Income Tax Appellate Tribunal - Delhi
Virendra Kumar Gupta,, Meerut vs Assessee on 16 August, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'H' NEW DELHI)
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI K.G. BANSAL,
ACCOUNTANT MEMBER
ITA. No.2595/D/2009
Assessment year: 2005-06
Shri Virendra Kumar Gupta, Vs. Commissioner of
87, Vijay Nagar, Meerut Income-tax, Meerut
PAN No.AARPG 5528N
(Appellant) (Respondent)
Appellant by : Shri P.S. Kashyap, FCA
Respondent by : Smt. Reena Sinhapuri, CIT- DR
ORDER
PER K.G. BANSAL:
The assessee had filed the return on 31.10. 2005 declaring total income of `3,41,860/-. The return was processed u/s 143(1) of the Income-tax Act, 1961. Subsequently, the case was selected for scrutiny and a notice u/s 143(2) was served on the assessee on 30.10.2006. Thereafter notices u/s 142(1) were also issued. The assessee had debited expenses under the head traveling and conveyance, vehicle repairs and maintenance, telephone and depreciation. The assessee was required to produce books of account along with bills and vouchers. The books were produced for the examination of the Assessing Officer. It was found that all the expenses were not fully vouched. In view thereof, 20% of the expenses debited under the head traveling and conveyance, vehicle repairs and maintenance, telephone and depreciation on car for personal use was disallowed. The total disallowance worked out to `23,445/-. Thus, the total income was computed at `3,65,310/-.
2 2595-2010-NKGupta
2. The record of the assessee was examined by the CIT, Meerut. It was found that the case was selected for scrutiny on account of low profit, and high sundry creditors, advances and loans. The Assessing Officer did not examine these aspects. Therefore, notice u/s 263 was issued requesting the assessee to explain as to why the order may not be set aside as it was erroneous and prejudicial to the interest of the revenue. The assessee made various submissions, both on facts and law, before the learned CIT. However, the learned CIT was not convinced with the submissions of the assessee. It has been mentioned that the Assessing Officer accepted the version of the assessee without making any inquiry or verification. It is the settled law that mere failure to make inquiries, necessary for making the assessment, renders the order to be erroneous and prejudicial to the interest of the revenue. Therefore, the assessment order was set aside with a direction to the Assessing Officer to examine various issues properly in respect of the points mentioned in the revisionary order. Aggrieved by this order, the assessee is in appeal before us.
3. The assessee has taken three substantive grounds in the appeal. It is mentioned that the learned CIT has not fulfilled pre-conditions for passing revisionary order i.e., the assessment is erroneous and prejudicial to the interest of the revenue. The assessee had filed confirmed accounts in respect of unsecured loans and creditors, which were examined by the Assessing Officer. The assessee has maintained books of account, which were produced before the Assessing Officer. Therefore, the learned CIT was not justified in giving a finding that the requisite inquiries were not made.
4. Before us, it has been submitted by the learned counsel for the assessee that the assessee had filed the return of income, which had been processed on 31.10.2005. The assessment order had been 3 2595-2010-NKGupta passed on 30.05.2007. The learned CIT had issued notice u/s 263 on 26.02.2010 and finally the order has been passed on 26.03.2010. 4.1 It is further submitted that confirmations had been filed in respect of loans and creditors before the Assessing Officer. These confirmations were again filed in the course of revisionary proceedings. The loan confirmations have now been placed in the paper book on page Nos. 20 to 25. These pertain to Hanumain, Krishna Rani, Narendra Gupta, Pramila Gupta, Rinky Gupta and Vivek Gupta in respect of `7,41,009.60; `2,66,004/-; `2,20,000/-; `75,777/-; `64,813/-; and `1,51,418/- respectively. It is further submitted that confirmations in respect of sundry creditors have been placed in the paper book on page Nos. 26 to 39. It has been argued that all the confirmations had been filed in the course of assessment proceedings, which were examined by the Assessing Officer.
4.2 Our attention has been drawn towards paragraph Nos.6, 12, & 13 of the revionary order. In paragraph No.6, it has been inter alia mentioned that the assessment order is sketchy and stereotyped one, which accepts in a routine manner what the assessee had shown barring a part disallowance from the expenses. In paragraph No.12, it has been mentioned that the Assessing Officer accepted the version of the assessee without making any inquiry or verification, whereas it is a very settled law that mere failure to make inquiries makes an order erroneous. The error may not be apparent on the basis of the order. The CIT may consider an order to be erroneous not only if it contains some apparent error of facts or law but also if it is a stereo-typed order which simply accepts the submissions of the assessee without making inquiries, which are called for in the circumstances of the case. In this connection, reliance has been placed on the decision of the Apex Court in the case of Rampyari Devi Saraogi Vs. CIT (1968) 67 ITR 84 and Tara Devi Aggarwal Vs. CIT (1973) 88 ITR 323. In paragraph No.13, it 4 2595-2010-NKGupta has been mentioned that it is not necessary for the CIT to make further inquiries before setting aside the assessment order. He can regard the order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the submissions made by the assessee. The reason is that the Assessing Officer is not only an adjudicator but also an investigator who cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return. For this purpose, reliance has been placed on the decision of Hon'ble Delhi High Court in the case of Gee Vee Enterprises -(1975) 99 ITR 386. In this connection, he strongly relied on the unreported decision of Hon'ble Delhi High Court in the case of CIT Vs. M/s Vikas Polymers in ITR No.3/1991 dated 16.08.2010; CIT Vs. International Travel House Limited in I.T.A. No.94/10 dated 13.09.2010, copies of which have been filed on record. It is strongly contended that in view of these decisions, the learned CIT erred in passing the revionary order.
5. In reply, the learned DR submitted that the assessee was required to file various details before the Assessing Officer on 02.11.2006. A number of adjournments were sought and finally none attended on 29.01.2007. Thereafter, fresh notice was issued on 15.02.2007. None attended in response thereto also. Similarly, none attended in response to notice dated 01.03.2007. None attended in response to notice dated 04.04.2007. Finally, the assessee was required to file the details on 10.05.2007. These details were filed on 07.05.2007. The order was passed on 30.05.2007. It is obvious from the aforesaid history that there was no time left with the Assessing Officer to examine the details filed by the assessee. The case was selected for scrutiny in respect of low net profit and high unsecured loans, sundry creditors and sundry advances. These matters were 5 2595-2010-NKGupta accepted without making any inquiry into the details. Mere production of books of account is not sufficient to satisfy the condition that requisite inquiry as called for on the facts and in the circumstances of the case, has been made by the Assessing Officer. The fact of the matter is that there was no time for making any inquiry whatsoever. Therefore, a sketchy order was passed in which a part of the expenses was disallowed on an ad hoc basis. Our attention has been drawn towards various confirmations, which do not mention the permanent account numbers. The case of M/s Vikas Polymers has been distinguished on facts. Therefore, it is strongly argued that the order of the learned CIT may be upheld.
6. We have considered the facts and the submissions made before us. The facts are that the assessee had filed its return on 31.10.2005 declaring total income of `3,41,860/-. The case was selected for scrutiny on account of low profit, high sundry creditors, advances and loans. The assessee sought a number of adjournments. However, books of account and vouchers were produced before the Assessing Officer. Confirmations of creditors and sundry creditors were filed on or about 17.05.2007. The case was discussed on 30.05.2007 and the assessment order was passed on the same day. There is no evidence that any inquiry was conducted in respect of creditors and sundry creditors and the truthfulness of the confirmation letter was accepted without demur. The question is - whether the order is erroneous and prejudicial to the interest of revenue?
6.1 The assessee has relied on the decision of Hon'ble Delhi High Court in the case of International Travel House Limited (supra). The facts are that the assessee filed its return on 28.11.2003 declaring total income of `3,37,35,810/- and long term capital gain of `7,788/-. The return was processed u/s 143(1) on 28.06.2004. The assessee filed a revised return on 31.03.2005 reducing its income to 6 2595-2010-NKGupta `3,17,16,700/-. Assessment proceedings were initiated by issuing notice on 08.10.2004. In the course of proceedings, the assessee inter alia filed details of foreign travel expenses of `4,02,421/-. The Assessing Officer came to the conclusion that the details did not prove that the foreign travels were undertaken for the purpose of business, therefore, 50% of the expenditure was disallowed. The record was examined by the CIT and a notice u/s 263 was issued. It was submitted that the assessee claimed credit of the tax deducted at source; that it had booked tickets in various airlines for its customers for which it received commission @7% on international tickets and 5% on domestic tickets; that the assessee received performance linked bonus and over-riding commission on sale of tickets; that a part of the commission was passed on to the customers by way of discounts and net commission was credited in the books of account. This explained the discrepancy between the commission credited in the books of account and commission computed on the basis of TDS certificates; being `15,52,78,515/- (`27,46,18,000 - `11,93,39,485). The CIT held that in order to take a final view further examination of books of account would be necessary which can be done by the Assessing Officer only. Therefore, he set aside the assessment for the verification of the accounting to the commission. Various arguments were made before the Hon'ble Court in this matter. It is mentioned that the Tribunal had opined that the Assessing Officer asked the assessee to explain why the commission received by him from airlines which had been passed to the customers by way of discount should not be added to the total income. The assessee had furnished explanation in this regard, which was accepted by the Assessing Officer. Therefore, it was held that there was no error in the assessment and, there cannot be any prejudice caused to the revenue as to assessment had been framed after proper application of mind. The Hon'ble Court held that the commissioner really made an effort to cause a routine inquiry to be 7 2595-2010-NKGupta made with regard to a matter which had been concluded, which means that he thought that he had the power to begin a fresh litigation because of the view entertained by him. This approach is not permissible.
6.2 The learned counsel also relied on the decision of the jurisdictional High Court in the case of M/s Vikas Polymers. The facts of the case are that the assessment for assessment year 1982-83 was completed by the Assessing Officer on 19.09.1984 on a total income of `90,031/- against the return income of `69,500/-. The CIT examined the records and a notice was issued to the assessee that the genuineness of capital invested by two partners Smt. Ratna Devi and Shri Sagar Mal of `49,000/- and `40,000/- respectively, and unsecured loans of `98,500/- from Stutee Chit and Finance (P) Ltd. were not examined. It was also observed that manufacturing account was not examined by the Assessing Officer. Finally, the assessment was set aside holding the order to be erroneous and prejudicial to the interest of the revenue. The Tribunal held that the Commissioner failed to justify how the order was prejudicial to the interest of the revenue. Various arguments were made before the Hon'ble High Court. It was mentioned that there are pre-requisite conditions for exercising revisionery powers. Therefore, a bare reiteration that the order is erroneous and prejudicial to the interest of the revenue will not suffice. The exercise of power is quasi judicial in nature. Therefore, the reason must be shown that enhancement, modification or cancellation of the assessment was required for making a fresh assessment. The facts must lead to a conclusion that the assessment order was not only erroneous but also prejudicial to the interest of the revenue. Accordingly, it was mentioned that if a query is raised in the assessment proceedings, which has been answered to the satisfaction of the Assessing Officer but neither the query nor the answer was 8 2595-2010-NKGupta reflected in the assessment order, this would not lead to a conclusion that revision was called for. In this case, the Commissioner observed that the assessee did not file certain documents. Assuming it to be so, this does not lead to a conclusion arrived at by the Commissioner that the Assessing Officer had shirked his responsibility of examining and investigating the case.
6.3 On the other hand, the learned DR relied on the order of Hon'ble Supreme Court in the case of Rampyari Devi Saraogi (supra). In this case, the CIT issued a notice u/s 33B of the Income-tax Act, 1922 for revising the order passed for assessment years 1952-53 to 1960-61. In the show cause notice, it was mentioned that you have neither resided nor carried on any business from the address mentioned in the return of income. Further, the Assessing Officer was not justified in accepting the initial capital, gifts received, sale of jewellery, and income from business without making any inquiry. Thereafter, the Commissioner cancelled the order directing the Assessing Officer to make fresh assessment order. The matter traveled upto the Hon'ble Supreme Court. The Hon'ble Court upheld the order by making the following observations:-
"In our view, the High Court was right in overruling the contention of the assessee. The order of the Commissioner is a detailed order. There is no doubt that he does mention some facts which were not indicated or communicated to the assessee and which the assessee had had no opportunity of meeting. For instance, in paragraph 9 it is stated: "It has been ascertained that the Income Tax Officer, D Ward, Howrah, had no jurisdiction over the assessee and hence all the assessments made by him are ab initio null and void. It has also been learnt from local enquiries that the assessee never resided nor carried on any business from 7, Haragenj Road, Salkia, Howrah, and that the assessee's father-in-law, Shri Sagarmall Saraogi, and his sons have been doing business of food grains, besides owning a rice factory and flour grinding machine from 90, Fidder Road, Belgharia, 24-Parganas." He further 9 2595-2010-NKGupta observed: "moreover, the name of the assessee is Rampiyari Devi Saraogi, and as the Income Tax Officer, D Ward, Hawrah, who has made the assessments, had only jurisdiction over cases of new assesses, whose names began with the alphabetical letters from 'S' to 'Z', with a view to camouflage the name and make it appear to fall within the jurisdiction of the Income Tax Officer, the name has been given in the reverse order by putting the surname first and her own name afterwards, as will be apparent from the returns filed. In the return of income for the assessment year 1961-62, the assessee has given her residential address as 90, Feeder Road, Belgharia, Calcutta, while in that for 1962-63, the office address has been given as 90, Feeder Road, Belgharia, Calcutta." He then concluded: "It is apparent that with a view to fall within the jurisdiction of this particular Income Tax Officer, i.e., Income Tax Officer, D-Ward, Hawrah, a fictitious address was given and the order of the names reversed. Hence, all the assessments made are without jurisdiction ab inito null and void." We agree with the High Court that all this material was supporting material and did not constitute the basic grounds on which the orders u/s 33B were passed by the Commissioner. There was ample material to show that the Income Tax Officer made the assessments in undue hurry. The assessee was a new assessee and filed voluntary returns in respect of a number of years, i.e., from assessment years 1952-53 to 1960-61. The return for the assessment year 1953-54 is undated. The returns for the assessment years 1952-53 and 1954-55 to 1957-58 are dated March 21, 1961, and those for the assessment years 1958-59 to 1960-61 are dated April 26, 1961. On March 21, 1961, the assessee made a declaration giving the facts regarding initial capital, the ornaments and presents received at the time of marriage, other gifts received from her father-in-law, etc., should have put any Income Tax Officer on his guard. But the Income Tax Officer without making any enquiries to satisfy himself passed the assessment order on March 30, 1961, for the assessment years 1952-53 to 1957-58, and on April 26, 1961, for the assessment years 1958-59 to 1960-61. No bank account or any proper books of account were maintained by the assessee or produced before the Income Tax Officer. A short stereo-typed assessment order was made for each assessment year. As a sample, the Commissioner has reproduced the assessment order for the ay 1952-53 in his order. Profit for speculation was 10 2595-2010-NKGupta shown as `3,085/- and interest `600, and `500 was added for want of books of account and evidence. No evidence whatsoever was produced in respect of the money-lending business done and interest income shown to have been received by the assessee. No names were given as to the parties to whom the loans were advanced, with amounts and rate of interest and as to when the interest income was received."
6.4 Further, reliance has been placed on the decision in the case of Smt. Tara Devi AggarwaL (supra), in which the finding of the court in the case of Rampyari Devi Saraogi was followed to the effect that an assessment made in an undue hurry leads to an assessment order which is erroneous and prejudicial to the interest of the revenue. He also relied on the decision in the case of Gee Vee Enterprises (supra), in which it was inter alia held that -(1) it is not necessary for the Commissioner to make further inquiries before canceling the assessment order; and (2) the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Assessing Officer should have made further inquiries before accepting the statements made by the assessee in his return. Point No.2 above was elaborated as under:-
"The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order /but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry 11 2595-2010-NKGupta prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct."
6.5 Coming to the facts of the case, it was selected for scrutiny in order to verify low gross profit, high sundry creditors, advances and fresh loans. The assessment order does not show that any inquiry was made regarding low profit although books of account and vouchers were produced. Confirmations were filed in respect of creditors and sundry creditors but those were accepted without any verification. In the case of International Travel House Limited, the Assessing Officer had raised a question as to why the discount allowed to the customers should not be added to the income. The assessee had furnished an explanation, which was found satisfactory by the Assessing Officer. The Tribunal further opined that the revenue could not point out any defect in the system of accounting followed by the assessee in respect of commission received and discount paid to the customers. Therefore, the court came to the conclusion that the Commissioner, it appears wanted to start a fresh litigation. The facts of this case are distinguishable. There is no show cause or explanation on record regarding low net profit. Although the assessee has filed confirmations, no verification was made which was called for in view of the reasons for taking up the case for scrutiny. Coming to the case of M/s Vikas Polymers, the finding of the Hon'ble Court is that the exercise carried out by the Commissioner was in the nature of making roving and or fishing 12 2595-2010-NKGupta inquiry. He proceeded on the assumption that the details furnished before him were not filed at the time of assessment. It was mentioned that the Assessing Officer has not examined cash credits of partners or deposits of chit fund. This may make the order erroneous but how it can be prejudicial to the interest of revenue has not been stated by him. The facts of this case are also distinguishable. The books of account and confirmations were undoubtedly filed before the Assessing Officer. The conclusion arrived at by her is that the these called for further verification as the assessment was taken up for scrutiny only for the purpose of such inquiry. In the case of Rampyari Devi Saraogi, the Hon'ble Supreme Court came to the conclusion that non-verification of initial capital, gifts, sale of ornaments and profits from business lead to an assessment, which is erroneous and prejudicial to the interest of revenue. To our mind, the ratio of this case is applicable to the facts of case at hand. In the case of Smt. Tara Devi Aggarwal, the Hon'ble Court reiterated the ratio of the case of Rampyari Devi Saraogi and mentioned that assessment made in undue hurry is an assessment, which is erroneous and prejudicial to the interest of revenue. We have furnished the chronology of the hearing of the case and it is clear that the assessment was made without verification and in a hurried manner after receipt of confirmations from the assessee on 17.05.2007, and that too without verification, which was called for. Therefore, the ratio of this case is also applicable. In the case of Gee Vee Enterprises (supra) the Hon'ble court clearly mentioned that the Assessing Officer cannot remain passive in the face of the return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances are such as to provoke an inquiry. Looking to 13 2595-2010-NKGupta the reasons for taking up the case for scrutiny, it was incumbent on the Assessing Officer to make inquiries into genuineness of book profits and credits. Nothing like that has been done. The learned DR also relied on the decision of the Tribunal in the case of M/s Union Hide Company in I.T.A. No.2043/D/10 for assessment year 2005-06 dated 31.08.2010, a copy of which has been placed on record. In this case, the CIT exercised revisionery power on the ground that the Assessing Officer did not make proper investigation to ascertain the genuineness of the credits. Relying on the decision in the case of Gee Vee Enterprises, the order of the CIT was upheld. The facts of our case are in pari-materia with the facts of our case on this point. On consideration of these cases, we are of the view that the learned CIT was right in exercised her revisionery jurisdiction.
7. In result, the appeal is dismissed.
This order was pronounced in open court on 21-01-2011.
Sd/- Sd/-
( A.D. JAIN ) ( K.G. BANSAL )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dt.21/01/2011
NS
Copy forwarded to:-
1. Shri Virendra Kumar Gupta, 87, Vijay Nagar, Meerut.
2. Commissioner of Income-tax, Meerut.
3. The CIT
4. The CIT (A), New Delhi.
5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi.
True copy By Order (ITAT, New Delhi).