Commissioner Of Income Tax, Bilaspur v. Respondents: 1. Income Tax Appellate Tribunal, Jabalpur 2. Fihanshyam T)As Agrawal

HIGH COURT OF CHHATTISGARH AT~€~ BILASPURTax Case No.26 of 2006APPELLANT:Commissioner of Income Tax, BilaspurVersusRESPONDENTS:IncomeTaxAppellateTribunal,Jabalpur and anotherJUDGMENT FOR CONSIDERATIONSd/-Dhirendra MishraJudgeriON'BLE SHRI R.N. CHANDRAKAR^JSA'--3ci<R.N. Chandrakary^^JudgePOST FOR JUDGIUENT ON o_?-1 -2011Sd/- HIGH COURT OF CHHATTESGARH AT BILASPUR TT Tax Case No.26 of 2QQ6 APPELLANT: Commissioner of Income Tax, Bilaspur VersusRESPONDENTS:1.IncomeTaxAppellateTribunal,Jabalpur2.fihanshyam t)as Agrawal, Proprietor -Agrawa\EngineeringWorks,NehruPark Road, Surajpur (C6) Present: Shri Rajeev Shrivastava, counsel for the appellant.Shri Shashank Dubey, Sr. Advocate with Shri Amrito bas, Advocate forrespondent No.2. bivision Bench: Hon'ble Shri bhirendra Mishra & Hon'ble Shri R.N. Chandrakar. JJ. JU06MENT(Delivered on_22^1January, 2011) The following judgment of the Court was deliveredby Dhirendra Mishra, J. 1.This tax appeal preferred by the Revenue under Section 260-A of the IncomeTax Act, 1961 (for short['the]Act of 1961') against the order of the IncomeTax Act, 1961 (for short['the]Act of 1961') against the order of the Income Tax Appellate Tribunal, Jabalpur Bench, Jabalpur (for short 'the Tribunal')has been admitted on following substantial question of law;-has been admitted on following substantial question of law;- "Whether on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was justified inlaw in canceling the order of CIT under Section 263 ofthe Act by holding that the same was not sustainablethou9h the Assessing Officer made assessment withoutadequate enquiry? 2. Briefly stated factsof the case, as projected in the impugned order, are thatassessment in this case was completed under Section 143 (3) of the Act ofassessment in this case was completed under Section 143 (3) of the Act of ^'a wrsa•-'•-sriala<<^^-rf6' 1961 on 22nd March, 2004 (Annexure-A/1) which was';,,appealed against andlearned CIT (A) vide order dated 28-7-2004 (Annexure-A/2) deleted theaddition of Rs.1,99,582/-in full and other disallowances made by theAssessing Officer were restricted to 107o instead of 207o as done by theAssessing Officer.Consequent upon the appellate order, the income wascomputed at Rs.1,36,640/- against Rs.3,52,660/- assessed by the AssessingOfficer.Learned CIT, on perusal of the assessment order, noted that theorder is erroneous insofar as it is prejudicial to the interest of Revenue withregard to following:- "1,TheAssessingOfficerhasfailedtoexaminethegenuineness of the unsecured loans of Rs.12,49,802/- and theelement of unreasonability and excessiveness, if any, of theinterest paid to the tune of Rs.2,43,404/- in respect of thesame in terms ofsection 40A(2) of the Act.2.The Assessing Officer has failed to verify the reasons,mode of payment, source and the nature of advance for a sumof Rs.l- lahhs by the assessee to M/s Mahamaya Sponge Iron. 3.The Assessing Officer failed to verify the genuinenessand correctness of the transactions made by the assessee withM/s Super Industries, Surajpur with specific reference to thediscrepancy in bill no and date." 3.Show causs notice was issued under Section 263 and after considering thereply of the assessee as well as arguments advanced before learned CIT,issue in relation to unseeured loan of Rs.12,49,802/- and advance of Rs.IOlakhs given by the assessee were set aside and theAssessing Officer- wasdirected to re-decide these issues afresh after making necessary enquiries/verification and examination and after givjng reasonable opportunity to theassessee in accordance with law while holding the order of the AssessingOfficer with respect to these two items to be erroneous and prejudicial tothe interest of revenue. 3.Show causs notice was issued under Section 263 and after considering thereply of the assessee as well as arguments advanced before learned CIT,issue in relation to unseeured loan of Rs.12,49,802/- and advance of Rs.IOlakhs given by the assessee were set aside and theAssessing Officer- wasdirected to re-decide these issues afresh after making necessary enquiries/verification and examination and after givjng reasonable opportunity to theassessee in accordance with law while holding the order of the AssessingOfficer with respect to these two items to be erroneous and prejudicial tothe interest of revenue. 4.The assessee preferred an appeal against the above order of the CIT and theTribunal by the impugned order allowed the appeal and held that there was nooccasion for learned Commissioner of Income Tax to invoke the provisions ofsection 263 with regard to above two issues.Tribunal by the impugned order allowed the appeal and held that there was nooccasion for learned Commissioner of Income Tax to invoke the provisions ofsection 263 with regard to above two issues. 5. Shri Rajeev Shrivastava, learned counsel appearing oritibehalf of the revenueargued that the Commissioner of Income Tax, on scrutiriY of the assessmentorder dated 22-3-2004under- Section 143(3) observed that the passedAssessing Officer had failed to examine the genuineness of unsecured loan ofRs.12,49,802/- and the element of unr-easonability and excessiveness, if any,of the interest paid to the tune of Rs.2,43,494/-in respect of the same interms of Section 40/\(2) of the Act of 1961 and further considering that theAssessing Officer has failed to verify the reasons, mode of pdyment, sourceand nature of advance for a sum of Rs.IO lakhs by the assessee to M/sMahamaya Sponge Iron and also on third ground, passed order under Section263 after- issuing notice to the assessee and after affording opportunity ofhearing with a finding that the Assessing Officer has failed to apply his mindand make proper enquiries and verification in respect of loans taken by theassessee during the year under consideration as well as the source of advanceof a sum of Rs.IO lakhs to M/s Mahamaya Sponge Iron Private Limited andthus, the order passed under Section 143 of the Act of 1961 on 22nd March,2004 is erroneous and pr'ejudicial to the interest of revenue. 6. After setting aside the assessment order in respect of the above two issues,the Assessing Officer (A.O.) has been directed to reframe the same aftermakingnecessaryenquiries,examinationandverification,aftergivingreasonable opportunity of hearing to the assessee in accordance with law. 7.From perusal of the order of the CIT under Section 263, it is evident thatthe /\.0. has not dealt with the questions raised by the Commissioner in theassessment order and even representative of the assessee admitted that no'such explanation and details were furnished by the assessee before the A.O.during the course of assessmentHowever, the Tribunal has set proceedings.asidetheorder-ofCITuuithafindingthat forunsecuredloanofRs.3,63,000/- the assessee had furnished confirmation letters from theparties before the A.O., though the Commissioner in its order has mentionedabout the admission of representative of the assessee that no explanationwas given in this regard.the /\.0. has not dealt with the questions raised by the Commissioner in theassessment order and even representative of the assessee admitted that no'such explanation and details were furnished by the assessee before the A.O.during the course of assessmentHowever, the Tribunal has set proceedings.asidetheorder-ofCITuuithafindingthat forunsecuredloanofRs.3,63,000/- the assessee had furnished confirmation letters from theparties before the A.O., though the Commissioner in its order has mentionedabout the admission of representative of the assessee that no explanationwas given in this regard. ^', ^', 8. Withrespecttotheobjectionraisedbythere,spondentthatfreshassessment order was passed on 1-9-2004 after the ordsr dated 28-7-2004waspassedby the CIT (A)and, therefore, theCommissionerhadnojurisdiction to revise the order dated 22-3-2004 under Section 263 of theAct of 1961, as no assessment order dated 22-3-2004 existed, it was arguedthat these points we.re. never agitated either before the Commissioner inproceedings under Section 263 of the Act of 1961 or before the Tribunal inappeal, therefore, respondent No.2 cannot be permitted to raise this newissue which has not been raised at any point of time. 9. It was further argued that powers under Sections 263 and 246A of the Actof1961 are quite different, as they are exercisable by the differentauthorities.Under Section 246A, any assessee aggrieved by the ordermentioned in Section 246 of the Act of 1961 may prefer appeal to the CIT(/\)whereas, the power-s under Section 263 of the Act of 1961 can be exercisedby the Commissioner if the Commissioner finds that the or-der is erroneousinsofar as it is prejudicial to the interest of revenue. Reliance is placed in thematter of Commissioner of Income Tax, Bhopal Vs. Ralson Industries Ltd.reported in (2007) 2 Supreme Court Cases 326 = 2007 (1) Supreme 65.of1961 are quite different, as they are exercisable by the differentauthorities.Under Section 246A, any assessee aggrieved by the ordermentioned in Section 246 of the Act of 1961 may prefer appeal to the CIT(/\)whereas, the power-s under Section 263 of the Act of 1961 can be exercisedby the Commissioner if the Commissioner finds that the or-der is erroneousinsofar as it is prejudicial to the interest of revenue. Reliance is placed in thematter of Commissioner of Income Tax, Bhopal Vs. Ralson Industries Ltd.reported in (2007) 2 Supreme Court Cases 326 = 2007 (1) Supreme 65. 10. It was fur-ther argued that the assessment order dated 1-9-2004 was passedin compliance of the order of CIT (A) and the same is not a speaking order.The objection that the Commissioner was required to revise the order dated1-9-2004 instead of order dated 22-3-2004 is mere technical in nature and itis me.re ir'regularity and not illegality and for" that reason the order underSection 263 of the Act of 1961 cannot be set aside.in compliance of the order of CIT (A) and the same is not a speaking order.The objection that the Commissioner was required to revise the order dated1-9-2004 instead of order dated 22-3-2004 is mere technical in nature and itis me.re ir'regularity and not illegality and for" that reason the order underSection 263 of the Act of 1961 cannot be set aside. 11. On the other hand, Shri Shashank Dubey, learned Senior Advocate with ShriAmrito Das, Advocate appean'ng on behalf of respondent No.2 vehementlyargued that proceedings under Section 263 can be conducted against anyorder passed by the A.O. and not assessment order. In the instant case, theassessment order was passed on 22-3-2004.The appeal was preferredbefore the Commissioner (Appeals) and the appellate order was passed on28-7-2004.The A.O. passed another order on 1-9-2004 giving effect to theAmrito Das, Advocate appean'ng on behalf of respondent No.2 vehementlyargued that proceedings under Section 263 can be conducted against anyorder passed by the A.O. and not assessment order. In the instant case, theassessment order was passed on 22-3-2004.The appeal was preferredbefore the Commissioner (Appeals) and the appellate order was passed on28-7-2004.The A.O. passed another order on 1-9-2004 giving effect to the order of Commissioner (Appeals) and thus, the order qf Commissioner was a1;.fresh order and it was an order under Section 154 of tKfc Act of 1961.Theproceedings for rectification of assessment order consequent to appellateorder are pcoceedings for- assessment.In these circumstances, when noticeunder Section 263 was issued by the CIT on 4-8-2005 it could only bedirected against order dated 1-9-2004 and the reference in notice underSection 263 to the assessment order dated 22-3-2004 was misplaced sincethat order did not exist on 4-8-2005.Similarly, when an order was passedunder Section 263 on 14-11-2005 with respect of assessment order dated22-3-2004, the same was also bad as no such assessment order was inexistence.Thus, there could be no revision under Section 263 of a nonexistent order. 12. On merits of the case, it was 'argued that notice under Section 263 wasissued firstly on the ground that loans of Rs.12,49,802/- were not verifiedand interest paid on them to the extent of Rs.2,43,494/-.From perusal ofthe order of Commissioner, it is clear that the Commissioner came to theconclusion that only loan of Rs.3,60,000/- related to the assessment year. Allloans of Rs.3,60,000/- were taken by account payee cheques from personswho were income tax assessee and all evidence was produced before theauthorities. So far as advance of Rs.IO lakhs given to Mahamaya Sponge IroriPvt. Ltd., Calcutta, is concerned, the details of amount and source werefurnished before the authorities including the Commissioner and the Tribunalhas recorded a finding that they qre from accounts of assessee.In view ofthe above facts also, thereisno justification for interfering with theimpugned order of the Tribunal. 13.We have heard learned counsel for the parties. 14. We first propose to consider the arguments advanced on behalf of theassessee that the assessment order dated 22-3-2004 was rectified on 1-9-2004 consequent to the appellate order- and this or-der could be subjected torevisional proceedings under Section 263 and not original assessment orderdated 22-3-2004.assessee that the assessment order dated 22-3-2004 was rectified on 1-9-2004 consequent to the appellate order- and this or-der could be subjected torevisional proceedings under Section 263 and not original assessment orderdated 22-3-2004. 15. From perusal of the order of CIT dated14-11-2€),0511... as• also from theimpugnedorder of the Tribunal, it is clear that no such objection was raisedbefore the forums below against initiation of proceedings under Section 263of the Act of 1961 by the CIT.Appeal under Section 260-A has beenadmitted on substantial question of law arising from decision of the Tribunal.Since there was no issue before the CIT or the Tribunal regarding exerciseof revisional jurisdiction against original order dated 22-3-2004, no suchquestion arises for adjudication of this appeal. 16. That apart, CIT, on perusal of the assessment order dated 22-3-2004 passedunder Section 143(3) of the Act of 1961, found that the A.O. has failed toexamine the genuineness of the unsecured loans of Rs.12,49,802/- and theelement of unreasonability and excessiveness, if any, of the interest paid tothe tune of Rs.2,43,494/- in respect of the same in terms of Section 40A(2)of the Act of 1961.It also found that the A.O. has failed to verify thereasons, mode of payment, source and the nature of advance for a sum ofRs.IO lakhs by the assessee to M/s Mahamaya Sponge Iron. 16. That apart, CIT, on perusal of the assessment order dated 22-3-2004 passedunder Section 143(3) of the Act of 1961, found that the A.O. has failed toexamine the genuineness of the unsecured loans of Rs.12,49,802/- and theelement of unreasonability and excessiveness, if any, of the interest paid tothe tune of Rs.2,43,494/- in respect of the same in terms of Section 40A(2)of the Act of 1961.It also found that the A.O. has failed to verify thereasons, mode of payment, source and the nature of advance for a sum ofRs.IO lakhs by the assessee to M/s Mahamaya Sponge Iron. 17. After considering the explanation offered by the assessee and after hearingrepresentative of the assessee, it has been observed that the A.R. admittedthat the assessee had not produced the above loan creditors before the A.O.Neither any written explanation regarding the source of loans advanced bythemtotheassesseewasfurnishedbeforetheA.O.andinthesecircumstances, it has been observed that the A.O. has failed to examine thegenuineness of the above loan transactions, including the sources thereof andhe has not made any verification from the relevant assessment records of theabove loan creditors. The A.O. has also not made any attempt to examine thereasonability of the rate of interest paid on these loans ©18% p.a. afterverifyingtheprevailingmarketrateforthesame.Merefilingofconfirmation letters is not enough to establish the genuineness of the loantransactions. Reliance has been placed on certain decisions referred to in theorder. ..•l'~ IS.Similarly, the A.R. also admitted that no any explanation and details we.rei..furnished by the assessee before the A.O. regarding adwnces of Rs.IO lakhs9iven[to][ M/s][ Mahamaya][ Sponge][ Iron][ Pvt.][ Ltd.][ and][ accordingly,][ it][ has][ been]observed that the A.O. has failed to apply his mind and examine the aboveissues inIt has been held that the assessment order proper perspective.passed[under][ Section][ 143(3)][ of][ the][ Act][ of][ 1961][ in][ this][ case][ on][ 22-3-2004][ is]erroneous and prejudicial to the interests of revenue. The objections pointedout in the revisional order under Section 263 do not even find reference inthe order of assessment.The order of Appellate Commissioner dated 28-7-2004 also does not deal with any of the issues raised by the Commissioner inhis revisional order under Section 263.From perusal of the order underSection 263, it is clear that CIT has also considered that total income wasassessed at Rs.3,52,660/-in the original assessment order, however, incompliance of order of the CIT (A), the revised total income for the year hasbeen computed at Rs.1,36,640/- by the A.O. vide his order dated 1-9-2004. 19. It is settled law that Section 263 gives the Commissioner- the power to callfor and examine the record of any proceeding under the Act and if heconsiders that any order passed by the Income-tax Officer, insofar as it isprejudicial[to][ the][ interest][ of][ the][ revenue,][ he][ might][ after"]giving[the][ assessee]an opportunity of being heard and after making or causing to be made suchenquiry as he deems necessary pass such order thereon as the circumstancesof the case might justify.Thus, the power that he exercises under thesection is a power in respect of the order of the Income-tax Officer. He hasno power to r-ectify the order passed by the Appellate Commissioner. 'ZO.Thequestion[is][ -][ whether][ the][ order]passed[by][ theAppellate][ Commissioner]deleting addition of Rs.1,99,582/- on account of closing stock and deductionof disallowance ©10% from 207o of the expenditure claimed has any bearingwith regard to the objections raised in the revisional order under Section263? 'ZO.Thequestion[is][ -][ whether][ the][ order]passed[by][ theAppellate][ Commissioner]deleting addition of Rs.1,99,582/- on account of closing stock and deductionof disallowance ©10% from 207o of the expenditure claimed has any bearingwith regard to the objections raised in the revisional order under Section263? 21. The application of the doctrine of merger dependsnpn the nature of thei;.,appellate or revisional order" in each case and the sco()p of thestatutoryprovisions conferring the appellate or revisional jurisdiction.As alreadypointed out in the for'egoing paragraphs that the issue before the AppellateCommissioner in appeal preferred by the assessee was entir'ely different andit had no co-relation with the objections roised by the CIT in its revisionalorder. 22.In the matter of Ralspn Industries Ltd. (Supra), the Supreme Court, whiledealing with interpretation of the provisions of Section 154 viz. a viz. section263 of the Act of 1961, observed thus:- "12.When different jurisdictions are conferred upondifferentauthoritiestobeexercisedondifferentconditions both may not be held to be overlapping witheach other. Jurisdiction under Section 154 of the Act isonly to be exercised by him when there is an errorapparent on the face of the record. It does not conferany power of review. An order of assessment may or maynot be rectified. If an order of rectification is passedby the assessing authority, the rectified order shall begiven effect to.However, only because an order ofassessment has undergone rectification at the hands ofthe assessing officer, in our opinion, the same would notmeanthatrevisionalauthorityshallbedenudedofexercisingitsr'evisionalSuchanjurisdiction.interpretation, in our opinion, would run counter to thescheme of the Act. 14.An order of assessment is subject to exercise ofan order of a revisional jurisdiction under- Section 263 ofthe Act.Doctrine of merger in such a case will have noapplication.an order of a revisional jurisdiction under- Section 263 ofthe Act.Doctrine of merger in such a case will have noapplication. . 15.The decision of the Madhya Pradesh High Court inChunnilal Onkarmal is also not apposite.Initiation of aproceeding under Section 263 of the Act cannot be heldto have become badin law only because an order ofrectification was passed.No such hard-and-fast rulecan, in our opinion, be laid douvn.Each case is required tobe considered on its own facts.In d given situation, theHigh Court may be held to be entitled to set aside bothorders and remit the matter for consideration afre.sh.But in our opinion, it would not be correct to contend that only because a proceeding for rectifical'jon was initiatedsubsequently, the revisional jurisdictibn^could not havebeen invoked under any circumstances whdtsoever.Ifsuchaproceedingwasinitiated,in ouropinion, thecontesting parties could bring the same to the notice ofthe Commissionersoas toenablehim to take intoconsiderationthesubsequenteventsalso.Itgoeswithout saying that if and when the Commissioner ofIncome Tax takes up for consideration a subsequentevent,theassesseeuvouldbe entitledtomakeitssubmission also in regard thereto." 23. In the instant case, CIT exercising revisional jurisdiction under Section 263has examined the record of the assessment proceeding of the assessee,considered the order of assessment as per directions of the AppellateCommissioner and held that the assessment order passed on 22-3-2004 wasprejudicial to the interest of revenue on two aspects as detailed above.Theorder nowhere revises orin any way interferes with the order of theAppellate Commissioner.Therefore, in our opinion, the objection put forthby the assessee against exercise of jurisdiction under Section 263 raised forthe first time before this Court in appeal under Section 260-A is uvithout anyforce. 23. In the instant case, CIT exercising revisional jurisdiction under Section 263has examined the record of the assessment proceeding of the assessee,considered the order of assessment as per directions of the AppellateCommissioner and held that the assessment order passed on 22-3-2004 wasprejudicial to the interest of revenue on two aspects as detailed above.Theorder nowhere revises orin any way interferes with the order of theAppellate Commissioner.Therefore, in our opinion, the objection put forthby the assessee against exercise of jurisdiction under Section 263 raised forthe first time before this Court in appeal under Section 260-A is uvithout anyforce. 24.The Tribunal has set aside the order of the CIT without dealing with specificobservations of CIT in its order under Section 263.The findings of theappellate Tribunal - that as regards unsecured loan of Rs.3,60,000/- from 3different persons, the assessee has furnished confirmation letters fr-omthese parties before fhe A.O. and these creditors are also assessed toincome tax and necessary documents in this regard were also filed before theA.O., as he was fully satisfied with such unsecured loan so he did not deem fitto call the parties or to have further clarification, are contrary to theobservations in the revisional order passed by the CIT under Section 263wherein it is clearly mentioned that the A.R. admitted that the assessee hadnot produced the above loan creditors before the A.O., neither any writtenexplanation regarding the source of loan advanced by them to the assesseewas furnished before the A.O.. 25.Afterconsidering theexplanation fur-nishedby tbeA.R,, the CIT hasx..observed that the A.O. has failed to examine the genuineness of the aboveloan transactions, including the sources thereof and the A.O. has apparentlynot made any verification from the relevant assessment record of the aboveloan creditors.The CIT has r-ejected the explanation and details fur-nishedby the A.R. before him regarding advances of Rs.IO lakhs to MahamayaSponge Ironon the ground thatno suchexplanation and details werefurnishedby the assessee before the A.O.during the course of theassessment proceedings, as admitted by the A.R. and thus, the A.O. has failedto apply hismindand examine the aboveissuesin proper perspective.However, this objection has been brushed aside by the Tribunal with anobservation that advancing of amount of Rs.IO lakhs by the assessee from thebooks of accounts, when proper details about dates and payments were filedbefore the A.O., even in the absence of any further explanation, there was nooccasion for learned Commissioner of Income Tax to invoke the provisions ofSection 263. 26. On the basis of aforesaid discussion, we are of the opinion that the Tribunalwas not justified in law in canceling the order of the CIT under- Section 263of the Act of 1961, as the CIT has rightly held that the Assessing Officermade assessment without adequate enquiry.was not justified in law in canceling the order of the CIT under- Section 263of the Act of 1961, as the CIT has rightly held that the Assessing Officermade assessment without adequate enquiry. 27.In the result, the appeal is allowed and the impugned order of the Tribunaldated 21-6-2006 is set aside and the order of CIT is confirmed.dated 21-6-2006 is set aside and the order of CIT is confirmed.