Income Tax Appellate Tribunal - Hyderabad
M/S Chava Srinivasa Rao,, Warangal vs Assessee on 5 August, 2015
ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad 'A' Bench, Hyderabad
Before Shri P.M. Jagtap, Accountant Member
& Shri Saktijit Dey, Judicial Member
ITA No.997/Hyd/2014
(Assessment year: 2010-11)
Sri Chava Srinivasa Rao Income Tax Officer
Kothagudem, Khammam Vs. Ward 2
PAN-AFCPC 0716 L Kothagudem
(Appellant) (Respondent)
For Assessee : Shri G. Manikya Prasad
For Revenue : Shri P. Somasekhar Reddy, DR
Date of Hearing : 14.07.2015
Date of Pronouncement : 05.08.2015
ORDER
Per Saktijit Dey, J.M.
Instant appeal of the assessee is against the order dated 26.03.2014 of the ld CIT, Vijayawada passed u/s 263 of the Act for the A.Y 2010-11.
2. Briefly, the facts are, assessee an individual is the proprietor of M/s Swapana Restaurant & Bar. For the A.Y under consideration, assessee filed his return of income on 15.10.2010 declaring total income of Rs.97,72,119, besides agricultural income of Rs.25.00 lakhs. It may be stated, a survey operation u/s 133A of the Act was conducted in the business premises of the assessee on 19.03.2010. In course of the assessment proceedings, AO called for relevant details to substantiate the earning of agricultural income at Rs.25.00 lakhs. After Page 1 of 13 ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal examining the evidences submitted by assessee, AO accepted the agricultural income to the extent of Rs.21,90,000 while treating the amount of Rs.3,10,000 as income from other sources. AO also made some other disallowances out of the expenditure claimed by the assessee as a result of which the total income was determined at Rs.1,02,13,350 as per the assessment order passed u/s 143(3) of the Act on 11.5.2011.
3. Ld CIT in exercise of powers u/s 263 of the Act, called for assessment records of the assessee for the year under consideration and after examining the same was of the view that the AO has failed to examine/consider various issues, which according to the ld CIT has made the assessment order erroneous and prejudicial to the interests of the Revenue. Accordingly, he issued a show cause notice to the assessee on 24.01.2014. Subsequently, after change in incumbency, another show cause notice u/s 263 of the Act was issued on 11.03.2013 by the successor CIT raising some other new issues. Though, assessee in its reply submitted in response to the show cause notice, objected to the initiation of proceedings u/s 263 of the Act, but ld CIT did not find merit in the objections of the assessee. As far as the declaration of agricultural income of Rs.16.00 lakhs from sale of Bamboo Sticks is concerned, ld CIT was of the opinion that assessee's claim is not acceptable because assessee did not have adquate agricultural land to grow bamboo trees which could generate income of Rs.16.00 lakhs. He observed that bamboo trees takes about 5 years to grow. Therefore, considering the fact that assessee has acquired 24.22 acres of land on 08.06.2004, it could not have been possible to grow bamboo trees within such a short period to derive income Page 2 of 13 ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal from sale of such crop. He also observed that even bamboo trees could not have been grown in the land as it is wet land. He also noted that the amounts claimed to have been credited to the bank a/c towards sale of bamboo sticks cannot be accepted without examining the source of such payment as well as the identity and creditworthiness of the person who paid the amount. Ld CIT observed that as the AO has not made proper inquiry or examined all these aspects, assessment order is erroneous and prejudicial to the interests of the Revenue. Accordingly, he directed the AO to examine the issue afresh.
4. He further noticed that assessee is contributing to three chits of Margadarshi Chits and out of which two chits were bidded for an amount of Rs.31,52,110 which was invested in purchase of assets. Accrued chit contributions to Margadarsi were to the tune of Rs.17,86,015, the source of which have not been explained. Though assessee submitted that contribution to the chits were by HUF and the issue has been examined by the AO. Ld CIT not being convinced with the submissions of the assessee held that as the AO has not examined the source for contribution to the chits, assessment order is erroneous and prejudicial to the interests of the Revenue. Accordingly he directed the AO to examine the issue afresh after giving opportunity of being heard to the assessee.
5. The next issue on which ld CIT considered assessment order to be erroneous and prejudicial to the interests of the Revenue is during the survey proceeding, assessee offered to declare additional income of Rs.1.00 crore for the A.Y 2010-11 and promised to pay advance tax of Rs.30.00 lakhs, whereas in Page 3 of 13 ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal the return of income filed for the said A.Y, assessee offered income of Rs.80.00 lakhs. He, therefore, was of the view that as the assessee did not declare the balance amount of Rs.20.00 lakhs, AO should have added the amount to the income returned. Accordingly, he directed AO to examine the issue afresh. Ld CIT also considered the assessment order to be erroneous and prejudicial to the interests of the Revenue on various other issues. On the basis of the reasons sated in the order passed u/s 263, ld CIT ultimately set aside the assessment order and directed AO to re do the assessment de novo. Being aggrieved of the order passed by ld CIT, assessee preferred the present appeal.
6. As could be seen from the grounds raised before us, assessee is basically challenging the jurisdiction of the ld CIT in exercising power u/s 263 of the Act. Ld AR submitted before us, AO having examined all the issues on which ld CIT proposed to revise the assessment order and completed assessment after necessary inquiry on those issues, the assessment order cannot be held to be erroneous and prejudicial to the interests of the Revenue. Ld AR referring to the discussions made in the assessment order as well as the replies submitted by the assessee from time to time in course of the assessment proceedings submitted before us, not only the AO has made adequate inquiry, but assessee has also submitted all the informations and necessary details on the query raised by the AO. Thus, it was submitted by the ld AR since the AO has completed the assessment after conducting necessary inquiry and application of mind, ld CIT cannot revise the order by invoking his power u/s 263 only because in his opinion AO Page 4 of 13 ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal should have conductd some more inquiries or the inquiry conducted by the AO is inadequate. Thus it was submitted by the ld AR that exercise of power u/s 263 of the Act is not valid.
7. Ld DR submitted before us that though the AO in course of the assessment proceeding has raised certain issues with regard to the agricultural income and the contribution of chits, but after submission of information by the assessee AO has simply accepted assessee's claim without verifying information submitted by the assessee or taking the inquiry to its logical end. Ld DR submitted that as far as agricultural income is concerned, though the assessee submited confirmation from the purchaser of bamboo sticks, but AO has failed to verify whether the purchaser was genuine and the amount paid towards sale of bamboo stick is reasonable. Without any inquiry he accepted assessee's claim. He submited that it is rather unusual that the assessee has earned income of Rs.16.00 lakhs from sale of bamboo sticks without incurring any expenditure. As far as contribution to chits are concerned, ld DR submitted source from which investment was made was never inquired by the AO. Ld DR submitted, AO also failed to examine why assessee did not offer the amount of Rs.20.00 lakhs in the return of income out of the additional income declared at the time of survey operations. Thus, the ld DR submitted that the AO having not conducted proper inquiry on the issues on which ld CIT invoked his jurisdiction u/s 263, the order passed by him is valid.
8. In the rejoinder, ld AR relying upon the decision of the Hon'ble Delhi High Court in case of Director of Income Tax vs. Jyothi Foundation (357 ITR 388) submitted before us, that the Page 5 of 13 ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal Revisional Authority while invoking power u/s 263, must make inquiry and ensure that the assessment order is erroneous and prejudicial to the interests of the Revenue and he has no power to remand and direct the AO to conduct inquiry. The ld AR submitted, as far as sale of bamboo sticks are concerned, there cannot be any dispute with regard to the same as the assessee cannot sell them on his own without taking permission of the Forest Authorities. It was submitted that from the time of cutting of bamboo trees to its despatch to the final destination, everything has to be monitored by the Forest authorities, hence there cannot be any dispute with regard to the sale of the bamboo sticks as it is regulated commodity. As far as investment in chits are concerned, ld AR submitted that the entire investment has been reflected in the books of accounts hence, there cannot be any dispute with regard to the source of the deposits. Thus, it was submitted that the ld CIT has invoked his jurisdiction invalidly.
9. We have considered the submissions of the parties and perused the materials on the record. As could be seen there are three major issues on which ld CIT has held the assessment order to be erroneous and prejudicial to the interests of the Revenue. They are as under:
• Income from sale of Bamboo Sticks • Contributions made to the Chits • Additional income offered at the time of survey at Rs.1.00 crore was reduced to Rs.80.00 lakhs in the return filed.
10. As far as the first issue relating to earning of agricultural income from sale of bamboo sticks is considered, as could be Page 6 of 13 ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal seen from the material on record, assessee in the agricultural income shown in the return has included an amount of Rs.16.00 lakhs towards sale of bamboo trees. In course of the assessment proceedings in pursuance to the inquiry conducted by the AO assessee has submitted confirmation letter from the purchaser of bamboo sticks and has also stated that the entire amount was received in cheques. In fact, the assessment order as well as the replies submitted by the assessee in pursuance to the query made by the AO reveal that not only AO has conducted inquiry on the issue of agricultural income and more specifically with regard to the amount received on sale of bamboo sticks, but assessee has also submitted evidence in support of its claim of sale of bamboo sticks. Therefore, upon consideration of facts and facterials on record, it is clearly established that not only the AO has made inquiries with regard to the agricultural income, but has also applied his mind to the facts and materials on record. The same is the case with regard to the contribution to the chits. Though, it may be a fact that the AO has not made any reference to the contribution to Margadarsi Chits in the assessment order, however, perusal of assessee's replies submitted before the AO in course of the assessment proceedings, copies of which have been submitted in the paper book clearly demonstrate that the AO has made inquiry as far as contribution to chits are concerned. Therefore, as far as the issue of earning of agricultural income and investment in chits are concerned, AO having examined the issue and applied his mind to the facts and materials on record while completing the assessment, the assessment order cannot be held to be erroneous and prejudicial to the interests of the Revenue on these two issues. The Hon'ble Supreme Court in the Page 7 of 13 ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal case of Malabar Industrial Co. Ltd vs. CIT (243 ITR 83) held as under:
"9. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC).
11. The jurisdictional High Court in case of Spectra Shares and Scrips Pvt. Ltd vs. CIT (354 ITR 35) while examining the CIT's power u/s 263 of the Act analysed number of decisions of the Hon'ble Supreme Court as well as different High Court and culled out the principles for exercise of jurisdiction u/s 263 of the Act as under:
"31. From the above decisions, the following principles as to exercise of jurisdiction by the Commissioner u/s.263 of the Act can be culled out:
(a) The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent - if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue -
recourse cannot be had to Section 263 (1) of the Act.
Page 8 of 13ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal
(b) Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue: or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law.
(c) To invoke suo motu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue, will not suffice; that 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 were called for, and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo motu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision.
(e) The Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted
(f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed.
Page 9 of 13ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal
(g) The power of the Commissioner under Sec.263 (1) is not limited only to the material which was available before the Assessing Officer and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment".
12. Thus, if we apply the aforesaid principles to the facts of the present case, it is very much pertinent that the AO has not only conducted inquiry on the agricultural income as well as contribution to chits, but has also applied his mind to the information submitted by assessee. In these circumstances, assessment order cannot held to be erroneous and prejudicial to the interests of the Revenue, only because the CIT was of the opinion that some more inquiries should have been made by the AO. As held by the judicial authorities, the power u/s 263 cannot be extended to hold an order passed by the AO as erroneous and prejudicial to the interests of the Revenue due to inadequacy of inquiry. In view of the aforesaid, we do not see any reason to uphold the exercise of power u/s 263 of the Act as far as the issue relating to agricultural income and contribution to chits are concerned.
13. As far as the issue relating to not showing an amount of Rs.20.00 lakhs out of the income offered of Rs.1.00 crores at the time of survey is concerned, we are of the view that exercise of power u/s 263 on this issue is valid. There is no dispute that in the statement recorded at the time of survey on 19.03.2010, assessee had offered to pay an amount of Rs.30.00 lakhs as advance tax for A.Y under consideration. Further in the statement recorded u/s 131 of the Act on 23.03.2010, assessee Page 10 of 13 ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal again stated that he will offer additional income of Rs.1.00crore and pay advance tax of Rs.30.00 lakhs for A.Y under consideration. Thus, from the aforesaid statements, it is clear that the assessee consistently took the stand that he will offer an amount of Rs.1.00 crore as his income for the A.Y under consideration for which the tax liability would be Rs.30.00 lakhs. However, in the return filed for the impugned A.Y, assessee declared income of Rs.80.00 lakhs. Therefore, not showing the additional income offered at the time of survey in the return of income filed ultimately should have triggered an inquiry by the AO. He should have made an effort to find out what are the reasons behind not declaring an amount of Rs.20.00 lakhs out of the total amount of Rs.1.00 crore declared at the time of survey. The AO could have accepted the income declared in the return after satisfying himself with the reasonableness of assessee's explanation. There is nothing in record to show that the AO made any inquiry to find out why the assessee did not offer the amount declared at the time of survey as income in the return filed. That being the case, we do not find any infirmity in the order of the ld CIT in holding the assessment order to be erroneous and prejudicial to the interests of the Revenue on this issue.
14. As far as the other issues considered by the ld CIT for setting aside the assessment order as erroneous and prejudicial to the interests of the Revenue are concerned, after perusing the reasoning of the CIT in the context of facts and materials on record, we are of the firm view that the direction of the ld CIT on these issues are in the nature of starting a roving and fishing Page 11 of 13 ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal inquiry which is not permissible as held by Hon'ble Bombay High Court in CIT vs.Gabriel India Ltd (203 ITR 108 at page 114). In our view, ld CIT has no material before him to consider the assessment order to be erroneous and prejudicial to the interests of the Revenue on these issues. On perusal of the discussions made by the ld CIT, it appears that his actions are more like an AO in session of an assessment proceeding rather than a Revisional Authority exercising powers u/s 263. Power u/s 263 is to be exercised sparingly and in genuine cases where due to error committed by AO, there is loss to the Revenue. If there are no conclusive evidence which could prima facie demonstrate that assessment order is erroneous and prejudicial to the interests of Revenue, on mere doubt and suspicion ld CIT cannot revise the assessment order on trivial or non-existent issues. Moreover, it appears from record, the AO during the assessment proceedings has made enquiries on all these issues, though, it may not have been referred to in the assessment order. As it appears, in the garb of proceedings u/s 263 of the Act, the ld CIT in fact is undertaking an assessment proceeding himself.
15. In view of our reasoning herein above, we hold that the exercise of power u/s 263 by the ld CIT is not valid in respect of all other issues, except the issue relating to non disclosure of an amount of Rs.20.00 lakhs out of additional income of Rs.1.00 crores offered at the time of survey. Accordingly, we uphold the order of ld CIT to the extent of issue relating to not showing of additional income of Rs.20.00 lakhs by the assessee in the return of income. We direct the AO to examine this issue independently, without being influenced by any of the observations of the ld CIT, and decide the issue on its own merit Page 12 of 13 ITA No.997 of 2014 Chava Srinivasa Rao, Paloncha, Warangal and in accordance to law after reasonable opportunity of being heard to the assessee. If the assessee offers reasonable explanation regarding not offering the amount of Rs.20.00 lakhs keeping with the declaration made at the time of survey, AO may accept the income shown after verifying the explanation of the assessee.
16. In the result, assessee's appeal is partly allowed.
Order pronounced in the Open Court on 5th August, 2015.
Sd/- Sd/-
(P.M. Jagtap) (Saktijit Dey)
Accountant Member Judicial Member
Hyderabad, dated 5th August, 2015.
Vnodan/sps
Copy to:
1. G.S., Madhava Rao & Co. CAs, Sudharma Buildings, MG Road, Warangal
2. Income Tax Officer Ward 2 Kothagudem, Warangal
3. CIT Vijayawada
4. Add. CIT, Khammam Range, Khammam
5. The DR, ITAT, Hyderabad
6. Guard File By Order Page 13 of 13