Income Tax Appellate Tribunal - Chandigarh
Smt. Kavita Rani, Sangrur vs Cit, Patiala on 8 November, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES, 'A' CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER &
MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No. 1103/Chd/2013
Assessment Year: 2009-10
Smt. Kavita Rani, Vs. The CIT,
Sangrur, Patiala
PAN No. AITPR8646N
(Appellant) (Respondent)
Appellant By : Sh. Vibhor Garg
Respondent By : Sh. Ravi Sarangal
Date of hearing : 10.08.2017
Date of Pronouncement : 08.11.2017
ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 14.10.2013 of the Commissioner of Income Tax [hereinafter referred to as the CIT] relevant to assessment year 2009-10, passed under section 263 of the Act whereby he has set aside the assessment made u/s 143(3) of the Act by the Assessing Officer (hereinafter referred to as the AO) and has directed the AO to make an addition of Rs.69,54,500/-into the income of the assessee on account of unexplained cash credits.
2. The facts in brief are that the Ld. CIT exercising his revision jurisdiction under section 263 of the I.T. Act called for and examined the assessment records. He noted that during the year under consideration the 2 assessee had declared an income of Rs. 1,20,000/ from business of Photostat and lamination. During the assessment proceedings, the Assessing officer had called for an explanation regarding the deposits of Rs. 68,53,000/- in cash in the bank account of the assessee, regarding which the assessee claimed that the assessee during the year has started trading in commodity as a sub broker of M/s Sai Commodities and M/s Shevta Commodities Traders and that the said deposits were from the money received from the various clients to invest the same in commodity market. He noted that the Assessing officer did not inquire into the genuineness of the claim of the assessee having acted as sub broker. He further observed that the Assessing officer wrongly noted from the cash flow statement that cash transactions were with seven persons only, of whom the assessee had filed affidavits confirming the payments to the assessee, whereas in fact cash deposit of the aforesaid seven persons covered the amount of 32 lakhs only. The balance of Rs. 36,53,000/- had remain unexplained. Further the Ld. CIT found discrepancies in the affidavits of the seven persons and observed that the explanations and evidences furnished by the assessee were not satisfactory.
3. In view of the above, the Ld. CIT issued show cause notice on 28.12.2012 to the assessee asking him to submit an explanation as to why not the order passed by the Assessing officer be not revised/set aside as per provisions of section 263 of the Act. In compliance to the said notice, the assessee filed written submissions and explained that the entire issue has been thoroughly examined by the Assessing officer. It was submitted that in response to the queries raised by the Assessing officer, it was explained that the deposits were not the investments of the assessee rather the same 3 was from the amount received by the assessee from the clients in the business of share broker. Since there was a downfall in the market, no income was earned from the said activity. Cash flow statement giving details of day to day receipts, deposits in the bank account and cash in hand was filed before the Assessing officer which was test checked by the Assessing officer. The details of all the parties from whom the cash was received was filed, out of which the Assessing officer asked the assessee to lead evidence in respect of parties who made the larger investments. Accordingly, affidavits of seven persons were filed who not onl y confirmed the payments but also the source of thereof. To further check the version of the assessee, the AO recorded statements of two persons who confirmed the payments. There were certain typographical mistakes in the affidavits which were corrected by hand during their examination before the Assessing officer. It was therefore contended that the order of the Assessing officer was neither erroneous nor prejudicial to the interest of the revenue. The assessee under the circumstances objected to the invocation of the provisions of section 263 of the Act.
4. The Ld. CIT, after considering the submissions made by the Ld. A.R. of the assessee, observed that the Assessing officer had not made proper verification of the claims made by the assessee in the return of income in relation to the above stated issue. He noted that the assessee responded very late to the various notices issued by the Assessing officer. He affirmed his view that proper inquiry regarding the claim of the assessee was not made by the AO. He observed that the assessee had failed to 4 explain the entire deposits. That the discrepancies in the affidavits of the seven persons had remained unexplained. He, therefore, treated the assessment made by the Assessing officer as erroneous in so far as it was prejudicial to the interest of Revenue. He accordingly set aside the assessment with a direction to make an addition of Rs.69,54,500/-into the income of the assessee on account of unexplained cash credits. Being aggrieved by the order of the Ld. CIT, the assessee has come in appeal before us.
5. We have heard the rival contentions and have also gone through the records. To arrive at the correct conclusion of the case, we deem it necessary to reproduce the relevant provisions of section 263 of the Act.
"Section 263(1) in The Income- Tax Act:
(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the 2 Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. ........."
6. The sum and substance of the above reproduced section 263(1) can be summarized in the following points:
1) The Commissioner may call for and examine the record of any proceeding under the Act;
2) If he considers that the order passed by the AO is
(i) erroneous; and
(ii) is prejudicial to the interest of Revenue;5
3) He has to give an opportunity of hearing in this respect to the assessee; and
4) He has to make or cause to make such enquiry as he deems necessary;
5) He may pass such order thereon as the circumstances of the
case justif y including,
(i) an order enhancing or,
(ii) modif ying the assessment or
(iii) cancelling the assessment and directing a fresh assessment.
7. Now in the light of above provisions, we have to examine as to whether the order of the Ld. CIT is a valid order sustainable in the eyes of law. In para 4 of the impugned order, the Ld. CIT, himself has given the details of various letters issued by the Assessing officer raising queries, asking the assessee to furnish details and source of deposits in her accounts. Though the assessee responded late, but it has been affirmed b y the Assessing officer in the assessment order that the assessee had filed reply along with bank statement and explanation with regard to the cash deposits which has been explained. It has also been mentioned in the assessment order that the contention of the assessee has been test checked with the bank statement and cash flow statement of the assessee. The Ld. AR of the assessee has submitted that from time to time, the Assessing officer raised various queries which were duly replied and the relevant explanation along with documentary evidence was given to the Assessing officer. After duly examining the records of the assessee, the AO proceeded to pass the assessment order.
The Ld. A.R. has further invited our attention to the observations of the Ld. CIT made in para 8 of the impugned order wherein he has noted, 6 "A cursory reading of the assessment order would lead to a conclusion that AO had conducted all the necessary inquiries in respect of the matter under consideration." The Ld. Counsel has further submitted that the enhancement/additions have been directed to be made by the Ld. CIT onl y observing that the AO should have made further deep inquiries into the matter, which was not justifiable.
8. In our view, as per the provisions of section 263 as enumerated above, after getting the explanation from the assessee, the Ld. CIT was supposed to examine the contention of the assessee. Before passing an order of modif ying, enhancing or cancelling the assessment, he was supposed either to himself make or cause to make such an enquiry as he deems necessary. The words "as he deems necessary", in our view, do not mean that the Ld. CIT is left with a choice either to make or not to make an enquiry. As per the relevant provisions of section 263, it was incumbent upon the Ld. CIT to make or cause to make an enquiry. So far as the words "as he deems necessary" are concerned, the said words suggest that the enquiries which are necessary to form a view as to whether the order of the Assessing officer is erroneous and prejudicial to the interest of Revenue or not? The Ld. CIT had asked the assessee about the genuineness/validity of the claim to which the assessee had given a detailed reply. Once a point wise reply was given by the assessee, then a duty was cast upon the Ld. CIT to examine the reply of the assessee and to make or cause to make necessary inquires to reach to the conclusion that the order of the Assessing officer was erroneous so far as it was prejudicial to the interest of Revenue. Admittedly, in this case, the Ld. CIT did not call for any evidences or details from the assessee before holding that the 7 deposits found in the bank account of the assessee were unexplained and without further making any inquiry directed the AO to make addition of the same into the income of the assessee.
9. It is pertinent to mention here that a deeming fiction has been created in section 263 of the Act by the amendment made by Finance Act, 2015 w.e.f. 01.06.15 wherein it has been mentioned that where the Commissioner is of the opinion that the Assessing officer had passed the order without making enquiries or a claim has been allowed without enquiring into the claim or that the same is not in accordance with any order or direction or instruction issued by CBDT, that shall be deemed to be erroneous in so far as its prejudicial to the interest of Revenue. The said deeming provisions, in our view, are not applicable for the assessment year under consideration.
10. In our view, when the assessee shows from the record that the necessary enquiries were made by the Assessing officer and the Assessing officer had applied his mind and the view adopted by him was one of the possible views, then it cannot be said that the order of the Assessing officer is erroneous. Merely because, the assessment order in question is not a detailed order and the Assessing officer has not mentioned item wise findings regarding the claims of the assessee, that itself, does not mean that the Assessing officer had not made enquiries in this respect. As per the relevant provisions as they stood during the relevant period, whatever required by the Assessing officer was to look into the claim of the assessee. Admittedly, the Assessing officer asked the assessee to furnish the necessary details from time to time which were duly furnished by the 8 assessee and after considering the same the Assessing officer passed the assessment order.
11. Now coming to the various case laws relied upon by both the parties.
12. The Ld. D.R. has stressed that if the Commissioner finds that there was a lack of enquiry on the part of the AO regarding the claim made b y the assessee, the order can be treated as erroneous and the Commissioner exercising his powers under section 263 can direct the Assessing officer to make appropriate enquiries/verifications etc. He in thus respect has relied upon the decision of the Hon'ble Karnataka High Court in the case of 'CIT vs. Infosys Technologies Ltd.' (2012) 17 taxmann.com 203 .
13. The Ld. A.R., on the other hand, has relied upon the following authorities to stress that there is a difference between lack of enquiries and inadequate enquiries. The Commissioner must give a finding of fact or of law that the order is erroneous so far as it is prejudicial to the interest of Revenue by making proper enquiries after seeking explanation from the assessee.
(i) CIT vs. Sunbeam Auto Ltd. 227 CTR 133 (Delhi - HC)
(ii) CIT vs. Vikas Polymers (2010) 194 taxman 57 (Delhi - HC)
(iii) CIT vs. Gupta Spinning Mills Ltd. ITA No.410 OF 2003 dated 13.09.2013
(iv) CIT vs. Amit Corporation (2013) 213 taxman 19 (MAG) (Gujarat-
HC)
(v) M/s Axind Software Development Services Pvt. Ltd. Vs CIT ITA No.555/CHD/2012 vide order dated 13.9.2013 (chd. Tribunal)
14. The Ld. A.R. has further relied upon the following case laws to stress that where the Assessing officer has applied his mind and the view taken 9 by him is one of the possible views, then the order cannot be said to be erroneous or prejudicial to the interest of Revenue, even, if the Commissioner has a different view from that of the Assessing officer; where the AO has made enquiries in respect of the claim of the assessee, order cannot be said to be erroneous even if the details of enquiries made do not find mention in the assessment order.
(i) CIT vs. Fine Jewellery (I) Ltd. (2015) 372 ITR 303 (Mumbai-
HC)
(ii) CIT vs. Ashish Rajpal (2010) 320 ITR 674 (Delhi-HC)
(iii) CIT vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Delhi-HC)
(iv) CIT vs. Gabriel India (1993) 203 ITR 108 (Bombay-HC)
(i) Grasim Ind. Ltd. vs. CIT (2010) 321 ITR 92 (Bombay-HC)
(ii) CIT vs. Malabar Industries (1993) 203 ITR 108 (Bombay-HC)
(iii) Malabar Industrial Co. Ltd. vs. CIT (2000) 109 Taxman 66 (SC)
(iv) CIT vs. Arvind Jewellers (2002) 124 taxman 615 (Guj.-HC)
(v) CIT vs. Vikas Polymers (2010) 194 taxman 57 (Delhi - HC)
(vi) ITO vs. DG Housing Projects Ltd. (2012) 343 ITR 329 (Delhi -
HC)
(vii) CIT vs. Goetz (I) Ltd. 2014 361 ITR 505 (Delhi - HC)
15. We have heard the rival contentions and have also gone through the relevant case laws submitted by the Ld. Representatives of the parties. There is no doubt that the Hon'ble Karnataka High Court in the case of "Infosys Technology" (supra) has held that where the Assessing officer has not made it explicit as to the entitlement of a claim of the assessee, the Commissioner has the jurisdiction in directing the AO to make enquiries in the matter and give a specific finding in this respect. However, the Hon'ble Delhi High Court in the case of "Sunbeam Auto Ltd." (supra) has held that there is a distinction between lack of enquiry and inadequate enquiry. If there is an enquiry even inadequate that would not by itself give occasion to the CIT to pass order under section 263 merely because he 10 has a different opinion in the matter. The Assessing officer is not required to give detailed reasoning in respect of each and every item of deduction in the assessment order. Where the Assessing officer had called for an explanation regarding the claim made by the assessee and the assessee had furnished its explanation, then it cannot be said to be a case of lack of enquiry.
In the case of "Vikas Polymers" (supra) the Hon'ble Delhi High Court has held that for exercising powers under section 263, it is pre- requisite that Commissioner must give reasons to justif y exercise of revisional powers under section 263 to reopen a concluded assessment. The exercise of the power being quasi-judicial in nature, the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment was called for and must irresistibly lead to the conclusion that the order of the AO was not only erroneous but was also prejudicial to the interest of the Revenue. The Hon'ble High Court has observed that the provisions of section 263 when read as a composite whole make it incumbent upon the Commissioner before exercising revisional powers to
(i) call for and examine the record and (ii) give the assessee an opportunity of being heard and thereafter, to make or cause to make such an enquiry as he deems necessary. It is only on fulfillment of these twin conditions that the Commissioner may pass an order exercising powers of revision, the assessee must be called for, his explanation sought for and examination by the Commissioner and thereafter if the Commissioner still feels that the order is erroneous and prejudicial to the interest of the Revenue then he may pass the revisional orders.
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The Hon'ble Bombay High Court in the case of "Gabriel India Ltd." (supra) has held that the Commissioner cannot initiate proceedings with a view to starting fishing and rowing enquiries in matters or orders which are already concluded. There must be material on record to show that tax which was lawfully exigible has not been imposed if the claim was allowed by the Income Tax Officer (ITO). On being satisfied with the explanation of the assessee, such decision of the ITO cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that record. Almost similar proposition has been laid down in the case of "Gupta Spinning Mills Ltd." (supra) and "Amit Corporation" (supra) that Commissioner has to give a definite finding that the order of the AO is erroneous and that inadequate enquiries by itself will not make the order as erroneous.
16. We find that the Hon'ble Delhi High Court in the case of "CIT vs. Goetz (I) Ltd." (supra) has elaborately discussed the various case laws regarding the powers of the Commissioner under section 263 including "CIT vs. Nagesh Knitwars Pvt. Ltd." (2012) 345 ITR 135 (Delhi - HC) and of the Hon'ble Bombay High Court in the case of "Gabriel India Ltd." (supra) and also of the Hon'ble Delhi High Court in the case of "Sunbeam Auto Ltd." (supra) and has reached to the conclusion that the Commissioner should be able demonstrate that the view taken by the AO was not possible being legally unsustainable and incorrect and this finding must be recorded. The Commissioner cannot remand the matter to the AO to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, the Commissioner must give and record a finding that the order/enquiry made is erroneous. This 12 can happen if an enquiry and verification is conducted by the Commissioner and he is able to establish and show the error or mistake made by the AO making the order unsustainable in law. The matter cannot be remitted for a fresh decision to the AO to conduct further enquiries without a finding that the order is erroneous and the Commissioner further must also satisf y the second limb of the provision that the order is also prejudicial to the interest of the Revenue. The Hon'ble Supreme Court in the case of "CIT vs. G.M. Mittal Stainless Steel (P) Ltd." (2003) 263 ITR 255 has observed that the satisfaction by the Commissioner must be one objectively justifiable and based on material either legal or factual when available, it cannot be mere ipse dixit of the Commissioner.
17. In view of the above discussion of the various case laws, we find that except in the lone decision of the Hon'ble Karnataka High Court in the case of "Infosys Technology" ( supra), the Hon'ble Supreme court and various other High Courts including our Jurisdictional High Court have been almost unanimous in holding that before enhancing or annulling or modif ying or cancelling the assessment while exercising his powers under section 263 of the Act, the Commissioner must record a finding of fact or of law that the order of the AO is erroneous and is also prejudicial to the interest of Revenue as discussed above. In the case in hand, as discussed above, this prerequisite condition has not been satisfied as the Commissioner after calling for the explanation from the assessee has failed to make necessary exercise in examining or cause to examine the explanation/details submitted by the assessee for the justification of its claim and even without any further enquiry, directed the AO top make additions of the entire deposits into the income of the assessee. Hence, in 13 the light of the various case laws as analyzed above, the order of the Commissioner exercising jurisdiction under section 263 of the Act cannot be held to be sustainable in law and the same is accordingly set aside.
18. In the result, the appeal of the assessee is hereby allowed.
Order pronounced in the Open Court on 08.11.2017
Sd/- Sd/-
( ANNAPURNA GUPTA) (SANJAY GARG)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 8 t h Nov., 2017
Rkk
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR