Income Tax Appellate Tribunal - Pune
Bharat Idandas Talreja, Satara vs Assessee on 9 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "A", PUNE
Before Shri Shailendra Kumar Yadav, Judicial Member,
and Shri R.K.Panda, Accountant Member.
ITA.No.1433/PN/2009
(Asstt. Year : 2007-08)
Shri Bharat Idandas Talreja
Prop: M/s.Quality Liquors,
Shaniwar Peth, Near SBI,
Aranke Building,Karad,
Dist. Satara. .. Appellant
Vs.
ACIT, Satara Circle,
Satara. .. Respondent
ITA.No.1434/PN/2009
(Asstt. Year : 2007-08)
Shri Haresh Indandas Talreja,
885, Talreja Traders,
Opp: Akshata Mangal Karyalaya,
P.B. Road, Karad,
Dist. Satara. .. Appellant
Vs.
ACIT, Satara Circle,
Satara. .. Respondent
Appellant by : Shri M.K.Kulkarni
Respondent by : Shri Mukesh Verma
Date of Hearing : 09.07.2012
Date of Pronouncement : 27.07.2012
ORDER
PER SHAILENDRA KUMAR YADAV, JM:
The above two appeals filed by the respective assessees are directed against the respective orders of CIT-III, Pune dated 24-11-2009 u/s.263 of Income Tax Act (hereinafter called 'the Act') relating to A.Y. 2007-08. Since common issues are involved in both these cases belonging to the same group, therefore, these 2 were heard together and are being disposed of by this common order for the sake of convenience.
ITA No. 1433/PN/2009 (A.Y. 2007-08 ) :
2. The assessee has filed this appeal against the order of CIT u/s.263 on the following main grounds :
1. On the facts and in the circumstances of the case and in law the Ld. CIT-
III, Pune was not justified in invoking action under section 263 to cancel the inconclusive assessment which cannot be termed as 'erroneous and prejudicial to the interests of revenue' within the meaning of that section. The order of the Ld. Commissioner be cancelled.
2. On the facts and in the circumstances of the case and in law the Ld. CIT- III, Pune has passed order under section 263 as a matter of 'abundant precaution' as according to him the assessment passed by ACIT Circle Satara was without jurisdiction since on the date of completion of the assessment the jurisdiction over the case was transferred from A.O. the A.C.I.T to Addl. Commissioner of Income-Tax, Satara Range, Satara. The action of the Ld. CIT-III is not justified and it be cancelled. Since it is not within the parameters of S.263 of the Act.
3. On the facts and in the circumstances of the case and in law and in view of the order of the Ld. CIT-III, it transpires that though the ACIT, Satara Circle, Satara, did know that on 04-09-2009 he had no jurisdiction to pass the assessment order but he passed the said order on 07-09-2009. The very fact that Assessing Officer passed the assessment order on 07- 09-2009 which was final that too after considering the entire information submitted. The action of the Ld. CIT-III in cancelling the assessment order u/s.263 is without jurisdiction and it be quashed.
4. On the facts and in the circumstances of the case and in law the assessment was completed by the A.O. after due enquiries requiring the necessary records to be filed, considered that Section 40A(2)(b) was not applicable, went through all the records filed before him and the copies of which were submitted before him during the course of assessment proceedings. The Assessing Officer took a conscious decision where action u/s.263 was not proper and according to law. The order passed u/s.263 be quashed.
5. On the facts and in the circumstances of the case and in law the order of transfer under section 127 was opposed to the provisions of that section and be cancelled.
3. The assessee filed its return of income for A.Y. 2007-08 on 25.10.2007 declaring total income of Rs.18,32,508/-. The scrutiny assessment was completed u/s.143(3) of Income Tax Act, vide order 3 dated 07.09.2009 determining total income of Rs.19,80,000/-. The CIT, on examination of the assessment record, noticed that Assessing Officer has not examined various aspects which required to be examined for proper determination of income. Therefore, a notice u/s.263 of the Act was issued to the assessee. The operative portion of the notice is as under:
""Assessment order in this case has been passed u/s. 143(3) of the I.T. Act by ACIT, Satara Circle, Satara on 07/09/2009 whereas the jurisdiction in this case stood transferred to the Add!. CIT, Satara Range, Satara, w.e.f. 04/09/2009. In view of this, it is clear that the order passed by the ACIT, Satara Circle, Satara for the assessment year under consideration on 07/09/2009 is without jurisdiction and therefore, non-est.
2. Without prejudice to what is stated above; the order passed by the learned Assessing Officer referred to above suffers from various errors which, prima facie, are within the purview of assumption of jurisdiction u/ s. 263 of the Income Tax Act, 1961. These errors are enumerated as under :-
i) Confirmation in respect of creditors/debtors: As per the Tax Auditors report, creditors' and debtors' balance are subject to confirmation/reconciliation. However, during the course of assessment proceedings, the learned Assessing Officer did not obtain confirmation of creditors and debtors which required to be obtained for correct determination of income in this case.
ii) Applicability of Sec. 40A(2)(b): It is observed that assessee has made major part of its purchases to the tune of Rs.7,74,95,655/- from sister concern M/s. Talreja Traders (HUF). The assessing officer should have verified whether these purchases were made at market rate or not, particularly, in the light of the fact that there is fall in GP declared by the assessee as compared to the earlier years. It is also observed that the assessee himself is the wholesale dealer of M/ s Krishna SSK Ltd, Karad. However, from a perusal of the assessee's account in the books of Talreja Trade (HUF), it is observed that Talreja Trade (HUF) is debiting Krishna SSK credit account. Assessing officer should have obtained ledger extract of the assessee as appearing in the books of Krishna SSK Ltd, Karad. This would have brought- clarity to the issue.
If Krishna SSK Ltd, Karad is supplying directly to the assessee, the payment .of any amount over and above the purchase price to Talreja Trade (HUF) would be hit by the 4 provisions of Section 40A(2)(b). Assessing officer should have examined this issue. .
(iii) Interest charged on loans: It is seen that loans were advanced to related persons Le Mrs. Simran Talreja and Sri I.M.Talreja. The issue of interest on these advances including squared up advances should have been examined by the assessing officer, which is apparently not done.
(iv) Taxability under Wealth tax Act: From a perusal of balance sheet it is noticed that the cash on hand as on 31-3-2007 is Rs.46,04,191. Therefore, assessee is liable for wealth tax. However, this issue has not been examined at all.
(v) Drawings towards House Hold expenses: The assessee has shown drawings towards house hold expenses. for the entire year of Rs.168435. This appears to be on the lower side for a family of five and considering the strata assessee belongs to. The assessing officer should have examined this issue in depth.
(vi) Search & Seizure action:- A perusal of records shows that there was search and seizure operation in the case of the assessee and group concerns in the past. Modus operandi unearthed during search should have been examined by the assessing officer for this year also, which is apparently not done."
4. In response to the notice, the assessee submitted written submissions dated 24.11.2009. Regarding the issue relating to lack of jurisdiction on the date of passing the order, assessee's objections are contained in para 5 of his reply which is reproduced as under:
a) The Assessing Officer vide his letter dated 4-11-2009 informed to the assessee that the jurisdiction of the case was assigned to Add!. CIT, Satara Range by an order u/s.120 r.w.s.
127(1) dated 4-9-2009.
b) The Assessing Officer says the said order of the assignment was received by his office on 7-9-2009.; However, order passed u/s.143(3) dated 7-9-2009 was already entered in the D&C register.
c) It is also stated in the said letter that he was directed to serve the order on the assessee vide communication dated 5 3-11-2009 and to intimate that the jurisdiction over the case has been already been transferred on 4-9-2009 and therefore, order passed on 7-9-2009 has been passed without jurisdiction.
d) The assessment order was therefore, served on 7-11-2009 along with order dated 4-11-2009.
e) The moot question than arises for consideration as to why the assessment order was passed on 7-9-2009 when the Assessing Officer knew that he had no jurisdiction to do so (order was received by him on 4-9-2009)?
f) The hearing of the case also took place on 4-9-2009 when the Assessing Officer considered the submissions of the assessee on that date. But then on that date it was within the knowledge of the Assessing Officer that he did not have any jurisdiction in view of transfer order dated 4-9-2009."
5. The CIT having considered the same, observed that this case was transferred from ACIT, Satara Circle to the Addl. CIT, Satara Range, w.e.f. 04.09.2009 whereas hearing in this case took place on 04.09.2009 and order was passed on 07.09.2009. According to the CIT, it shows that assessment order passed by the Assessing Officer is without jurisdiction and, therefore, is non-est. Without prejudice to this conclusion, the submissions of the assessee with regard to invoking of section 263 as contained in his reply were considered by the CIT and having considered the material on record and perusal of the written submissions submitted on behalf of the assessee on 24.11.2009, the CIT was of the view that on following aspect which prima facie warranted enquiry for correct determination of income, no enquiry was conducted by the Assessing Officer.
i) As per the tax audit report creditors and debtors' balances are subject to confirmation. A perusal of record shows that such confirmations were not obtained during the course' of the assessment proceedings.
6
ii) As regards applicability of section 40A(2)(b) the enquiry that required to be made on the facts of the case for correct determination of income is mentioned in show cause notice in para 2(ii) adduced hereinbefore. In this regard, it is submission Of the assessee that details were called for by the Assessing Officer vide point NO.11 of Annexure. This query as contained in (b) of point No.11 of Annexure is reproduced as under:-
"11. b) Details of payments made to person/parties covered u/s.40A(2)(b) of the LT. Act, 1961, and purpose of such payments, give justification for the payments made to them are not excessive." According to the assessee the reply on this point is contained 'in the letter dated 11-8-2009 to the Assessing Officer and this reply is at page 3 of the compilation. The relevant portion of the reply submitted by the assessee is reproduced as under:-
"Ans: Salary paid to LM.Talreja after deduction of TDS. It has been accepted in the early years."
From the reply given by the assessee it is clear that the Assessing Officer has not examined the aspects which require to be examined and which warranted enquiry on the aspects delineated in point (ii) of para 2 of the show cause notice dated 12-11-2009 which has been reproduced hereinbefore.
iii) As regards the aspect mentioned at (iii) of para 2 of the show cause notice, a perusal of record shows that this aspect was not examined by the Assessing Officer. Similar is the case relating to taxability of cash of Rs.46,04,191 for the purpose of wealth tax.
6. In view of above, the CIT held that aforesaid aspect which prima facie warranted enquiry on the facts of the case for determination of correct income was also not enquired into by the Assessing Officer, which has rendered the order erroneous as well as prejudicial to the interest of Revenue within the meaning of section 263 of the Act. Accordingly, the same was set aside. The CIT also observed that the order u/s.263 is passed as a matter of abundant precaution because the assessment order was passed on 07.09.2009 which was heard by him on 04.09.2009 is non-est 7 because vide office order dated 04.09.2009 jurisdiction of this case had been assigned to Addl.CIT, Satara Range. Thus the order passed by the Assessing Officer on 07.09.2009 in this case u/s.143(3) is no order in eyes of law. Therefore, Assessing Officer having jurisdiction over this case shall complete assessment before 31.12.2009 after conducting necessary enquiry and giving reasonable opportunity of being heard to the assessee. Same has been opposed before us.
7. The Ld. Authorised Representative before us submitted that the CIT was not justified in invoking action u/s.263 of the Act to cancel the inconclusive assessment which could not be termed as erroneous and prejudicial to the interests of Revenue within the meaning of provisions of section 263 of the Act. The CIT, Pune, has passed order u/s.263 as a matter of abundant precaution. As according to him assessment order passed by ACIT, Satara Circle, was without jurisdiction since on the date of completion of the assessment, jurisdiction over the case was transferred from Assessing Officer, i.e., ACIT, to Addl.CIT of Satara Range, Satara. This action of the CIT is not justified and accordingly order u/s.263 of the Act should be set aside. The Ld. Counsel for the assessee relied on a number of decisions to the proposition that the order passed by CIT u/s.263 has to be quashed. The Ld. Departmental Representative on the other hand supported the order of the CIT.
8. We have considered the rival arguments from both the sides and considered the various decisions relied on by the Ld. Counsel 8 for the assessee. According to CIT though ACIT Satara Circle did know that on 04.09.2009 he had no jurisdiction to pass the assessment order but he has passed the said order on 07.09.2009. Such an action of the Assessing Officer in passing the assessment order is without jurisdiction and is liable to be quashed. In this regard the Ld. Authorised Representative submitted that Hon'ble Supreme Court in the case of Prem Singh & Ors. Vs. Birbal & Ors. AIR 2006 SC 3608, has observed that decree non est is a nullity and void ab initio, therefore, cannot be revised. This order is not under the provisions of I.T.Act. So in our opinion this ratio is not applicable to a case u/s.263 of the Act since revision under section 115 of C.P.C. and u/s.263 of the Act are on different footing. The Ld. Authorised Representative submitted that Hon'ble Delhi High Court in the case of CIT vs. DLF Power Ltd. (2010) 31(1) ITCL 312, observed that CIT has no power to review the assessment order u/s.263 when the order is not in existence. The ratio of DLF Power Ltd. (supra) does not help the assessee because in said case order under revision stood rectified, so there was no occasion of revision of same. Next reliance of Ld. Authorised Representative is on decision of Hon'ble Calcutta High Court in P.P.Dinawalla vs. CIT (1994) 78 Taxman 421, wherein it was observed that revision of the order u/s.263 pre-supposes the existence of an order. There cannot be any revision of a non-existing order. The ratio of this case is also not applicable to the facts of assessee because there is no issue on the point that CIT cannot reuse the assessment order for charging of interest u/s.215 of the Act as levy of interest 9 u/s.215 was not part of assessment order. In case before us there is nothing beyond the assessment order. Subject matter of impugned assessment order and order under revision before us is same, where in P.P.Dinawalla's case (supra) the CIT tried to extend his jurisdiction u/s.263 for levy of interest u/s.215 of the Act which was not the subject matter of assessment order. The Ld. AR also relied on the decision of Hon'ble Andhra Pradesh High Court in CIT vs. G.K.Kabra (1995) 211 ITR 331 (AP) wherein it was held that notice u/s.263 was issued in respect of exigibility to capital gains, for which assessee gave satisfactory reply, the order could not be set aside on any other ground without affording opportunity to assessee. This ratio is also not applicable because subject matter before us is notice u/s.263 of the Act and order u/s.263 is same.
9. In case before us CIT while passing order u/s.263 has categorically observed that assessment order was passed on 07-09-2009 which was heard by the Assessing Officer on 04-09-2007 is non-est because vide office order dated 04-09-09 jurisdiction of this case had been transferred to Additional CIT, Satara Range. According to CIT the order passed by Assessing Officer on 7-09-09 in this case u/s.143(3) is not a legal order in the eyes of law. The CIT also invoked provisions of section 263 of the Act on account of insufficient enquiries by erstwhile Assessing Officer on various aspects of additions. Thus the order of the Assessing Officer dated 07-09-2009 was set aside with direction to new Assessing Officer to pass assessment fresh in accordance to law after providing opportunity of hearing to assessee. The CIT has 10 clearly observed that order of Assessing Officer dated 7-09-09 is non est because jurisdiction of this case was already transferred to Additional CIT Satara range on 04-09-2007. The CIT further observed that order of Assessing Officer is set-aside as an abundant precaution. The assessment order has been passed by earlier Assessing Officer, i.e., ACIT of Satara Circle, Satara, while said jurisdiction was already transferred to Addl.CIT, Satara Range, Satara, w.e.f. 04-09-2009. In such situation, order passed by ACIT, Satara Circle, is illegal order. Now question arises as to whether the CIT can set aside such an order by invoking provisions of section 263 of the Act. In our opinion the answer is in the affirmative. It is not in dispute that the concern Assessing Officer was not having jurisdiction over the matter due to transfer of jurisdiction discussed above. In case such illegal order passed by the Assessing Officer being erroneous and prejudicial to revenue, is not set aside, it will amount to perpetuation of error. Once order of CIT in question is not quashed, the order passed by successor Assessing Officer will go infructuous. It will enhance the mischief. The provisions of statute should be interpreted to enhance justice and to suppress the injustice. Moreover, assessee has opportunity to justify its claim as per fact and law in set aside proceedings. Prejudicial as well as erroneous order of Assessing Officer can be revised only u/s.263 of the Act because in assessment proceedings assessee is only party before the Assessing Officer. In order to meet such situation and to protect interests of revenue, provisions of section 263 have been brought on statute. Under fact and 11 circumstances, order of CIT need no interference from our side and the same is upheld. As a result, appeal of assessee is dismissed. ITA No. 1434/PN/2009 (A.Y. 2007-08 ) :
10. Similar issues raised in the above appeal. Since facts being to ITA No. 1433/PN/2010, following the same reasoning, order of CIT in ITA No. 1434/PN/2009 is upheld.
11. In the result both the appeals filed by the assessees are dismissed.
Pronounced in the open court on this the 27th day of July, 2012 Sd/- Sd/-
( R.K.PANDA ) ( SHAILENDRA KUMAR YADAV )
ACCOUNTANT MEMBER JUDICIAL MEMBER
gsps
Pune, dated the 27th July, 2012.
Copy of the order is forwarded to:
1. The Assessee
2. The Department
3. The CIT-III, Pune.
4. The DR "A" Bench, Pune.
5. Guard File.
By Order
Private Secretary,
Income Tax Appellate Tribunal,
Pune.