end to see if the adjoining orchards had also similar bumper crops during this period. 10.10. Thus, it is overt that the Assessing officer did not follow the requisite directions issued u/s 144A of the Act and completed the assessment in a casual and routine manner bypassing the same. This 41 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 renders the assessment order erroneous and prejudicial to the interests of the Revenue.
IV. INVESTMENT IN LIC MORE THAN INCOME EARNED DURING THE YEAR 11.1. The ld. CIT observed on page 38 of his order that the total investment in the purchase of LIC policies during the year was Rs.3,84,92,500/-, whereas the net agricultural income shown from Shrikhand Orchards, Damrali, in the revised return stood at Rs.2,65,92,500/- only. Though the Assessing officer discussed this issue on pages 5 and 6 of his order, but, accepted the assessee's explanation without any verification that agricultural income received during the years 2008-09 to 2009-10 was Rs.4,79,92,500/- and the amount invested in LIC policies during the current year amounted to Rs.3.80 crore, meaning thereby that the differential amount of Rs.1.65 crore (Rs.3.80 crore invested in the previous year relevant to the assessment year under consideration (-) net agricultural income of Rs.2.65 crore for such year) was invested in the current year from the sale proceeds of the 42 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 preceding year. This fact was held by the ld. CIT to have been laid to rest quietly by the AO.
11.2. It is significant to note the statement of Shri Anand Chauhan dated 11.2.2013 recorded by ITO, Ward-3, Shimla, which has been placed by the ld. AR on page 106 onwards of his paper book. In response to question as to where the cash realised from UAA was kept which was obviously not deposited on several occasions for months together, Shri Chauhan stated that he was keeping the amount at his house only. When asked as to why such amount was not immediately invested in LIC policies as per the MOU, he stated that he was waiting for the appropriate time for making investment. On a further query as to when he was so concerned about the proper investment of the assessee's funds in LIC policies, etc., then why did he lose bank interest for so many months by retaining huge cash running into crores at his house, he reiterated his stand of waiting for appropriate time for making investment in LIC policies. At this stage, it is pertinent to note clause (2) of the MOU, as per which, Sh. Anand Chauhan was required to 43 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 "invest the proceeds so obtained from the sale of apples in Government securities, mutual funds, in schemes of LIC or to invest the money in the products of scheduled banks by ensuring the safe and better returns." It is clear from the MOU that Shri Anand Chauhan was not to keep cash at his house. Rather, he was obliged to invest the sale proceeds in LIC policies, etc. or alternately to deposit it in banks for earning better returns. Both, the MOU requiring Sh. Anand Chauhan to keep cash from sale proceeds in bank and the contradictory statement of Shri Anand Chauhan to the effect that he kept crores of rupees of cash at his house, were available with the Assessing officer, but he simply chose to accept the contention of the assessee that a sum of Rs.1.15 crore out of the total investment of Rs.3.80 crore made during the year in LIC was out of the sale proceeds of the preceding year kept at his house. It was a matter of concern as to how such a huge cash from sale proceeds of the assessee's crop was claimed to have been kept at house by Sh. Anand Chauhan. No examination of the issue was done by the Assessing officer.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 V. GENUINENESS OF AGRICULTURAL INCOME WHETHER DOUBTED BY THE CIT 12.1. The ld. AR contended that the ld. CIT did not hold the assessment order erroneous and prejudicial to the interests of the revenue on the basis of genuineness of agricultural income earned by the assessee. It was, therefore, contended that the additional evidence filed by the ld. DR supporting the non-genuineness of the agricultural income, be not taken into consideration.
12.2. We agree in principle, as has also been noted above also that DR cannot set up a new ground justifying the revisionary order which is absent in the order. However, in the facts of the present case, it needs to be ascertained if the CIT also doubted the genuineness of agricultural income.
12.3. The ld. CIT started his revisionary order on the very premise that the assessment was completed in a routine and casual manner practically without making any effective enquiry. This has been recorded on page 1, para 2 of the order. Even in notice issued u/s 263, whose relevant part 45 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 has been reproduced on pages 2 to 6 of the impugned order, the ld. CIT noticed on page 4 that while framing the assessment, the AO simply relied on the assessment framed by ITO, Ward-1, Shimla in the case of Shri Anand Chauhan. Proper and independent inquiry should have been made by the AO himself rather than relying on the assessment framed by the AO, Ward-1, Shimla in the case of Shri Anand Chauhan. He further noticed that: "AO blindly accepted the quantum of agricultural produce as held by the ITO, Ward-1, Shimla, without going into the details knowing well that the entire fact of increased agricultural income will culminate in the case of his assessee." The AO was found not to have noticed that the agricultural income shown prior to the period of agreement and after the agreement was very low and has increased manifolds in the revised return. He opined that: "the Assessing Officer has failed to enquire into the following points:-
1) "Capacity of the orchard to arrive at the quantum of apple produce.
2) He has not tried to calculate the actual yield of apple from the above orchard.
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3) He has not enquired about the yield of other orchards adjoining to Shrikhand Orchard to arrive at the correct conclusion.
4) The variety of apple, total quantity and its prevalent market rate for different varieties were not brought on record.
5) Though the figure of sale amount being huge, he has not enquired into the reasons for which the entire crop was sold in cash.
6) The AO has not enquired about the time period in which the apple crop is ripe and taken to market.
7) The mode of transport by which the apple crops taken to the market and its freight paid
8) Actual expenditure on fertilizers, pestisizers, spray etc. relating to agricultural income
9) He has not enquired into the genuineness of bills given by M/s Universal Apple Associates, Parwanoo specifically in r/o the serial number and dates
10) Above all is not enquired into the genuineness of MOU." 12.4. Thereafter, he opined that: "the failure on the part of the A.O. to make necessary inquiries makes the order erroneous, by remaining passive and inactive, the A.O. has also caused the prejudice to the 47 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 revenue. The A.O. allowed the claim of agricultural income without putting assessee to prove or without asking the assessee to lead evidence to justify the claim of quantum of apple yield on his land." Then, on page 29 of the impugned order, the ld.CIT observed that: "in the assessment proceedings, the Assessing officer was required to verify the genuineness of agricultural income of the assessee which was invested in LIC policies in the name of the assessee and the members of HUF. The Assessing officer was required to enquire whether the orchard, namely, Shrikhand Orcard was even capable of producing such bumper apple crop which could earn the sale/income to the extent it was found to be deposited in the bank accounts of Shri Anand Chauhan". Then, on page 35 of the impugned order, the ld. CIT noticed that: "in the present case also the Assessing officer has not made essential and conclusive enquiry in respect of agricultural income and source of investment in LIC policies. The AO was found to have simply accepted the submissions made by the assessee without any material evidence. In such circumstances, the unexplained investments in the purchase of LIC policies should have been deeply enquired into and verified to arrive at 48 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the correct conclusion which he has failed." Then, he recorded on page 36 of the impugned order that the assessee: "has failed to file any explanation supported by cogent evidence regarding the quantum and genuineness of agricultural income either before the Assessing officer or before the undersigned." While summarising his discussion, as extracted above, the ld.CIT noticed that the Assessing officer blindly accepted the agricultural income and vide points 7 and 8 held that the AO did not inquire into : `The mode of transport by which the apple crops taken to the market and its freight paid'; and `Actual expenditure on fertilizers, pestisizers, spray etc. relating to agricultural income'. In the penultimate page of the impugned order, the ld.CIT concluded that:
"the Assessing officer has not made the required and essential enquiries as warranted by the facts of the case regarding the agricultural income and source of investment in LIC policies. He has not applied his mind to check whether there can be any possibility or availability of such a huge agricultural income. The Assessing officer has failed to make proper enquiries in this case and has not applied his mind in the right 49 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 perspective. This is the case where no relevant enquiries have been carried out."
12.5. The above references from the impugned order make it palpable that the ld.CIT, apart from holding the assessment order erroneous and prejudicial to the interests of the Revenue on the ground of invalid revised return and the AO not following directions u/s 144A etc., also held that the Assessing officer did not inquire into the genuineness of agricultural income declared by the assessee in the revised return. i. Evidence filed by the ld. AR 13.1. Firstly, we will deal with certain evidence placed by the ld. AR in the assessee's paper book to contend about the genuineness of agricultural income. The ld. AR invited our attention towards copies of statements of Shri Anand Chauhan recorded by the ITO, Ward-3, Shimla on 13.12.2011, 23.1.2013 and 11.2.2013 placed at pages 98 onwards, 103 onwards and 106 onwards of the paper book; a copy of assessment order dated 28.3.2013 passed u/s 143(3) in the case of Shri Anand Chauhan; and a copy of settlement of account with Sh. Chauhan to 50 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 contend that the AO conducted a proper investigation of the matter and hence the revision was not warranted.
13.2 In response to a question asked by the AO from Shri Anand Chauhan in the first statement about the incurring of expenditure on the maintenance of such orchard, which is available at page 99 of the assessee's paper book, he stated that the assessee was discharging routine expenses and all other expenses including sending crops to Mandi, such as, grading, packing and transportation were incurred by him. In response to another question on page 100 of the paper book, Shri Chauhan admitted to have received commission @ 2% on net sales. On page No.101, he was asked about the commission received during the financial year 2008-09, which was answered at Rs.2.50 lac. 13.3. Now let us examine the truthfulness of Sh. Chauhan saying and the AO accepting in terms of the MOU that Sh. Chauhan was meeting all non-routine expenses, such as, grading, packing and transportation. The ld. DR pointed out that Sh. Chauhan filed his return with a meager income of Rs.3,40,080/- from LIC agency. This shows that he did not 51 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 have any resources for incurring huge expenses on behalf of the assessee. On a pointed query, the ld. AR initially stated that his family had huge income from agricultural and he incurred these expenses from such income. It can be noticed from the second statement recorded on 23.1.2013, copy placed by the ld. AR, that Shri Chauhan admitted, in response to the question about the income of his family from apple orchards and his share in that, by stating that the apple orchards and land belonging to his family were in the name of his father only who was retaining the entire income therefrom. Only at the time of some urgent necessity, his father was helping him and he did not have any separate share in that income.
13.4. It is an admitted position that Sh. Chauhan was given commission at the rate of 2% of net proceeds only at the end of third year on expiry of the MOU. This shows that Shri Chauhan was not paid any commission during the period of three years and he was to meet all the expenses of grading, packing, freight and pesticides, etc. either from his own resources or from sale of crop during the intervening period. 52
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 13.5. Page No.117 of the assessee's paper book is a copy of composite Profit & Loss Account of M/s Shrikhand Orchards, Damrali, for the period 1.4.2008 to 31.3.2011. As against the gross apple receipts of Rs.6.91 crore, the assessee has shown indirect expenses at Rs.81.31 lac, including commission of Rs.12.19 lac paid to Shri Anand Chauhan. This shows that the remaining expenditure of Rs.69.12 lac were incurred by Sh. Chauhan during the period of three years from his own resources or from sale receipts. Nature of expenses, being, pesticides, fright and labour etc. decipher that these are ordinarily incurred before making sales. Profit & Loss Account of M/s Shrikhand Orchards for the current year ending 31.3.2010 shows that total expenses of Rs.35.24 lac were incurred including commission of Rs.5.31 lac to Shri Chauhan. It means that roughly a sum of Rs.30 lac was incurred on freight, labour, packing, pesticides, etc. by Shri Anand Chauhan from his own resources as against his marginal income from LIC. Despite such glaring inconsistencies, the AO did not raise any question as to the genuineness of the agricultural income.
53
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 13.6. Further, it has been recorded in such statements of Sh. Chauhan that no bills or vouchers for the expenses amounting to Rs.81.31 lac, incurred on Shrikhand Orchards, Damrali, were available as the same were destroyed after settling account with the assessee at the end of third year. Sh. Chouhan could not even disclose the names of the parties to whom such payments of Rs.69.12 lac were made. If the assessee's contention is accepted, it would mean that a sum of Rs.69.12 lac was incurred by Shri Chauhan as expenditure during the period of three years on behalf of the assessee and the same was accepted without even asking for any detail/supporting vouchers worth the name. 13.7. It is further befitting to note that the assessee replied to the Assessing officer, inter alia, submitting the details of expenses of Rs.4.60 lac incurred by it personally during the period 1st April, 2009 to 31.3.2010 in respect of Shrikhand Orchards, Damrali, as per the terms of the MOU. The assessee claimed that the routine expenses, such as salaries and wages in respect of Shrikhand Orchards, Damrali, were incurred by him out of agricultural proceeds from Shrikhand Orchards, 54 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 Sarahan, which was managed by Shri Narvir Janarta. The assessee submitted that out of agricultural receipts of Rs.19.60 lac from its Sarahan farm, a sum of Rs. 4.60 lac was incurred for meeting routine expenses at Damrali. A copy of the details of expenses incurred is available at page 100 of the Departmental paper book. This page starts with Shrikhand Orchards (Regd.). Below that, there is a mention of `Damrali/Sarahan'. The word 'Damrali' has been crossed and only `Sarahan' remains. This shows that the agricultural expenses of Rs.4.60 lac were claimed to have been incurred by the assessee in respect of Shrikhand Orchards, Sarahan and no amount was incurred by the assessee in respect of Damrali orchards, maintained by Shri Anand Chauhan. This position is in contrast to the MOU which explicitly provides that the assessee will incur expenses of regular nature such as salaries, etc. and Shri Chauhan will incur expenses like freight, packaging and pesticides, etc. On a query from the Bench about the source of incurring of expenditure in respect of Damrali Orchards, it was stated that a total sum of Rs.4.60 lac was incurred in respect of both the orchards at Damrali and Sarahan, which position is contrary to what the 55 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 assessee itself filed during the course of his assessment proceedings. The Assessing officer should have the courtesy to examine this aspect which had an important bearing on the determination of the quantum and genuineness of agricultural income. Once again, the AO failed on this count as well.
13.8. We also find that there is an apparent contradiction in the amount of commission stated to have been received by Shri Chauhan during the financial year 2008-09 at Rs.2.50 lac and the amount of commission of Rs.4,28,000/- shown in the Profit & Loss Account of M/s Shrikhand Orchards, Damrali, whose copy is available on page 119 of the same paper book filed by the assessee. How there could be a difference in these two amounts was not examined by the AO and neither the ld. AR could throw any light on the same.
13.9. On an overview, it comes to the fore that the assessee claimed to have received a sum of Rs.6.91 crore as net agricultural income from Shri Anand Chauhan, who was maintaining the bank account of Shrikhand Orchards in his own name and his other family members; 56
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 incurring of routine expenses by the assessee itself in respect of Damnrali orchards was not proved; a sum of Rs.69 lac was claimed to have been incurred by Shri Anand Chauhan and no bills for such expenses were available; Shri Anand Chauhan was paid a scanty commission of Rs.12.19 lac for a period of three years, and that too, at the end of the third year for such a huge responsibility of looking after the receipts of Rs.6.91 crore and making investments and incurring expenses; Shri Anand Chauhan was having a meager income of his own from which incurring of expenses of Rs.69 lac for the assessee could not be justified; and further variation in the amount of commission to Sh. Chauhan. All these factors should have definitely pressed an alarm button in the mind of the Assessing officer for giving a logical conclusion to the entire scenario, which he accepted without any whisper.
ii. Additional evidence filed by the ld. DR 14.1. After having discussed the evidence on record and that filed by the ld. AR, now we espouse the additional evidence filed by the ld. DR 57 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 to argue that the AO ought to have examined the genuineness of the agricultural income, which he did not and the ld. CIT was justified in holding the assessment order erroneous and prejudicial to the interests of the revenue on this count. Some of the additional evidenced relied by the ld. DR arose during the course of further proceedings in the hands of Sh. Anand Chauhan.
14.2. The ld. AR seriously objected to entertaining such additional evidence by contending that Sh. Anand Chauhan is a different assessee and hence the material gathered in his case should be excluded at the threshold. The ld. DR vehemently contended that Sh. Anand Chauhan's case is integrated with the assessee's case. He also placed on record a copy of the letter dated 7.11.2016 filed by the assessee itself before the Bench mentioning that the assessee's case and Sh. Anand Chauhan's case are inter-connected and, hence, be taken up together. 14.3. We are not persuaded to accept this objection raised on behalf of the assessee. In ordinary circumstances, when there are two distinct assessees, the proceedings in the case of one can have no bearing on the 58 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 proceedings in the case of the other. However, now we are confronted with a situation in which the entire proceedings in the case of Shri Anand Chauhan for the three years under consideration deal primarily and solely with the transactions carried out by him for and on behalf of the assessee. There is no shred of his separate and independent transactions which became the subject matter of revision u/s 263. We have noticed above that Shri Anand Chauhan allegedly carried out such transactions as an agent of the assessee. As the assessment orders and the subsequent revisionary orders in the case of Shri Anand Chauhan deal exclusively with the transactions conducted on behalf of the assessee, the findings recorded or the reliance placed by the ld. DR on the proceedings in his case, cannot be held as extraneous to the assessee's case. In fact, the proceedings in the hands of Sh. Anand Chauhan are shadow proceedings of the assessee and hence cannot be considered as separate and independent, so as to debar their consideration in the assessee's case. It is further pertinent to note that por una parte, the ld. AR is contending that Sh. Chauhan is a distinct assessee and no cognizance should be taken of the proceedings in his 59 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 case, por otra parte, he has himself filed a separate paper book in support of his argument of proper inquiry conducted by the AO, which contains copy of three statements of Shri Anand Chauhan recorded by the ITO, Ward-3, Shimla; a copy of assessment order dated 28.3.2013 passed u/s 143(3) in the case of Shri Anand Chauhan; and a copy of settlement of account with Sh. Chauhan. It is impermissible to blow hot and cold in the same breath. We have not only accepted such evidence but also discussed the same in an earlier para. As such, the additional evidence filed by the ld. DR cannot be brushed aside. 15.1. Now, we will briefly refer to the additional evidence filed by the ld. DR to support the viewpoint of the ld. CIT that the AO failed to examine the genuineness of the claimed agricultural income by the assessee.
15.2. The ld. DR while referring to the order passed by the Assessing officer of the assessee in consequence of the order u/s 263, submitted that the assessee did not produce the original of the MOU dated 15.6.2008 entered into with Shri Chauhan. He submitted that certain 60 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 cuttings/overwriting was found in the stamp paper register in which the name of Sh. Anand Chauhan was overwritten. This was stated to be a case of fabricated MOU on the ground that such stamp papers were in reality sold to someone else.
15.3. He also submitted that another agreement dated 7.6.2008 was entered into by the assessee with Shri Bishambhar Das for selling fruits of the same Shrikhand Orchards at Damarali. It was contended that when the assessee entered into the MOU with Sh. Anand Chauhan for the supervision of his full orchard at Damrali, how he could enter into a different agreement with Sh. Bishambhar Dass for the same orchard or its part for the same period or a part of that.
15.4. Referring to the consequential assessment order, the ld. DR pointed out that the aspect of transport of apples by vehicles from Shrikhand Orchards to Parvanoo was also examined. It was pointed out that one Shri Dinesh Kumar Sood claimed that his tippers were used for transport of apples during the apple season of financial year 2008-09 to 2010-11. That was found to be incorrect because the Parvano mandi was 61 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 not operative in financial year 2008-09 due to the ongoing four-laning of Chandigarh to Parvano highway. Details of vehicle claimed to have been used for transport of apples were provided by Shri Chunni Lal, representative of UAA. Examination of such details revealed that the vehicles, on verification, turned out to be oil tankers, scooters, motor cycle and Maruti 800 cars. Certain numbers as claimed to have been used for transport of assessee's apples were not even allotted by the RTO. It was further found during the inquiries for the assessment year 2011-12 in the assessee's own case that no entry of any of these vehicles was existing in the Government records, which fact was confirmed by the Subject Matter Specialist, Horticulture Department. It was further confirmed that no such vehicles even passed through the Apple Control Room, Fagu. The inquiries further confirmed that no such agricultural produce was ever transported from Rampur to Parvano. 15.5. The ld. DR also referred to the comparisons made by the AO of agricultural income with other prominent big apple growers for the assessment year under consideration. It was found that Shri Kanwar 62 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 Uday Singh, Raj Bhawan Road, Woodvalle Palace, Chhota Shimla had shown net agricultural income of Rs.16,24,960/- from the land of 237 bighas owned by him. Similarly, Shri Anil and his family, village Barobagh, PO Thanedar, District Shimla had declared net agricultural income of Rs.38,86,308/- from 300 bighas of land owned for the same period. In the light of these facts, the ld. DR contended that the sale proceeds from apples of 105 bighas orchard at Rs.2.80 crore declared by the assessee for the year in question, was next to impossible. 15.6. The ld. DR further tried to fortify this point by stating that it was claimed that all the transactions of the sale of apple crop by Shri Anand Chauhan on behalf of the assessee during the year under consideration were made only to UAA. Not only that, the ld. DR submitted that, during the entire period of three years, covered under the MOU, the alleged sale of Rs.6.91 crore was claimed to have been made only to UAA. Referring to pages 50 to 92 of the Departmental paper book, being copies of the so called 'Sale proceed' issued by UAA, the ld. DR contended that when the assessee was making sales, how UAA could 63 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 issue sale invoices designated as 'Sale proceed'. He submitted that the sale invoices should have been issued by the assessee rather than UAA. He also drew our attention towards these 'Sale proceed' to demonstrate that though there was a column of truck number, but, that was miserably left blank in all such documents. He also submitted that these computerized bills allegedly issued by UAA were bogus as could be seen that the Bill placed at page 86 of the paper book bearing No.1780 has been dated 15.10.2009 and the next bill no. 992 has been dated 18.10.2009. The bill dated 15.10.2009 should have a number prior to that issued on 18.10.2009, whereas it was the converse case. The ld. DR submitted that though the Assessing officer called for the assessment records of Shri Anand Chauhan by co-coordinating with his Assessing officer, but, failed to note such glaring inconsistencies which ought to have struck him.
15.7. The ld. DR also referred to inquiries with fruit merchants who were reported to have paid advance to Shri Anand Chauhan against the sale of the assessee's apple crop. Such inquiry divulged that as against 64 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the statement of account of Shri Anand Chauhan that he received a sum of Rs.1 crore in cash during May, 2010 as advance from UAA, there were no corresponding entries of cash payment in the books of UAA. It further transpired that Shri Chunni Lal on behalf of UAA claimed to have paid cash by 13 different firms across the country through him. Further inquiries were conducted from these 13 firms which divulged that either such firms were not existing/not traceable or they had not paid any amount.
15.8. In the light of the above submissions, the ld. DR contended that it was a case of fictitious sales of apple crop entered by the assessee through Shri Anand Chauhan and, hence, the entire amount recorded was his concealed income.
15.9. The ld. DR also referred to certain findings given by the Directorate of Enforcement. He submitted that the inquiry was conducted from Indian Security Press, Nasik with regard to the stamp papers used for signing the agreement dated 17.6.2008 with Shri Bishambar Das and Shri Ram Ashray Thakur, Manager of Shrikhand 65 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 Orchards. The competent authority was specifically asked to provide the dates of printing and dispatch of the stamp papers with the serial numbers which were used for signing of the said agreement. The Indian Security Press, Nasik, intimated that the said stamp papers were dispatched on 24.9.2008 and 14.3.2009, respectively which was well after the alleged signing of the agreement dated 17.6.2008. It was, therefore, submitted that the ante dated agreement was fabricated to show some agricultural income which evidenced that there was no agricultural income generated from the said orchard even on the basis of agreement dated 17.6.2008.
15.10. He also referred to certain inquiries conducted by the Enforcement Directorate with the stamp vendor with reference to the stamp papers used for the MOU dated 15.6.2008. Such inquiries transpired that the stamp paper for the MOU with Shri Anand Chauhan was claimed to have been purchased from the stamp vendor, Smt. Urmila Ghalta, who was summoned, and her husband, who appeared on 66 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 her behalf along with the stamp vendor register submitted that these stamps were issued to someone else.
16. Thus, it is obvious that the submissions made by the ld. DR, which are contained on pages 19 onwards of his written submissions, covering the findings recorded in the assessment order passed u/s 143(3) pursuant to the impugned order and the inquiries conducted by the Enforcement Directorate and others simply reinforce the ld. CIT's opinion about the non-examination of genuineness of the receipts of agricultural income by the AO. The above discussion fairly indicates that the Assessing officer miserably failed in conducting requisite inquiry which was warranted in the given circumstances.
17. The assessment order having been passed by accepting the revised return of income, inconsistent with the mercantile system of accounting followed by the assessee; ignoring the vital directions given by the Addl.CIT u/s 144A; not correctly examining the difference between the amount of agricultural income and the amount invested in LIC; and failing to notice the factual matrix discussed above emanating from the 67 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 evidence on record, filed by the assessee and the ld. DR, in our considered opinion, rendered the assessment order erroneous and prejudicial to the interests of the Revenue.&& VI. LEGAL PROPOSITIONS
i) Whether the AO conducted adequate inquiry ?
18.1. The ld. AR submitted that the Assessing officer made proper inquiry in this case. To buttress this submission, he invited our attention towards page 9 of the assessee's paper book, which is a copy of notice dated 25.10.2012 issued by the Assessing officer u/s 143(2) of the Act and another notice on page 10 of the paper book seeking necessary details for the purposes of completion of assessment. He referred to page 13 of the paper book, which is a reply furnished by the assessee to the Assessing officer's notice. It was pointed out that the Assessing officer inquired about the increase in the agricultural income in the revised return and appropriate reply was given submitting various details as called for by him including a copy of the MOU dated 15.6.2008 with Shri Anand Chauhan. Referring to page 34 of the paper book, the ld. 68
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 AR submitted that this was the reply given by the assessee in response to order sheet entry of the Assessing officer. It was stated that the Assessing officer sought directions from the Addl. CIT u/s 144A of the Act and also issued notice to Shri Anand Chauhan, whose copies are available on pages 38 and 39 of the Departmental paper book. Then, the ld. AR referred to the reply given by Shri Anand Chauhan furnishing the necessary details, whose copy is available on page 40 of the paper book. Directions were also issued by the Additional CIT u/s 144A, inter alia, requiring the Assessing officer to coordinate with the Assessing officer of Shri Anand Chauhan. The ld. AR submitted that the Assessing officer wrote a letter to the Assessing officer of Shri Anand Chauhan seeking details of investigations carried out in his case. The Assessing officer of Shri Anand Chauhan furnished reply to the Assessing officer. One more notice dated 11.2.2013 was issued to the assessee, whose copy has been placed at page 96 of the paper book, seeking details as directed by the Addl. CIT. The ld. AR contended that the assessee gave befitting reply to it as well, which is available on page 97 onwards of the paper book. He also referred to the three statements of Shri Anand Chauhan 69 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 recorded by his Assessing officer which were also taken into consideration by the Assessing officer of the assessee before finalising the assessment. In the light of the above material, the ld. AR contended that there was no shortcoming on the part of the Assessing officer in so far as the conducting of inquiries qua the assessee's assessment was concerned.
18.2. The ld. AR argued that the view point that the Assessing officer did not conduct any inquiry was erroneous and at the most and going by the standpoint of the CIT, it could be a case of inadequate enquiry and not a non-inquiry by the Assessing officer. Referring to certain judgments including CIT Vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Delhi), the ld. AR contended that revision is not possible in case of inadequate inquiry and the same can be done only when the Assessing officer fails to conduct any inquiry before finalising the assessment. This was opposed by the ld. DR with several judgments indicating the justifiability of revisionary order in the circumstances as are prevailing before us.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 18.3. Having regard to the detailed discussion made above on the factual position obtaining in this case, even de hors the additional evidence filed by the ld. DR, it is evident that the Assessing officer, albeit, sought certain details from the assessee, Shri Anand Chauhan and the Assessing officer of Shri Anand Chauhan, but, remained dormant on the same. Such details were simply placed on record without further probe, which was prima facie warranted in the circumstances. He ought to have scrutinized the extent and genuineness of the alleged agricultural income shown by the assessee, which was not only huge in comparison with the income shown by the assessee in the periods prior to and later than the period covered by the MOU, but also the income earned by the family of Shri Anand Chauhan from their own separate orchard. The alleged sales to UAA also raised severe doubts coupled with the fact that there was no evidence of incurring expenses on transportation, packing and insecticides, etc. Apart from that, the entire arrangement with Shri Anand Chauhan, under which he was supposedly given an authority to manage Shrikhand Orchard, Damrali, in such a way that he remained in control of cash running into several crores in contradiction of the terms 71 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 of the so-called MOU, also necessitated inquiry. All these factors were crying hoarse to conduct further inquiry and find out not only the extent, but also the genuineness of the claimed agricultural income of Rs.2.65 crore. Even the directions given by the Addtl. CIT were not heeded to a greater extent. The above issues should have been the corner stone for the Assessing officer to embark on further inquiry to unearth the truth. Confronted with such peculiar and hair-raising circumstances, the Assessing officer should have got alerted and dug the matter deep for unearthing the reality of the transaction. Unfortunately, nothing of this sort was done by him which is a perfect example of complete non- application of mind by the Assessing officer and of passing the assessment order in undue haste. In our considered opinion, the Assessing officer miserably failed to examine all such relevant aspects which were clear pointer towards the no or bleak probability of earning such a huge agricultural income.
18.4. The Hon'ble Supreme Court in Sumati Dayal Vs. CIT (1995) 214 ITR 801 (SC) considered a question whether the apparent can be 72 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 considered as real. It was observed that apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. It was further observed that an inference should be drawn on the basis of the circumstances available on the record. Considering the circumstances of the transaction in that case, the Hon'ble Supreme Court held that an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event and the authorities were right in drawing an adverse inference against the assessee. The circumstances as discussed in earlier paras indicate that the apparent was not prima facie real and further investigation was called for, which the AO did not carry out.
18.5. Now we take up the argument of the ld. AR that since the AO conducted inquiry, which might not have been adequate from the standard of the ld. CIT, no revision was possible because the power u/s 73 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 263 can be invoked only in cases of lack of inquiry and not inadequate inquiry. We partly agree with the contention that where an inquiry is conducted by the AO and he gets satisfied with the genuineness of the transaction, then the CIT cannot intervene through revision for coming to a conclusion that the assessment order passed by the AO was erroneous and prejudicial to the interests of the Revenue. The crux of the matter is that the AO should conduct inquiry to satisfy himself about the genuineness of transactions. Scope of the term `inquiry' can be diverse in different circumstances. There can be no straitjacket formula to positively conclude as to the conducting or non-conducting of an `inquiry' by the AO. While, in some cases, collection of necessary material by the AO may give an inference about conducting an `inquiry', in others, mere obtaining and placing the documents on record may not be equalized with conducting an inquiry. It depends upon the facts and circumstances of each case. Where the facts are just ordinary and prima facie there is nothing untoward the recorded transaction, the obtaining of the documents and the application of mind thereon, without a further outside inquiry, may mean that the AO did conduct inquiry, 74 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 leaving the question open as to whether it was a proper or an improper enquiry. But, where the factual scenario of a case prima facie indicates abnormalities and cry for looking deep into it, then a mere collection of documents cannot be held as conducting inquiry, leave aside, adequate or inadequate. In such later cases, only when the AO, after collection of the initial documents, embarks upon the further detailed investigation, that we can say that he conducted inquiry. Where the facts of a particular transaction gravelly demonstrate about its non-genuineness and even a casual look at such facts, prima facie, divulges foul play, then the AO must make further examination. Collection and placement of papers on record in such a situation cannot be construed as conducting a proper inquiry. If in such circumstances, the AO simply gathers documents and keeps them on record, then such nominal inquiry falls within the overall category of `no inquiry' because of the inaction on the part of the AO to read a writing on the wall.
18.6. At this juncture, we would like to deal with the judgment of the Hon'ble Calcutta High Court in CIT vs. Maithan International (2015) 75 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 375 ITR 123 (Cal) . The assessee in that case obtained loans aggregating to Rs.1.60 crore from six private limited companies ranging between Rs.7 lac to Rs.1.10 crore. These companies had filed their returns with nominal income. The AO mentioned in the assessment order that Inspector was deputed to verify fresh loans received during the year. The Inspector verified such loans and gave a positive report. Keeping such report on record, the AO accepted the genuineness of the transactions. The CIT invoked section 263 by observing that the report given by the Inspector was very elementary and simply mentioned that he had verified bank passbooks, Profit & loss account and Balance sheets of these companies. In none of the reports, he had commented on the issue of credit worthiness of the parties. The CIT opined that the AO was required to make proper investigation to determine whether the loans were really made by the third parties or they had come out of the sources of the assessee himself. The Tribunal set aside the order u/s 263 of the Act by observing that the AO did conduct inquiry and: "if there is an enquiry, even inadequate, that would not by itself give occasion to the ld. CIT to pass order u/s 263 of the Act." Setting aside the order passed 76 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 by the Tribunal, the Hon'ble High Court laid down that : "CIT had reasons to hold that credit worthiness of the alleged lenders was not enquired into." It further went on to hold that a mere examination of the bank passbook, Profit & loss account and Balance sheet was not enough. When the requisite inquiry was not made, the Hon'ble High Court held that, the assessment order was to be treated as erroneous and prejudicial to the interests of the Revenue. It also set aside the view of the Tribunal on inadequate enquiry by holding that: "If the relevant enquiry was not made, it may in appropriate cases amount to no enquiry and may also be a case of non-application of mind." It further observed that the question of inadequate enquiry should be understood in its proper perspective and: "if it can be shown that the inadequate enquiry led the AO or may have led into assumption of incorrect facts, that could make the order erroneous and prejudicial to the interests of the revenue." Setting a bad trend has also been held to be prejudicial to the Revenue. Similar view has been recently taken by the Hon'ble Calcutta High Court in Rajmandir Estates P. Ltd. VS. Pr. CIT (2016) 386 ITR 162(Cal). 77
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 18.7. When we comparatively consider the instant case vis-a-vis Maithan International (supra), it can be seen that the facts under consideration are on a much weaker footing. In the present case, the AO obtained certain documents and got satisfied, whereas in the case of Maithen International (supra), an Inspector was also deputed to conduct a further inquiry in addition to the collection of documents etc. as has been done in the instant case.
18.8. Decision of the Hon'ble Full Bench of the Guwahat High Court in the case of Jawahar Bhattacharjee reported in (2012) 341 ITR 434 (Gau.) (FB) is also an authority for the proposition that : "not holding such enquiry as is normal and not applying mind to the relevant material in making an assessment would certainly be erroneous assessment warranting exercise of revisional jurisdiction". 18.9. Testing the facts of the present case on the touchstone of the ratio decidendi of the above cases, we have no hesitation in holding that the present case is a glaring example of not making relevant inquiry, which amounts to `no inquiry' and hence it becomes a case of non- 78
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 application of mind by the AO. Admittedly, the Assessing officer did issue notices and obtained replies from the assessee. But, when the primary facts as brought on record through the replies of the assessee, statement of Shri Anand Chauhan and other relevant material obtained from the Assessing officer of Shri Anand Chauhan, were pointing out objectively towards a need to carry out further investigation, which the Assessing officer failed, it will be called as a case of passing the assessment order in undue haste without application of mind. This argument, therefore, fails.
ii. Debatable issue 19.1. The ld. AR then contended that the AO took a possible view in accepting the genuineness of agricultural income. It was stated that the ld. CIT took another view in not accepting the genuineness of transaction on the same set of facts. Taking a possible view on a debatable issue, in the opinion of the ld. AR, took the assessment order out of the purview of revision u/s 263. In support of this contention, he relied on the judgment of the Hon'ble'ble Supreme Court in the case of 79 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 Malabar Industrial Company Vs. CIT (2000) 243 ITR 83 (SC). In fact, the ld. DR also relied on this judgment to buttress his point. 19.2. Since both the sides have heavily banked on this judgment, let us examine the facts of the case. The assessee therein entered into an agreement for sale of the estate of rubber plantation. The agreement provided for payment of the consideration in instalments. The purchaser could not adhere to the schedule and, on his request, the parties agreed to the extension of time for payment of instalments on the condition of his paying compensation/damages for loss of agricultural income. The purchaser paid this amount. In the annexure to the return, the assessee noted it as a compensation for loss of agricultural income which was accepted by the Assessing officer. The CIT invoked his revisionary power calling upon the assessee to explain as to why this amount of compensation/damages be not treated as income chargeable to tax under the head 'Income from other sources' as against 'Exempt agricultural income' claimed by the assessee and accepted by the Assessing officer. After considering the reply, the CIT set aside the assessment order. The 80 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 Tribunal dismissed the assessee's appeal. When the matter finally came up for adjudication before the Hon'ble'ble Supreme Court, their Lordships approved the revisionary order by holding that : "an incorrect assumption of fact or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or ..........passed without application of mind." Their Lordships further held that the phrase 'prejudicial to the interests of the Revenue' is of wide import. Thus, it is apparent that the non-application of mind by the Assessing officer validly brings an assessment order within the fold of section 263. This judgment supports the view of the ld. DR. 19.3. The reliance of the ld. AR on this judgment to contend that if two views are possible and the Assessing officer takes one possible view, the CIT cannot revise the order, is definitely a settled position not requiring any debate. But the fact of the matter is that before categorizing a particular issue within the ken of `debatable issue', it is sine qua non that there should be two possible views. The ld. AR has also relied on the 81 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 judgment of the Hon'ble Summit Court in Max India Ltd. (supra) for the same proposition. It has been held in the later case that no revision is possible on a debatable issue. In this case, when the CIT passed the impugned order under s. 263, two views were inherently possible on the meaning of the word "profits" occurring in the proviso to section 80HHC(3). Subsequent amendment of section 80HHC was made in the year 2005, though retrospectively. The Hon'ble Apex Court held that it did not render the order of the AO erroneous and prejudicial to the interest of the Revenue and CIT could not exercise power under section
263. Be that as it may, we find that to bring a case within the four corners of a debatable issue and the Assessing officer following one possible view, it is necessary that he should have taken a legally sustainable view. If the Assessing officer simply accepts the contention advanced before him without requiring any investigation which is prima facie warranted, it cannot be said that the Assessing officer took a possible view, which the CIT could not revise u/s 263. If the contention of the ld. AR is upheld that when the AO decides a particular issue, rightly or wrongly, he takes a possible view, then the provisions of 82 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 section 263 will be rendered redundant. In fact, it is only when the AO takes one view on the matter, which is legally sustainable at that point of time, that the power of CIT u/s 263 is ousted. Taking a wrong view on a matter or blindly accepting the case without any application of mind, do not fall within the realm of the AO taking a possible view so as to forbid the CIT from exercising revisionary power.
19.4. We find that the facts and the ratio decidendi of Max India Ltd. (supra) are nowhere close to the facts prevailing in the instant case. It is not the case that the AO took a possible view, which the ld. CIT substituted with his own view. Rather, we are confronted with a situation in which the AO remained passive and did not either obtain the relevant information or did not act on the material as was there before him, which ex facie required thorough verification. So, this is a case of not taking a view at all and not that of taking a possible view on the matter. The Hon'ble Supreme Court in the above case has held that where 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 83 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 interest of the Revenue `unless the view taken by the ITO is unsustainable in law'. The instant case is covered under the exception as italicized, being the AO taking a view which is not sustainable in law. Turning to the facts, we find that the AO simply accepted the material available before him. No quasi judicial authority equipped with a sound mind could have formed a view as to the genuineness and the correctness of the extent of agricultural income declared by the assessee in the given circumstances without further investigation. Thus, it is wholly inapt to contend that the Assessing officer made proper inquiry and took a possible view in accepting the declared agricultural income as such.
iii. CIT should have himself shown infirmity in the assessment order rather than sending the matter back to the AO 20.1. The ld. AR, relying on certain decisions, contended that before branding the assessment order as erroneous and prejudicial to the interests of the Revenue, it was incumbent upon the CIT to expressly show mistakes in the assessment order making it erroneous and 84 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 prejudicial to the interest of the revenue. A mere mention in the order of the CIT that proper inquiry was not conducted, in the opinion of the ld. AR, was an incorrect appreciation of the provisions of section 263. So long as there is an evidence on the record of the AO about conducting of a proper inquiry, the ld. AR argued, that the ld. CIT cannot invoke the provisions of section 263. The sum and substance of the submission was that before assuming jurisdiction u/s 263, the ld. CIT was supposed to point out where the AO went wrong. It was further submitted that if the ld.CIT was not satisfied with the income accepted by the Assessing officer in the assessment order, he should have himself carried out the necessary investigation during the course of proceedings u/s 263 and determined the amount of income which the assessee, in his opinion, genuinely earned from agricultural operations.
20.2. We agree with the legal proposition advanced by the ld. AR, but in our considered opinion, the same does not apply to the facts of the instant case. Such a proposition applies where the AO has made proper enquiry and still comes to a wrong conclusion, which renders the 85 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 assessment order erroneous and prejudicial to the interest of the revenue. In such circumstances, it becomes the duty of the CIT to expressly point out where the AO went wrong on merits. But in a case, where no inquiry has been conducted at all or the so-called inquiry conducted by the AO is as good as no enquiry, as is the case under consideration, in such circumstances, the CIT simply needs to point out those relevant aspects of assessment, which the AO lost sight of, but were required to be properly probed. In such cases, the assessment order is set aside with the direction to the AO for looking into the matter afresh and then deciding the issue properly. There can be no way for the CIT to tell erroneous approach of the AO on merits in such circumstances because the view of the AO on merits is not available. Requiring the CIT to indicate where the AO went wrong on merits in `no inquiry cases', is like requiring an impossible thing to be done. It is axiomatic that the law does not require an impossible to be complied with. We are reminded of the legal maxim, `Lex neminem cogit ad vana seu impossiblia', which means that the law compels no one to do impossible things. When we approach the facts of the case under consideration, it becomes manifest 86 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 that the extent of inquiry conducted by the AO, being as good as no inquiry, was sufficient in itself to empower the CIT for invoking his jurisdiction u/s 263 cancelling the assessment and directing a fresh assessment to be made.
20.3. Our view is further corroborated by the language of section 263, which gives plenary powers to the CIT by providing in sub-section (1) that the CIT may: "pass such order as the circumstances justify including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment." Though it is within the power of the CIT to modify the assessment as he considers expedient after making necessary inquiry, at the same time, he is equally empowered to cancel the assessment and direct a fresh assessment, of course, after pointing out that the Assessing officer failed to make an inquiry as was required in the case. In the instant case, the ld.CIT chose the statutory option given to him and took an unimpeachable view in cancelling the assessment and directing a fresh assessment. No fault can be found with the same.
87
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 20.4. Similar position has been laid down by the Delhi High Court in Gee Vee Enterprises vs. Addl. CIT and Others (1975) 99 ITR 375 (Del), in which the assessee was incorporated with the object of acquiring loan and making construction. It purchased some bungalow after borrowing loans as its share capital was very limited. Some of the directors and shareholders of that assessee company entered into partnership. An agreement was entered into between two sister concerns. The partnership was to complete a multi-storied building on the plot after taking advances from the licensee to whom flats in the building were to be allotted. The partner was to keep 90% of its money and pay 10% of it to the company as consideration for this agreement. In view of the 10% of the money so received, the company was to issue shares to licensees who were to take up the flats. The ITO made the assessments of the company and the firm on that basis apparently without ascertaining the truth of the facts. Thereafter, revision was done by the CIT and the matter went before the Hon'ble Delhi High Court. The assessee contended that the ITO had made the enquiries and was satisfied about the truth of the facts and hence revision was not maintainable. Repelling 88 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the contention advanced on behalf of the assessee, it was held that the:
"CIT was justified in exercising his revisional jurisdiction on the ground that the ITO had not made sufficient enquiries before granting registration to the firm and it was not necessary for the CIT to have himself made enquiries before cancelling assessment." In our considered opinion, this judgment is an answer to the contention put forth on behalf of the assessee that the CIT must initially indicate the mistake in the assessment order on merits by making proper enquiry at his end before cancelling assessment under section 263. This judgment makes it palpable that the very fact that the ITO "had not made sufficient enquiries before granting registration to the firm" was considered as sufficient enough to clothe the CIT with the power to revise the assessment order and it was not considered necessary in such circumstances: "for the CIT to have himself made enquiries before cancelling the assessment." Similar view has been taken by the Hon'ble Supreme Court in the case of Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC) holding that an assessment made by the AO "in undue haste without making any enquiry" would render an assessment order 89 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 erroneous and prejudicial to the interests of the revenue. Similar view has been reiterated by the Hon'ble Apex Court in Smt. Tara Devi Aggarwal vs. CIT (1973) 88 ITR 323 (SC). We have held in earlier parts of this order that the assessment order under consideration was passed in undue haste, thereby making it rightly eligible for revision by the CIT u/s 263 of the Act. In view of the foregoing discussion, we are satisfied that the ld. CIT was right in setting aside the assessment order and directing the AO to make a fresh assessment. The impugned order is, therefore, countenanced.
21. In the result, the appeal is dismissed.
ANAND CHAUHAN (A.Y. 2010-11)
22. Briefly stated, the facts of the case are that the assessee filed return declaring total income of Rs.3,40,080/- which was processed u/s 143(1) of the Act. Perusal of the AIR information revealed that the assessee had deposited huge cash amounting to Rs.2,12,72,500 in his bank accounts during the year. This was not reflected from the return of 90 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 income. Notice was issued u/s 148 on account of non-disclosure of bank accounts. The assessee filed revised return, but, did not submit any information in respect of cash deposits in the bank account. On specifically required to explain cash deposit entries in the PNB account, the assessee deposed, vide his statement recorded on 23.1.2013, that the cash deposited in the bank account pertained to Virbhadra Singh (HUF) received against the sale of apple crop pursuant to the MOU dated 15.6.2008 entered into by Virbhadra Singh (HUF) him with. In support of this, he furnished copies of bills issued by M/s Universal Apple Associate (UAA) to whom he sold apple crop on behalf of Virbhadra Singh (HUF). The Assessing officer accepted the statement of Shri Anand Chauhan that all the activities carried out at Shrikhand Orchards, Damrali, pertained to Virbhadra Singh (HUF) and the assessee was only an agent. He required the assessee to furnish the details of expenses incurred for the purpose. The assessee gave such details of expenses totalling to Rs.35.24 lac including his commission. When asked to substantiate such expenses with necessary bills and vouchers, the assessee submitted that these bills were destroyed after the owner of the 91 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 orchard agreed on the amount spent by him. The Assessing officer held that expenses only to the tune of Rs.15 lac could be accepted as genuine as against expenses of Rs.29.93 lac claimed to have been incurred apart from commission to the assessee. He, therefore, made disallowance of Rs.14,93,613/- apart from some other small disallowance of Rs.25,000/- in relation to LIC business and determined total income at Rs.18,58,700/-.
23. The Ld. CIT, on perusal of record, noticed that the Assessing officer simply relied upon the commission issued u/s 131 to the ITO, Rampur for the A.Y. 2009-10 and did not inquire about the "genuineness of apple crop in Shrikhand Orchards under MOU arrangement." He further noticed that the Assessing officer restricted his enquiry limits to find out the ownership of land at Shrikhand Orchards, Damrali measuring 105 bighas and number of apple trees on that, but, failed to inquire the variety of apples along with its market rate; why such huge crop sale was made in cash; actual yield of apple from the above orchard; and the time period in which apple crop ripens and is taken to 92 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the market. He further held that the Assessing officer accepted the claim of sale proceeds without requiring the assessee to lead evidence to justify the quantum of apple yield on the above land. He still further observed that the Assessing officer sought directions from the Addl. CIT u/s 144A. He has referred to non-compliance of such directions by the Assessing officer. Specific details have been given on pages 9-11 of the impugned order about the directions issued by the Ld. Addl. CIT u/s 144A which were not complied with by the Assessing officer. The Ld. CIT also noticed that the Assessing officer did not examine the genuineness of the sale transactions inasmuch as the bills issued by UAA were not proper as the columns of registration number, contract number, truck number, etc. were left blank. Serial number on the bills along with dates were also found to be not in chronological order. These were computer generated bills and the Assessing officer did not make any attempt to ascertain the genuineness of the bills. This aspect has been discussed on page 12 para 5 of the impugned order. He further noticed that the net agricultural income from orchards was shown at Rs.2.65 crore and odd, whereas total investment in purchase of LIC 93 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 policies in the name of Virbhadra Singh (HUF) and his family members was Rs.3.84 crore and odd and the assessee's explanation that there was surplus cash in hand at the beginning of the year was accepted without any verification as to how Shri Chauhan could have kept cash of Rs.1.03 crore as on 1.4.2009 when he was maintaining bank account on behalf of Virbhadra Singh (HUF). He further noticed on page 22 of his order that the Assessing officer did not make essential and conclusive inquiry in respect of cash deposits in the bank account and, in the absence of such inquiry, the cash deposits remained unexplained warranting addition u/s 69 of the Act, which the Assessing officer did not carry out. The Ld.CIT noticed on page 26 of his order that the Assessing officer went on inquiring about the expenses incurred without examining the sales aspect. He found that: "in the absence of the requisite information, one of the alternatives left with the A.O. was to make the reference to other apple growers", which he did not. He summarised his view as under:-
i. "The A.O. failed to ascertain whether the srikhand orchard is capable to producing this much quantum of apple produce and to ascertain its value that may enable the assessee to receive huge cash and deposit the same into bank accounts from which the LIC policies worth Rs. 3,84,92,500/- can be purchased. 94
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 ii. The AO has failed to inquire from where the assessee has invested the over and above funds for purchasing the LIC policies worth Rs. 3,84,92,500/- when the agriculture income was Rs.2,65,92,500/- meaning thereby the unexplained source of Rs. 1.19 crores.
iii. The assessee claimed that in the previous year i.e. A.Y. 2009-10, he had sold apple crop worth 89 lac to the visiting traders of which no evidence was obtained by the A.O. by accepting this contention of the assessee without any documentary evidence and also the version of the assessee that there was cash in hand of the previous year to make the A.O. failed to arrive at the right conclusion that this unexplained source of Rs. 1.19 crore is to be fixed in the A.Y. 2010-11.
iv. The A.O. has failed to comply the directions of the Addl.
Commissioner of Income Tax, Shimla Range, Shimla u/s 144A of the Income Tax, 1961 as discussed in above paras and more particularly to ascertain the quantum of the agriculture apple crop from other major producers of the same areas as well as from Horticulture Department and other relevant agencies regarding per tree yield and rate."
24. In the light of the foregoing discussion, the ld. CIT held the assessment order erroneous and prejudicial to the interests of the Revenue. The same was set aside and the Assessing officer was directed to frame a fresh assessment in accordance with the law, facts and after making due inquiries. The assessee is aggrieved against the findings recorded by the Ld.CIT.
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25. The Ld. AR submitted that the Assessing officer conducted proper inquiries in this case. In support of the same, he relied on the notice dated 10.1.2013 issued by the Assessing officer calling for information during the assessment proceedings and the assessee's reply thereto which is available at pages 9-14 of the paper book. He further submitted that the statement of Shri Anand Chauhan was recorded whose copy is available on page 15 of the paper book. He also referred to the Office note, which is part of the assessment order, as given on page 143 onwards of the Departmental paper book. The Ld. AR contended that all the issues accepted by the Assessing officer have been discussed in the Office note in which he, inter alia, accepted the genuineness of the agricultural income shown by the assessee from Shrikhand Orchard, Damrali, under the MOU arrangement. It was, thus argued that there was no reason to brand the assessment order erroneous and prejudicial to the interests of the revenue, so as to qualify for revision u/s 263 of the Act.
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26. We have heard the rival submissions and perused the relevant material on record. Before proceeding further, we want to record that Sh. Sudhir Sehgal, the ld. AR raised all the preliminary objections about the scope of evidence, additional evidence and passing of separate order before admission of addition evidence, as were raised in the case of Virbhadra Singh (HUF). For the reasons given in our order passed above in the case of Virbhadra Singh (HUF), such objections are not allowed.
27. On merits, we find that the Assessing officer accepted the assessee's explanation that he carried out activities at Shrikhand Orchards, Damrali, on behalf of Virbhadra Singh (HUF) and also accepted that the deposits made in the assessee's bank account were on account of genuine crop sales made by him. In doing so, he relied on the proceedings of assessment for the preceding year in the assessee's own case. We find the assessee's plea about the AO calling for the details as noted above is correct, to this extent. However, in our considered opinion, the so-called inquiry made by the Assessing officer is nothing 97 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 short of a mere sightless acceptance of the assessee's version without any verification. In other words, this is as good as `no inquiry' conducted by the Assessing officer in the given facts and circumstances. We have made elaborate discussion above on this aspect in our order passed in the case of Virbhadra Singh (HUF) for the same assessment year. Since the transactions under challenge in the case of the assessee are, in fact, the transactions of Virbhadra Singh (HUF), we do not wish to repeat the same here once again and adopt them as such.
28. Apart from the above, we are inclined to uphold the impugned order on the following further reasons.
i. The assessee kept on asking the Assessing officer to call Virbhadra Singh (HUF) and make necessary inquiries about the transactions concerning Shrikhand Orchards, Damrali, which the Assessing officer did not. He simply accepted the assessee's point of view on all the transactions pertaining to Virbhadra Singh (HUF) without even bothering to take any confirmation from it.
98
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 ii. The assessee stated before the Assessing officer in his statement, which is available on page 15 of the assessee's paper book, that roughly 80% of the sales were made to UAA and rest of the sales were made to visiting traders. As against that, the assessee had shown sales only to UAA. The AO completely lost sight of the fact that why the remaining 20% sale, as admitted by Shri Anand Chauhan, were not recorded. iii. The Assessing officer failed to note that the bills issued by UAA did not refer to quality of apple, whereas there were wide variations in the sale rates. This can be seen from page 84 of the Departmental paper book which is bill No.3540 dated 12.8.2009 of UAA. There is reference to 310 cases in which rate has been shown as Rs.900 per box and for another 105 cases, the rate is Rs.550/- per box. On bill No.1989 dated 19.8.2009, the rate charged for 403 cases has been shown as Rs.1780/- per case. There is no reference to any quality of the apples sold. While discussing the case of Virbhadra Singh (HUF), we have noticed several anomalies in such sale bills issued by UAA, being a purchaser. It is only a seller, who issues bills and not the purchaser. It is further 99 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 observed that there is inconsistency in the bill numbers and dates. Whereas bill dated 12.8.2009 is having number 3540, the bill of a later date, namely, 19.8.2009 is having no.1989. Numbering on the bills should have been the other way round. Though these bills were available with the Assessing officer, but he did not notice these glaring deficiencies.
iv. The Assessing officer observed vide his notice dated 8/11.3.2013, whose copy is placed at page 19 onwards of the assessee's paper book, that the amounts shown as cash received from UAA and the amount deposited in the bank indicated that a huge sum of Rs.2.91 crore from the alleged sale of crop remained with the assessee for a period of more than six months; Rs.2.41 crore remained with the assessee for two months; apart from a sum of Rs.1.41 crore remaining with the assessee for a period of 25 days etc. While discussing the case of Virbhadra Singh (HUF) above, we have observed that the MOU required the assessee to deposit cash in bank account so as to earn better returns. Despite noticing that a huge cash out of sale proceeds was shown to 100 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 have remained with the assessee at his house, the Assessing officer did not proceed to discover the reasons for deviation from the terms of the MOU, which is a crucial factor and required investigation, which the AO did not.
v. As regards the genuineness of agricultural income shown by the assessee from Shrikhand Orchards, Damrali under the MOU arrangement, the Assessing officer mentioned in his Office note annexed to the assessment order that in the assessment of the assessee for the A.Y. 2009-10, the Assessing officer issued commission to the ITO, Rampur, Bushahr, Shimla in order to verify the area under orchard land holding and number of total apple trees. He left this aspect from consideration for the year under consideration by observing : "therefore, verification of these facts, again, was not required. Further, sale of apple crop to M/s Universal Apple Associates is verifiable from sale bills as well as books of account." This shows that the Assessing officer simply relied on the proceedings for the A.Y. 2009-10 for holding the agricultural income of the current year to be genuine. No verification 101 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 was made for the transactions of the current year. He further held that sale to UAA was verifiable from sale bills. We have noticed in an earlier para about the veracity of sale bills issued by UAA. These bills were although available with the Assessing officer, but, he did not notice the alarming inconsistencies in them as have been discussed above. vi. In Office note No.2 to the assessment order, the Assessing officer stated that sale of Rs.89.80 lac was made to visiting traders in addition to sale of Rs.1.50 crore to UAA. He recorded that: "the assessee, however, did not provide details of such visiting traders. Therefore, this information is being passed on to the ACIT, Shimla, for taking necessary action, if any, required in the case of Shri Virbhadra Singh for A.Y. 2009-10 on the basis of this fact." When the Assessing officer himself noticed that cash sale of Rs.89.80 lac was admitted by the assessee to have been made to visiting traders, it was obligatory on his part to see where such sale was recorded in the books of account. As against this position, the Ld.AR admitted that sale of Rs.89.80 lac was not made directly to visiting traders, but the entire sale amounting to Rs.2.39 crore 102 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 was made to UAA. The AO, instead of examining the issue at his hand, conveniently passed the buck to the ACIT Shimla for taking necessary action, if warranted.
vii. In Office note No.3, the Assessing officer noticed that ITO, Ward- 2, Shimla passed on information that during the financial year 2009-10, the assessee had paid cash amounting to Rs.49.50 lac to one Shri Megh Raj Sharma, Development Officer of LIC for purchasing of LIC policies in the name of Smt. Pratibha Singh, w/o Shri Virbhadra Singh. He further noticed that: "the fact was verified from cash book maintained by my assessee which revealed that he had paid to Shri Megh Raj Sharma a sum of Rs.1 crore and not Rs.50 lac as intimated by ITO, Ward-2, Shimla. There is also some discrepancy of dates of payments........ Thus, the books of the assessee suffer from some defects. However, this is not going to have any impact in the present case since the assessee had paid cash out of MOU income which was available in books." This, again, shows that how the Assessing officer, after duly noticing that there were apparent discrepancy in the books qua the amount recorded 103 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 and the amount actually invested in LIC, simply left the matter there and them. This shows that although he noted some of the discrepancies, but left them as such by simply making them part of Office note to the assessment order rather than giving a logical conclusion to the same. viii. Apart from the above, it is noticed that the Assessing officer simply ignored some of the vital directions given by the Addl.CIT u/s 144A which are otherwise binding on the Assessing officer in terms of the mandate of the provision, as we have noted above in the case of Virbhadra Singh (HUF). Some of such directions and the action/inaction of the Assessing officer taken on them, as noted in the impugned order, are as under:-
"a) To find out the circumstances under which the cash transactions were made.
Nothing is on record to show that there were compelling circumstances under which under which cash transaction i.e. cash deposits on account of alleged sale proceeds of apple crop were made.
b) To find out whether any of them, i.e. the assessee and the beneficiary is having any bank account at the place of transaction.
This point has not been verified by the A.O.
c) To ask for details of average production and income per tree in case of other major producers of apple in the same area by issuing commission to ITO, Rampur.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 No such action has been taken by the A.O. except for relying upon the report of ITO, Rampur recorded by other A.O. during the assessment proceedings of an earlier assessment year i.e. A.Y. 2009- It was specifically directed to inquire the production of other producer and not that of Shrikhand Orchard. It was very important directions from which it could have been ascertained whether Shrikhand Orchard is capable of producing so much apple produce as claimed by the assessee so as to enable him to deposit hefty cash in bank account. When there was specific direction from the Addl. CIT the AO should have complied with the directions.
d) To call of information from Horticulture Department and other relevant agencies regarding per tree yield and rate during the relevant period.
No reference is made to Horticulture Department and other relevant agencies.
e) To call for details and examine the payments made by Universal Apple Associates to Sh. Anand Chauhan and the availability of cash in the hand of Universal Apple Associates. Also examine the rate at which the payments made to other parties.
No enquiry have been made by the A.O. in respect of examining the rates at which the payments are made to other partners.
f) To ask Universal Apple Associates to explain the Bills issued by him to Sh. Anand Chauhan in view of serial number of the bills and date as it seems very unusual. Ask him to produce relevant bill books and verify the genuineness. Also obtain the copy of concerned pages of cash books.
No such verification have been made by the A.O.
29. In view of the foregoing discussion, we are satisfied that the ld. CIT was fully justified in setting aside the assessment order passed by 105 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the Assessing officer which is not only erroneous, but also prejudicial to the interests of the Revenue.
30. The ld. AR also assailed the impugned order by adopting the arguments on the legal propositions made in the case of Virbhadra Singh (HUF), namely, inadequate inquiry by the AO cannot empower the CIT to revise order; debatable issue; and the CIT should have himself shown infirmity in the assessment order rather than sending the matter back to the AO. We have elaborately dealt with such issues in our order of Virbhadra Singh (HUF), which mutatis mutandis apply to the assessee also.
ANAND CHAUHAN (A.Y.2009-10)
31. Briefly stated, the facts of the case are that the assessee filed return declaring total income of Rs.1,83,700/- which was processed u/s 143(1) of the Act. The assessee earned income by means of commission from LIC. The case was selected for scrutiny. The assessment order was passed u/s 143(3) on 23.12.2011 making a disallowance of Rs.11,568/- out of certain expenses incurred during the course of 106 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 conducting his LIC business. Another disallowance of Rs.29,496/- was made towards interest claimed by the assessee as deduction at Rs.42,412/-. Thus, as against the returned income of Rs.1,83,700/-, the total income was computed at Rs.2.24 lac. The Ld.CIT, on perusal of records noticed that the assessment was completed in a very casual manner practically without making any effective enquiry. Show cause notice was issued u/s 263 on the ground that the Assessing officer had called for details of bank accounts maintained with PNB, Sanjauli, Shimla and HDFC and the assessee was required to explain the transactions made in these accounts. The assessee initially did not furnish any details about his PNB account. Thereafter, the assessee, vide his letter dated 21.10.2011 stated that the PNB account was a joint account with his other family members and only the agricultural income of the joint family was deposited in the same. However, vide a later letter dated 22.11.2011, the assessee came out contending that this account was maintained by him as a representative of Virbhadra Singh (HUF) pursuant to an MOU dated 15.6.2008. The Ld. CIT noticed that the Assessing officer did not examine the details of cash deposited in 107 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 this bank account amounting to Rs.1.04 crore. Certain other reasons were also recorded by the Ld.CIT requiring the assessee to tender his explanation. After considering the relevant material available before him, he held that the Assessing officer did not make any inquiry to ascertain from where cash was deposited in the bank account and further, no efforts were made to establish the identity of the persons to whom the agricultural produce was claimed to have been sold and further whether the assessee was in possession of cash as per accounts which was later on deposited by him in the bank accounts for onward investment in LIC policies in the name of Shri Virbhadra Singh and his family members. He further held that the Assessing officer restricted his inquiry only to finding out the ownership of land measuring 103 bighas and the number of apple trees on this land, but, he failed to inquire the variety of apples, quality and quantity and its prevalent market rates; to calculate the possible actual yield of apple crop from the above orchard; and though the figure of sale amount being huge and the entire sales were made in cash, he did not enquire: "about the identification/genuineness of purchasers of apple crop, particularly so- 108
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 called visiting traders." He further held that the Assessing officer did not obtain any statement of income/expenditure in respect of Shrikhand Orchards, Damrali, which the assessee was required to maintain in accordance with the terms of the MOU. He also noticed that the AO did not seek any third party evidence in the form of copies of sale bills, expense vouchers, which were supposed to be with the assessee himself till the finalisation of accounts with Shri Virbhadra Singh.
32. He further noticed that during the assessment proceedings, the assessee vide his letter dated 22.11.2011 submitted that a sum of Rs. 5,00,000/- was deposited in his HDFC bank account on 20.11.2008 by one Sh. Sadh Ram Sharma for purchase of LIC policy and the assessee issued a cheque in favour of LIC of India on 26.11.2008 for issuance of LIC policy in the name of Sh. Sadh Ram Sharma. On enquiry from the Branch Manager, LIC, Sanjauli, it was revealed that no LIC policy in the name of Sh. Sadh Ram Sharma was issued against the amount of Rs. 5,00,000/-. Thus, the contention of the assessee that a sum of Rs. 5 lakh was deposited into his bank account by one Sh. Sadh Ram Sharma 109 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 turned out fake. The A.O. did not take this issue into consideration while completing the assessment u/s 143(3). In the backdrop of the above factors and certain others as noted in the impugned order, the Ld.CIT came to hold that no proper inquiry was conducted before finalising the assessment u/s 143(3). He summarised his view on page 32 to 34 of the impugned order as under:-
"i. The assessee has claimed in his initial reply dated 12.11.2011 that cash Account belongs to joint family version by giving a copy of MOU & submitted that cash deposits are from sale of agriculture produce on behalf of Sh. Virbhadra Singh (HUF). The A.O. accepted the reply of the assessee blindly without verifying the reasons for change of his earlier explanation and further more without even obtaining any confirmation/explanation from Sh. Virbhadra Singh in respect to generation of huge cash in the hands of the assessee which are claimed as the sale proceeds of agriculture produce of Sh. Virbhadra Singh (HUF).
ii. The assessee in his reply dated 22.11.2011 claimed that a sum of Rs. 5,00,000/- was deposited in his HDFC bank account by Sh. Sadh Ram Sharma on 20.11.2008 for issuance of LIC policy in the name of Sh. Sadh Ram Sharma, whereas no policy was found by A.O. in the name of Sh. Sadh Ram Sharma a confirmed by Branch Manager of LIC. In spite of wrong claim of the assessee, the assessee order is silent on this issue. No further enquiry seems to have been made by the AO. iii. On one hand, assessee is admitting the fact that as per the terms of MOU, he shall maintain the accounts of sale proceeds of 'Shrikhand Orchard and settle the accounts on the expiry of said agreement, receive all the sale proceeds and invest the net proceeds in Govt. securities, LIC etc in the name of beneficiaries, on the other hand, assessee is objecting that A.O. is not duty bound to enquire about the agriculture income of his principal i.e. Shri Virbhadra Singh from the assessee. Since the cash 110 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 was not deposited in the bank accounts of the assessee himself and his is claiming to have maintained accounts of agriculture produce of his principal, the onus lies on the assessee to prove the genuineness of sources of cash deposited in his bank account and co-relate the same with the sale transactions. He can't escape by simply stating that A.O. is not duty bound to enquire about the agriculture income of his principal because he is himself claiming that cash we set aside the order of Ld. CIT(A) and deposited in his bank account from the sale proceed of agriculture produce of his principal whose accounts are being maintained by him and sale proceeds are also being collected by him. A.O. has neither made further enquiry from Sh. Virbhadra Singh (HUF) to verify the claim of the assessee nor verified the accounts of agriculture produce i.e. income and expenditure statement and accepted the reply of the assessee arbitrarily."
33. That is how, he held the assessment order to be erroneous and prejudicial to the interest of the Revenue which was set aside and the direction was issued to frame a fresh assessment in accordance with the facts on record and after making due enquiries to verify whether the cash deposits in the saving bank account of the assessee with PNB pertained to the assessee himself or to any other person. The assessee is aggrieved against this order.
34. We have heard the rival submissions and perused the relevant material on record. Before proceeding further, we want to record that Sh. Sudhir Sehgal, the ld. AR raised all the preliminary objections about the 111 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 scope of evidence, additional evidence and passing of separate order before admission of addition evidence, as were raised in the case of Virbhadra Singh (HUF). For the reasons given in our order passed above in the case of Virbhadra Singh (HUF), such objections are repelled.
35. On merits, it is found that there is no discussion worth the name in the one and a half paged assessment order about the assessee managing Shrikhand Orchards, Damrali on behalf of Virbhadra Singh (HUF). We agree with the contention advanced by the Ld. AR that merely because there is no discussion in the assessment order about the relevant issues cannot per se be decisive of non-application of mind by the Assessing officer. However, there should be some material on record to indicate that the Assessing officer did conduct appropriate enquiries and investigated the matter before finalising the assessment albeit without recording the details in the assessment order. The Ld. AR referred to the questionnaire on page 12 of the assessee's paper book which was responded to by the assessee. He also referred to certain enquiry 112 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 conducted by the Assessing officer about the possibility of the extent of crop that could be raised on Shrikhand Orchards, Damrali. In the light of this material, the Ld. AR contended that the Assessing officer conducted proper inquiry though relevant discussion was not made in the assessment order.
36. In our considered opinion, this is a case of no inquiry conducted by the Assessing officer before finalizing the assessment. We fortify our conclusion with the following reasons :-
i. The case was selected for scrutiny on the basis of huge deposits made by the assessee in PNB account. The Assessing officer vide his notice dated 15.7.2011 issued u/s 142(1) of the Act, required the assessee to furnish copies of bank accounts along with other details. The assessee vide his letter dated 25.8.2011 submitted that he had only one bank account with HDFC bank and another car loan account with State Bank of India. No disclosure was made about his having an account in PNB in which huge deposits were made. Then, another notice was issued dated 21/23.9.2011 indicating that as per information available with the 113 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 Department, the assessee was operating another bank account with PNB along with Shri Joginder and Veena etc., in which several cash deposits were made. In response to this letter, the assessee stated vide his reply dated 21.10.2011 that: "only the agricultural income/commission income of the joint family is deposited in it." It was only later on, vide letter dated 22.11.2011, that the assessee admitted about entering into an MOU for maintaining Shrikhand Orchards, Damrali on behalf of Virbhadra Singh (HUF) at 2% commission and the deposits in the bank account were sale proceeds from Shrikhand Orchards, Damrali. The Assessing officer did not pay any attention to the fact that the assessee was intentionally hiding the particulars of PNB account and it was only when he made it clearly known to the assessee that the Department had information about his having PNB account in which huge deposits were made, that he, firstly came out with an explanation that it was an account maintained for his family's agricultural income and only later on, when cornered, he admitted that he was maintaining this on behalf of Virbhadra Singh (HUF). These developments should have instigated the 114 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 Assessing officer to conduct proper inquiry about the vacillating stand of the assessee.
ii. The assessee submitted that the entries in the bank account were on behalf of Virbhadra Singh (HUF) and he was simply managing the affairs of Shrikhand Orchards, Damrali on a commission @ 2% of net sale proceeds. The Assessing officer simply accepted the assessee's version without even bothering to inquire this matter from Virbhadra Singh (HUF). What to talk of making an inquiry from Virbhadra Singh (HUF) for ascertaining if the assessee's contention that the bank deposit pertained to it, the Assessing officer did not even consider it prudent to ask for confirmation on this issue from Virbhadra Singh (HUF).
iii. During the course of assessment proceedings, the assessee submitted that a sum of Rs.5 lac was deposited in his HDFC bank account on 20.11.2008 by one Shri Sadh Ram Sharma for purchase of LIC policy and he issued a cheque in favour of LIC of India dated 26.11.2008 for issuance of LIC policy in the name of Shri Sadh Ram Sharma. The information received from the Branch Manager, LIC Sanjauli, vide his 115 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 letter dated 14.12.2011, revealed that no LIC policy in the name of Shri Sadh Ram Sharma was issued against the amount of Rs.5 lac. The Assessing officer gave a silent burial to this fact and did not deem it necessary to call for the assessee's explanation and make necessary addition.
iv. The assessee submitted before the Assessing officer that entries in PNB account were on behalf of Virbhadra Singh (HUF). Sale proceed was deposited in the said bank account and withdrawals were made mainly for investing in LIC policies on behalf of the members of the HUF. First LIC policy was purchased by the assessee on behalf of Virbhadra Singh (HUF) for a sum of Rs.10 lac for which necessary form was filled in on 18.6.2008, whose copy is available on page 62 of the paper book. A copy of the assessee's bank account is available on page 19 of the paper book, which shows that cash of Rs.10 lac was deposited on 19.6.2008 and the cheque was cleared on 24.6.2008. The assessee submitted cash book of Shrikhand Orchards, Damrali, before the Assessing officer, whose copy is also available on record. First page of 116 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the cash book starts with receipt of Rs.5 lac from UAA on 1.6.2008 and there is another receipt of Rs.5 lac from UAA on 13.6.2008. It is this amount of Rs.10 lac which was claimed to have been deposited by the assessee in the bank account on 19.6.2008 to enable the clearance of cheque issued for investment in LIC policies. It is strange that when the assessee entered into MOU with Virbhadra Singh (HUF) on 15.6.2008, how he could maintain a bank account before that date w.e.f. 1.6.2008 and receive/deposit the alleged advance received from UAA totalling Rs.10 lac These fundamental issues requiring investigation at the Assessing officer's end were lost sight of and the assessment was framed by making a small disallowance from the expenses. The Ld.CIT has rightly held on page 7 of the impugned order that the Assessing officer restricted his inquiry only in finding out the ownership of land and number of apple trees, but, failed to enquire as to how such huge amount of the alleged sale was deposited in the bank account without inquiring about the identification/genuineness of the purchasers of the apple crop and the possible actual yield of apple crop from the above orchard along with variety and its prevalent market rates.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 v. The assessee contended before the Assessing officer that he made sales of Rs.1,50,03,596/- to UAA and crop worth Rs.89,80,000/- was sold to other visiting traders at the orchard itself. As against this, the assessee has recorded all the sales in his books as having been made to UAA. If the assessee actually made sale of crop to UAA for a sum of Rs.2.39 crore, then, the issue that where the sale of Rs.89.80 lac made to other visiting traders was recorded, was not verified by the Assessing officer. If such sale made to other visiting traders was not recorded in the books of account, the AO ought to have caused investigation and made necessary addition. This shows that the Assessing officer did not conduct any inquiry about the alleged sale of apple crop made by the assessee on behalf Virbhadra Singh (HUF). The Ld. AR has candidly admitted that the Assessing officer did not enquire from UAA about the amount of sales made to them.
37. The above factors, most of which have been discussed by the Ld.CIT to hold that the Assessing officer blindly accepted the assessee's version and failed to conduct proper inquiry and some other factors to 118 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 which our attention has been drawn by the Ld. DR supporting the broader issue taken up by the Ld.CIT, amply go to prove that the Assessing officer did not conduct any inquiry on the relevant issues concerning the assessment. In view of the foregoing discussion, we are satisfied that the ld. CIT was wholly justified in setting aside the assessment order which is not only erroneous, but also prejudicial to the interests of the Revenue.
38. The ld. AR also assailed the impugned order by adopting the arguments on the legal propositions made in the case of Virbhadra Singh (HUF), namely, inadequate inquiry by the AO cannot empower the CIT to revise order; debatable issue; and the CIT should have himself shown infirmity in the assessment order rather than sending the matter back to the AO. We have elaborately dealt with such issues in our order of Virbhadra Singh (HUF), which mutatis mutandis apply to the assessee also.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 ANAND CHAUHAN (A.Y. 2011-12)
39. Briefly stated, the facts of the case are that the assessee filed return declaring total income of Rs.2,56,690/-. The case was picked up for scrutiny assessment to examine the source of cash deposits in the saving bank account as per the AIR information. On examination of books of account of the assessee maintained with the PNB, Sanjauli, Shimla, the Assessing officer noticed that heavy cash deposits were made amounting to Rs.1.35 crore and odd. A sum of Rs.1.30 crore was transferred to LIC from this account in the names of members of Virbhadra Singh (HUF). The assessee submitted that the source of cash deposits in the bank account was agricultural income received on behalf of Virbhadra Singh (HUF) pursuant to the MOU dated 15.6.2008. The Assessing officer noticed that agricultural income of the HUF was shown to have increased manifold as compared to marginal agricultural income shown in the assessment years prior to the MOU, i.e., A.Y. 2008-09 and earlier years. He further noticed that Virbhadra Singh (HUF) revised its return declaring agricultural income of Rs.1.55 crore as against the originally 120 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 declared income of Rs.25 lac. The Assessing officer noticed on page 4 of his order that Virbhadra Singh (HUF) also entered into agreement with Shri Bishambar Dass dated 17.6.2008 in respect of Shrikhand Orchards, Damrali. He observed that it was not clear from the agreement dated 17.6.2008 that the same was for entire Shrikhand Orchards, Damrali or a part of it. He also asked the assessee to produce the books of account along with supporting bills and vouchers in respect of expenses incurred by the assessee in the management of Shrikhand Orchards, Damrali. The assessee stated that no record of expenses was available because the same was destroyed after the settlement of account with Virbhadra Singh (HUF). Similarly, names of persons to whom huge labour and freight charges, etc., were paid, were also not furnished. He further noticed that the cash book also did not contain details of payments properly. Then, he required the assessee to produce the original MOU dated 15.6.2008 for verification. The assessee failed to produce the same till the passing of the assessment order. The Assessing officer launched certain inquiries with the Regional Transport Officer/SDM for ascertaining the veracity of sales shown to UAA. It 121 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 transpired that some of the vehicles mentioned on behalf of the assessee to have been used for carrying apple crops to Parvano, were either tipper/oil tankers and scooter while other numbers given by the assessee were not allotted to any vehicle as per the record of RTO/SDM. The Assessing officer also conducted enquiries from Subject Matter Specialist, Apple Control Room, Fagu set up for maintaining record of vehicles loaded with applies coming from upper Shimla and adjoining areas, which revealed that certain affidavits filed by the assessee in support of some of the vehicles being used for transporting apples, were wrong. On cross examination by the assessee, it was revealed that the Subject Matter Specialist was not maintaining proper records in respect of all the trucks coming to the Mandi. The AO also conducted inquiry from Horticulture Department for finding out the approximate yield, which could be obtained from 105 bighas of orchard during the relevant financial year. Such figure was given at roughly Rs.64 lac without considering the expenses. The Assessing officer made comparison of apple crop shown by the assessee with other growers of the area. Shri Kanwar Udai Singh, Raj Bhawan Road, Chhota Shimla having 237 122 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 bighas of land declared agricultural income of Rs.22.74 lac and Shri Anil Stokes and family having 300 bighas had shown net agricultural income at Rs.30.72 lac. The assessee also furnished affidavits from two persons who had shown agricultural income of Rs.31 lac and Rs.40 lac from 45 bighas and 40 bighas during the year 2010. It was seen that as against this extent of agricultural income shown by the others, the assessee had shown agricultural income of Rs.1.50 crore from Shrikhand Orchards, Damrali. The Assessing officer also conducted inquiry from UAA, which revealed that they had shown payment of Rs.1.50 crore to the assessee against the alleged sale of apples. Out of said payment a sum of Rs.1 crore was paid as advance during the period 1.5.2010 to 8.5.2010. Examination of cash book of UAA for the respective period showed that there were no entries in respect of such advance payment of Rs.1 crore. When confronted, it was stated that such sum of Rs.1 crore was paid by agents of UAA for which journal entries were recorded. Addresses of such agents of buyer were obtained. Notices to 13 of such alleged agents were issued, out of which eight were received back unserved and no compliance was made by the rest. The Assessing 123 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 officer also observed that the bills issued by UAA were not in serial numbers which seemed to be very unusual. He also compared the agricultural income shown in the returns by Virbhadra Singh (HUF) from A.Y. 2005-06 onwards till A.Y. 2011-12 and found that the income declared during the tenure of MOU was exceptionally high. In the ultimate analysis, he held that the sum of Rs.1 crore, being the alleged sale of apple crop to UAA through agents of buyers, was unexplained as without any source of deposit. Therefore, an addition of Rs.1 crore was made on protective basis. The Ld.CIT for the detailed reasons set out in the impugned order, held the assessment order to be erroneous and prejudicial to the interests of the revenue. The same was set aside and the Assessing officer was directed to frame the assessment afresh in accordance with the law and the facts as taken note of by him.
40. The ld. AR vehemently argued that unlike for the AYs 2009-10 and 2010-11, the AO carried out complete investigation in the matter and, hence, it could not be said that no enquiry was made by the AO necessitating revision of order. He took us through the assessment 124 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 order, the summary of which has been recorded in earlier paras. This was countered by ld. DR who also took us through elaborate material to show that the AO erred in making necessary inquiries and drawing incorrect inferences. He, therefore, requested for upholding the impugned order.
41. We have heard the rival submissions and perused the relevant material on record. For this year also, we want to record that Sh. Sudhir Sehgal, the ld. AR raised all the preliminary objections about the scope of evidence, additional evidence and passing of separate order before admission of addition evidence, as were raised in the case of Virbhadra Singh (HUF). For the reasons given in our order passed above in the case of Virbhadra Singh (HUF), such objections are rejected.
42. On merits, it is noticed that though the AO has referred to certain inquiries conducted by him, but, such inquiries, in our considered opinion, were not given a logical conclusion. The inquiries so made were not acted upon in the manner in which they ought to have been by 125 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 a person reasonably instructed in law. We countenance the view taken by the ld. CIT revising the assessment order for the following reasons :-
i. The assessee did not furnish bills and vouchers of expenses despite being specifically requested by the AO, which is evident from para 4.2 of the assessment order. It was merely stated that no record of expenses was available because the same was destroyed after settlement of account with Virbhadra Singh (HUF). The assessee did not even disclose the names of dealers from whom pesticides, insecticides, packing boxes, etc, were purchased. Similarly, names of persons to whom huge labour and freight was paid were also not furnished. Though these facts have been recorded by the AO in para 4.2.1 of the assessment order, but, he left the matter there and then. ii. The AO specifically required the assessee to produce original MOU dated 15.6.2008 with Virbhadra Singh (HUF). This matter has been discussed in para 4.3 of the assessment order. Despite ample opportunity, the assessee failed to produce the same but relied on its copy. When an inquiry was initiated for examining the original MOU, 126 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 the AO should have ascertained the reasons as to why the assessee was not deliberately furnishing the same. Nothing was done on this score and the assessment was concluded on the basis of a copy of the MOU despite the original having been categorically directed to be produced. iii. The AO conducted inquiries in respect of vehicles used for transporting apples to Parvano Mandi, which issue has been discussed in para 4.4 of the assessment order. Such inquiry transpired that some of the vehicle numbers provided by UAA for allegedly transporting the apple crop by the assessee on behalf of Virbhadra Singh (HUF) were either tippers/oil tankers/scooters, which were not in a position to be utilized for carrying apples or the numbers of vehicles given were not allotted to any vehicle as per the record of RTO/SDM. Such an important aspect, which brings the alleged sales by the assessee in the arena of doubt, was ignored except for making an addition of Rs.1 crore in respect of cash deposit entries in the bank account, that were not traceable from the books of account of UAA.
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ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 v. The AO though conducted inquiry for comparing the apple crop with other growers of the area and found that the assessee's claimed turnover was several times higher, but he did not proceed further by impliedly accepting the comparable cases supplied by the assessee. In such comparable cases, income was shown at Rs.31 lac and Rs.40 lac for the year 2010 against 45 bighas and 40 bighas of land. No evidence was filed in respect of such income stated in their affidavits. Even otherwise, this estimate of income shown by these two parties did not justify the income of Rs.1.50 crore shown by the assessee from 105 bighas. The AO should have proceeded further instead of closing the chapter there and then.
vi. Inquiries from UAA revealed that a sum of Rs.1.00 crore shown to have been deposited by the assessee in his bank account in May, 2010, was not recorded in their books of account. On inquiry, it was stated that this amount was paid by the agents of buyers. When the AO issued notices u/s 133(6) to the said 13 persons, none of them appeared. The AO simply left the matter to die there without proceeding further. 128
ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 vii. The AO himself recorded in para 4.8.2 of his order that the bills issued by UAA for the alleged purchase of apple crops were not in serial numbers and seemed to be very unusual and doubtful. He further recorded that no satisfactory explanation was offered in this regard either by the assessee or UAA. Still, he proceeded to accept the genuineness of such sale transactions by the assessee. viii. The assessee repeatedly requested the AO to call Virbhadra Singh (HUF) u/s 133(6) for any inquiry in respect of Shrikhand Orchards, Damrali. This has been recorded in para 5.2.1 of the assessment order.
The AO did not issue any notice for verifying veracity of the transactions.
ix. In paras 5.2.3 and 5.2.4 of the assessment order, the AO doubted about the genuineness of expenses because no bills/vouchers were produced on the premise that those were destroyed after the settlement of the MOU. In the opinion of the AO, the assessee should have intimated the names and addresses of labour contractors as well as the other dealers from whom insecticides/pesticides and packing box, etc., 129 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 were purchased. Then, he recorded in para 5.2.4 that: "In these circumstances, it appears that the assessee has not incurred the expenses and only manipulated the accounts to justify the huge agricultural income of the owner of the Shrikhand Orchards." Despite making such recording, he accepted the genuineness of expenses incurred and the sales made by the assessee.
x. It is further pertinent to note that the books of account in respect of Shrikhand Orchards, Damrali produced before the AO revealed that all the expenses were shown to have been incurred on one date only, i.e., 31.10.2010 and that too in cash. Packing material account has only one entry dated 31.10.2010 for Rs.6,36,831/-; Pesticides and insecticides account has also only one entry dated 31.10.2010 for Rs.3,25,631/- and Labour charges account has also only one entry dated 31.10.2010 for a sum of Rs.3,50,000/-. This shows that the assessee claimed to have incurred all the expenses on Packing material, Pesticides/insecticides and Labour charges only on a single day throughout the year. The AO should have the courtesy of examining such unusual feature, more so, 130 ITA Nos.486, 216 & 215/Chandi/2014 ITA No.408/Chandi/2015 when the assessee was not producing any bills/vouchers for such expenses despite his repeated requests.
43. An overview of the above features indicates that the agricultural produce was not proved; transportation of the same to UAA was also not proved; bills issued by UAA were not genuine; cash received from UAA shown at Rs.1.00 crore did not appear in their books of account; the expenses claimed were not backed by any vouchers/bills; and all the expenses were claimed to have been incurred on one single day and that too in cash. We fail to comprehend as to how the assessment order accepting the genuineness of carrying out the agricultural operations and earning a huge income in such circumstances can be considered as an order made after proper inquiry as has been canvassed by the assessee. It is a case of a patent non-application of mind by the AO to the facts, which were loudly calling for in-depth investigation. In our considered opinion, the ld.CIT was fully justified in setting aside the assessment order and directing the AO to frame a fresh assessment. 131
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44. The ld. AR for this year has also assailed the impugned order by adopting the arguments on the legal propositions made in the case of Virbhadra Singh (HUF), namely, inadequate inquiry by the AO cannot empower the CIT to revise order; debatable issue; and the CIT should have himself shown infirmity in the assessment order rather than sending the matter back to the AO. We have elaborately dealt with such issues in our order of Virbhadra Singh (HUF), which mutatis mutandis apply to the assessee also.
45. In the result, all the appeals are dismissed.
The order pronounced in the open court on 08.12.2016.
Sd/- Sd/-
[I.C. SUDHIR] [R.S. SYAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated, 08th December, 2016.
dk
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ITA Nos.486, 216 & 215/Chandi/2014
ITA No.408/Chandi/2015
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
133