IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "F" NEW DELHI
BEFORE SHRI H.S.SIDHU, JM AND
SHRI J.SUDHAKAR REDDY, AM
ITA Nos. 2766-2767-2768-and 2769/Del/2013
AY : - 2005-06 to 2008-09
Sh. Ramesh Batta vs. CIT, Kanpur
81/210, Kaulagarh road
Meerut
PAN: ABGPB 1527 N
(Appellant) (Respondent)
Appellant by : Shri Salil Kapoor & Sh.Vikas Jain, Adv.
Respondent by: Sh. Vivek Wadekar, CIT, DR
ORDER
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
All these appeals are filed by the assessee pertaining to different AYs
and are directed against the order of the Ld.CIT (Central), Kanpur u/s 263
of the Act on 15th March, 2013.
2. The conclusions of Ld.CIT(A) are as follows.
"7. The assessee has, in his response, also claimed that the amount
mentioned on the reverse may be quoted by the brokers. This. however, again
does not hold water a there is no such mention of the amount being charged
being difference from what has been authenticated by Shri Rakesh Batta on
the reverse of these papers. It is thus be seen that the A.O. while framing the
assessment order without any basis, documents being found either during the
course of search or being submitted during the course of assessment
proceedings wrongly allowed rebate of 35% on such unrecorded, unfounded
expenditure. Any expenditure incurred wholly and exclusively for the purpose
ITA Nos. 2766-2767-2768 and 2769/Del/2013
AYs: 2005-06 to 2008-09
Sh.Ramesh Batta, Meerut
of earning an income is to be allowed as a deduction. However, the basic
condition is that such expenditure should have been incurred. As already
indicated no such expenditure has either been debited in the books or
supported by any documents seized during the search or otherwise. The order
of the AO is, therefore, clearly erroneous as well as prejudicial to the interest
of Revenue as no such deduction was allowable while computing the total
income of the assessee, as per the provisions of the Act.
8. The assessee has also, in response to the second issue regarding capital
gain, mentioned that the alleged unexplained investment in the hands of the
firm M/s R.B.Enterprises does not make the order prejudicial to the interest of
Revenue as it was taxed on higher rate of tax i.e.30%. Even if this was shifted
to individual hands then the tax quantum would not exceed the highest rate of
30%. On this basis, the assessee claimed the addition in the hands of M/s
R.B.Enterprises was not erroneous as it was based on the past and accepted
pattern adopted by the assessee. The assessee further claimed that this
addition was also not prejudicial to the interest of the Revenue and does not
involve any reduction/leakage of tax. At this point, it is important to note that
as per provisions of the Income tax Act, the income has to be charged to tax at
correct rate in the correct assessment year and in the hands of the earning, if
the income chargeable to tax in the hands of the partner (even if 30%). If it is
charged in the hands of the firm will constitute an order erroneous as well as
prejudicial to the interest of Revenue.
9. In view of the above and after having considered all the facts, arguments
raised by the assessee, it is clear that the order passed by the A.O. is
erroneous as indicated above as well as prejudicial to the interest of Revenue.
Therefore, the order passed by the A.O. is hereby set aside u/s 263 of the IT
Act 1961 to be framed afresh after taking into account the points made above
on the merits of the case as well as the documents submitted by the assessee
during the course of assessment proceedings, documents and other
information found during the course of search and after giving the assessee
due opportunity of being heard."
3. Aggrieved the assessee is in appeal before us on the following grounds.
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AYs: 2005-06 to 2008-09
Sh.Ramesh Batta, Meerut
"1. That the notice issued under Section 263 of the Income Tax Act, 1961,
and the order passed under said Section are illegal, bad in law and without
jurisdiction.
2. That the notice by the CIT under Section 263 does not show that the
Assessing Officer committed any error in passing the assessment order under
Section 153A r.w.s. 143 (3). Therefore, the jurisdiction assumed by the CIT
under Section 263 is illegal and without jurisdiction and is liable to be
quashed.
3. That the order passed under Section 153A1143 (3) by the Assessing
Officer is neither erroneous nor prejudicial to the interest of Revenue and as
such the order passed by the CIT order under Section 263 in cancelling the
assessment is illegal and bad in law.
4. That the CIT has failed to appreciate that all the issues referred in his
order under Section 263 have been duly considered and the view taken by the
Assessing Officer is a possible view. All necessary enquires/investigations
relating to all the issues referred in the order of the CIT under Section 263
were made and partly accepted by the Assessing Officer while framing the
assessment under Section 153A/143(3). Thus, the notice issued and the
impugned order are beyond the preview of Section 263 and hence, the order
passed under Section 263 is liable to be quashed.
5. That the CIT has agreed with the submissions of the Appellant that the
Assessing Officer has taken the view after considering all the aspects.
Moreover the view taken by the Assessing Officer is a possible view. Hence,
the CIT has erred in law and on facts in setting aside the assessment to be
redone afresh.
6. That the without prejudice to our appeal filed before the CIT(A), there is
no error committed by the Assessing Officer in allowing the rebate of 35% on
account of negotiation in property deals and the CIT has no jurisdiction to
invoke Section 263 on the ground that he is holding a different view.
7. That the observations of the CIT are based on surmises and conjectures
and on the basis of the different view taken by the Assessing officer after
framing the Assessment Order Section 153A/143(3) and do not afford any
legal justification to the findings given.
8. That the proceeding under Section 263 are initiated at the instance of
Assessing officer and the order passed by the CIT is clearly without
application of mind as it refer to many irrelevant issues hence the order under
section 263 is liable to be quashed.
9. That the CIT have erred in not providing proper and adequate
opportunity to Appellant to place the material on record and the impugned
order passed is against the principle of natural of justice.
10. That the CIT have erred in not confronting the reports mentioned in
show cause notice and order U/s 263 of the Act of the Assessing Officer in
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ITA Nos. 2766-2767-2768 and 2769/Del/2013
AYs: 2005-06 to 2008-09
Sh.Ramesh Batta, Meerut
spite of request made by the Appellant. Hence the impugned order passed by
the CIT is illegal, bad in law and liable to be set-a-side.
11. That all the facts and circumstances of the case and the material
available on record have not been properly considered by the CI'T while
passing the order under Section 263. The impugned order is illegal, arbitrary
and bad in law.
12.The Appellant craves leave to add, amend, alter and or modify the grounds
of appeal of the said appeal.
All of the above grounds of appeal are without prejudice and are mutually
exclusive to each other."
4. We have heard Mr. Salil Kapoor, the Ld.Counsel for the assessee and
Shri Vivek Wadekar, the Ld.CIT, DR on behalf of the Revenue.
5. On a careful consideration of the facts and circumstances of the case
and on perusal of papers on record and orders of authorities below, case
laws cited, we hold as follows.
6. The Delhi "B" Bench of the Tribunal in ITA nos. 2340 to
2346/Del/2013 in the case of M/s R.B. Enterprises vs. CIT for the AYs
2003-04 to 2009-10 and in ITA 5085 to 5092/Del/13 vide order dt. 31st
March, 2014 admittedly considered the very same issue of whether the AO
has committed an error which is prejudicial to the interest of Revenue in his
order passed u/s 143(3), by allowing a rebate of 35%, after taking into
consideration the arguments of the assessee and also considering that
there is a definite possibility for some negotiations in the final settlement of
rates etc., while working out the sale proceeds out of books of accounts.
The assessments of the present assessee as well as the assessments in the
case of M/s R.B. Enterprises are based on the same material facts. The
Ld.CIT(A) has passed a similar order u/s 263 of the Act in the case of M/s
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ITA Nos. 2766-2767-2768 and 2769/Del/2013
AYs: 2005-06 to 2008-09
Sh.Ramesh Batta, Meerut
R.B. Enterprises. The Tribunal in the case of M/s R.B. Enterprises in order
dt. 31.3.2014, quashed the order u/s 263 by holding as under.
"20. In the light of above, let us examine the issues before us. The first aspect is whether
Explanation "C " appended to sec. 263 prohibits the Learned Commissioner in the present
appeals to take action under sec. 263. The contentions of the Learned DR on the strength of
authoritative pronouncements was that the issue to the extent of 35% sales consideration
which have not been added by the Assessing Officer on the grounds that this much
expenditure must have been incurred by the assessee is concerned, does not travel to the
Learned CIT(Appeals). He emphasized upon the decision of Hon'ble Delhi High Court in the
case of Printer House as well as of Hon'ble Bombay High Court in the case of Rati Lal Bacheri
Lal (supra). In the case of Printer House, the assessee has imported two machines from
abroad and claimed deduction under sec. 35. Learned Assessing Officer accepted the claim
of assessee in respect of one machine but disallowed a similar claim in respect of Machine
No.2. The assessee has challenged this disallowance before the Learned CIT(Appeals) in an
appeal. While the appeal of the assessee was pending, Learned Commissioner took
cognizance under sec. 263 of the Act and set aside the assessment order. Learned
Commissioner, however, realizing his mistake, rectified the order under sec. 154 and
restricted its operation qua Machine No.1 for which allowance has been granted. The simple
reason for this exercise of powers, there that acceptance of claim by the Assessing Officer
was never the subject matter of appeal before the Learned CIT(Appeals). Learned
CIT(Appeals) would only examine the denial of claim qua Machine No.2. Thus, Learned
Commissioner can exercise his powers under sec. 263 on such an issue. But in the present
case, we are facing somewhat a different challenge.
21. Learned Assessing Officer has estimated the unaccounted sales on the basis of
booking forms found during the course of search. While quantifying the unaccounted sales,
he made an analysis of the seized material and observed that on estimate basis, 65% of the
total amount calculated on the basis of these documents is to be considered as unaccounted
sales of the assessee. In other words, he has granted rebate of 35%. This is an integrated
issue, when assessee challenge estimation of unaccounted sales at 65% before the Learned
CIT(Appeals), the total issue traveled to the Learned CIT(Appeals). Learned CIT(Appeals) may
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ITA Nos. 2766-2767-2768 and 2769/Del/2013
AYs: 2005-06 to 2008-09
Sh.Ramesh Batta, Meerut
hold; (a) that estimation of the Assessing Officer at 65% of the total amount as suppressed
sales is justified; (b) no suppressed sales is to be estimated because, it is not flowing from the
seized material; (c) Learned CIT(Appeals) may estimate that it is only 50% of the total
amount computed; (d) Learned CIT(Appeals) may form an opinion that it should be 100%. In
that eventuality, the powers, co-terminus with that of Assessing Officer vested in the
Learned CIT(Appeals) may be exercised and Learned CIT(Appeals) can issue notice for
enhancement of income. The other scenario could be that Learned Commissioner has taken
cognizance under sec. 263 of the Act. He has set aside the assessment order and remitted
the issue to the Assessing Officer for considering as to why a rebate of 35% has been allowed
to the assessee as expenditure while quantifying the suppressed sales Ld Assessing Officer
after hearing the assessee may deny this rebate and made the addition, but in the appeals
pending before the Learned CIT(Appeals) may be partly allowed. In that situation, the
contradictory opinion and decisions would come. The object of inserting Explanation C with
sec. 263 is to avoid this contradiction among authorities having identical powers. They may
not be called for to exercise their powers simultaneously because exercise of such powers by
two authorities may lead to different opinion. Therefore, in our opinion the action taken by
the Learned Commissioner under sec. 263 is not sustainable on this fold of submissions.
22. The next fold of submissions raised by the learned counsel for the assessee was based
upon the decision of Hon'ble Delhi High Court in the case of ITO vs. DC Housing Project
(supra). Learned Commissioner has set aside the assessment order and remitted the issue to
the file of the Assessing Officer. Ld Assessing Officer has already made an analysis of the
record. He has estimated the unaccounted sales on the basis of seized material. Nothing has
to be brought on the record apart from those material. They are already on the record.
Therefore, Learned Commissioner ought to have not set aside the issue to the file of the
Assessing Officer without recording a firm finding. Hon'ble Delhi High Court in the case of DC
Housing (supra) has appraised the adjudicating authorities the approach required to be
adopted while taking action under sec. 263 of the Act, by making following observations:
"6. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the
conclusion and himself decide that the order is erroneous, by conducting necessary
enquiry, if required and necessary, before the order under Section 263 is passed. In
such cases, the order of the Assessing Officer will be erroneous because the order
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ITA Nos. 2766-2767-2768 and 2769/Del/2013
AYs: 2005-06 to 2008-09
Sh.Ramesh Batta, Meerut
passed is not sustainable in law and the said finding must be recorded. CIT cannot
remand the matter to the Assessing Officer to decide whether the findings recorded
are erroneous. In cases where there is inadequate enquiry but not lack of enquiry,
again the CIT must give and record a finding that the order/inquiry made is
erroneous. This can happen if an enquiry and verification is conducted by the CIT and
he is able to establish and show the error or mistake made by the Assessing Officer,
making the order unsustainable in Law. In some cases possibly though rarely, the CIT
can also show and establish that the facts on record or inferences drawn from facts
on record per se justified and mandated further enquiry or investigation but the
Assessing Officer had erroneously not undertaken the same. However, the said
finding must be clear, unambiguous and not debatable. The matter cannot be
remitted for a fresh decision to the Assessing Officer to conduct further enquiries
without a finding that the order is erroneous. Finding that the order is erroneous is a
condition or requirement which must be satisfied for exercise of jurisdiction under
Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing
Officer would imply and mean the CIT has not examined and decided whether or not
the order is erroneous but has directed the Assessing Officer to decide the
aspect/question.
7. This distinction must be kept in mind by the CIT while exercising jurisdiction
under Section 263 of the Act and in the absence of the finding that the order is
erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the
said section is not sustainable. In most cases of alleged "inadequate investigation", it
will be difficult to hold that the order of the Assessing Officer, who had conducted
enquiries and had acted as an investigator, is erroneous, without CIT conducting
verification/inquiry. The order of the Assessing Officer may be or may not be wrong.
CIT cannot direct reconsideration on this ground but only when the order is
erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer
to decide whether the order was erroneous. This is not permissible. An order is not
erroneous, unless the CIT hold and records reasons why it is erroneous. An order will
not become erroneous because on remit, the Assessing Officer may decide that the
order is erroneous. Therefore CIT must after recording reasons hold that the order is
erroneous. The jurisdictional precondition stipulated is that the CIT must come to the
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ITA Nos. 2766-2767-2768 and 2769/Del/2013
AYs: 2005-06 to 2008-09
Sh.Ramesh Batta, Meerut
conclusion that the order is erroneous and is unsustainable in law. We may notice
that the material which the CIT can rely includes not only the record as it stands at
the time when the order in question was passed by the Assessing Officer but also the
record as it stands at the time of examination by the CIT [see CIT vs. Shree
Manjunathesware Packing Products, (1998) 231 ITR 53 (SC)]. Nothing bars/prohibits
the CIT from collecting and relying upon new/additional material/evidence to show
and state that the order of the Assessing Officer is erroneous".
23. Learned CIT(Appeals) has failed to arrive at a firm conclusion as to how the
assessment orders are erroneous and prejudicial to the interest of the revenue. Therefore,
the orders under sec. 263 are not sustainable on this fold of submissions also. Since, we have
arrived at a conclusion that the issue agitated in the appeals of assessee before the Learned
CIT(Appeals) is an integrated common issue, it cannot be segregated in two different
proceedings i.e. partly before the Learned CIT(Appeals) and partly before the Learned
Commissioner under sec. 263, the apprehension of revenue is concerned that 35% amount of
the alleged unrecorded sales has not been added by the Assessing Officer, it will not travel to
the Learned CIT(Appeals) is concerned, the Learned CIT(Appeals) has powers co-terminus
with that of Assessing Officer and while evaluating the evidence demonstrating the
appropriate amount of unaccounted sales, if any, to be considered in the hands of the
assessee, would authorize him to consider the total amount and in that situation Learned
CIT(Appeals) has jurisdiction to issue notice for enhancement. Sub-section(6) of section 250
provides that; "the order of the Learned CIT(Appeals) disposing of the appeal shall be in
writing and shall state the points for determination, the decision thereon and the reason for
the decision but there cannot be two parallel proceedings on one common issue.
A bare perusal of the above would reveal that an appeal filed by an assessee after due
compliance of others provisions e.g. limitation 249(3); payment of taxes on returned income
259(4), the Learned CIT(Appeals) has to decide the appeal on merit. She cannot return any
appeal undecided or cannot say that it is dismissed being infructuous. The moment a valid
appeal is filed before Learned CIT(Appeals) then it would be construed that any issue raised
in the appeal would become subject matter as contemplated in explanation `C' to section
263. After filing of a valid appeal and Learned CIT(Appeals) had issued notice for
enhancement then even if assessee withdraw its appeal, the notice would remain live and
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ITA Nos. 2766-2767-2768 and 2769/Del/2013
AYs: 2005-06 to 2008-09
Sh.Ramesh Batta, Meerut
would not become infructuous, because Learned CIT(Appeals) had opted to exercise her
power under sec. 251(1) which is co-terminus with that of Assessing Officer. This procedure
can easily take care of revenue's apprehension. Thus, there cannot be two parallel
proceedings on one common issue.
25. As far as appeals bearing Nos. 5085 to 5092/Del/2013 are concerned, sub-section (6)
of section 250 mandates Learned CIT(Appeals) to determine the points in dispute and
thereafter record reasons in writing in support of the conclusions arrived on those points.
Learned CIT(Appeals) has failed to follow this procedure while dismissing the appeals of
assessee. Therefore, these orders are not sustainable in the eyes of law. We set aside all the
orders impugned in these appeals and remit all the appeals to the file of the Learned
CIT(Appeals) for consideration afresh. The observations made by us while considering the
appeals of assessee under sec. 263 for issuing notice for enhancement will not be considered
as expression of any opinion on the merits of the issues. We have made observations just for
bringing the points at home which may not be considered any indication towards any
direction. Our observations will not impair or injure the case of the Assessing Officer and will
not cause any prejudice to the defence/explanation of the assessee. Learned CIT(Appeals)
shall grant due opportunity of hearing to the assessee and decide all the grounds of appeals
raised before her in accordance with law.
26. In the result, ITA Nos. 5085 to 5092/Del/2013 are allowed for statistical purposes and
ITA Nos. 2340 to 2364/Del/2013 are allowed."
6.1. In the case on hand the Ld.CIT(A) has deleted the addition of 65%
made for the AYs 2005-06, 2006-07 and 2007-08. The appeal for the AY
2008-09 is pending before the Ld.CIT(A). Consistent with the view taken in
the case of M/s R.B.Enterprises (supra) we quash all these orders passed
u/s 263 of the Act and allow the appeals of the assessee.
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ITA Nos. 2766-2767-2768 and 2769/Del/2013
AYs: 2005-06 to 2008-09
Sh.Ramesh Batta, Meerut
7. In the result all these appeals filed by the assessee are allowed.
Order pronounced in the Open Court on 30th October,2014.
Sd/- Sd/-
(H.S. SIDHU) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 30th October, ,2014
*manga
Copy of the Order forwarded to:
1. Appellant;
2.Respondent;
3.CIT;
4.CIT(A);
5.DR;
6.Guard File
By Order
Asst. Registrar
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