Commissioner Of Income Tax v. Patidar Shroff....opponent(S

O/TAXAP/1318/2006 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1318 of 2006 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER =========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX....Appellant(s) Versus PATIDAR SHROFF....Opponent(s) ================================================================ Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1NOTICE SERVED for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI andHONOURABLE MR.JUSTICE K.J.THAKERDate : 01/12/2014ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1.By way of this appeal, the appellant-revenue has challenged the order dated 06.02.2006 passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot [for short “the Tribunal”] in ITA No.706/Rjt/05, whereby the appeal preferred by the assessee was allowed by the Tribunal. 2.The facts in brief are that the respondent-assessee is engaged in the business of financing and collection of deposits. On 22.03.2000, a search under Section 133A of the Income Tax Act, was carried out in the premises of the assessee and in the said search two sets of books of accounts were found and on that basis the respondent had disclosed unaccounted income of Rs.27,77,989/-. In the said return the respondent had claimed deduction of Rs.6,49,749/- under Section 40(b) of the Income Tax Act on remuneration payable to partners. The same was allowed by the Assessing Officer. 2.1.In appeal, the Commissioner of Income Tax, revised the order under Section 263 of the Act. Against the said order the assessee filed an appeal before the Income Tax Appellate Tribunal. The Tribunal after hearing the parties, allowed the appeal preferred by the assessee. Hence, this appeal is filed at the instance of the revenue. 3.Learned counsel for the appellant-revenue has submitted that the Tribunal has committed error in passing the impugned order since the Tribunal has not given cogent reasons in allowing the appeal of the assessee. She further submitted that the Tribunal has not appreciated the fact that the income detected by the department is not attracted by any expenses. 3.1.She further submitted that the respondent-assessee had claimed remuneration on book profit which was worked out after reconstruction of books of account, considering unaccounted income detected during search. She further submitted that the deductions have to be computed on the basis of the profit which have been recorded in the books of account during the normal course of business and not on the basis of entires which have been made as a result of detection during survey. 3.2.By making such submissions, she urged that this Court may allow the present appeal and set aside the order of the Tribunal. 4.We have heard learned advocate for the appellant-revenue and perused the material on record. The Tribunal while allowing the appeal in paragraph No.4 has observed as under:- 3.2.By making such submissions, she urged that this Court may allow the present appeal and set aside the order of the Tribunal. 4.We have heard learned advocate for the appellant-revenue and perused the material on record. The Tribunal while allowing the appeal in paragraph No.4 has observed as under:- “4. Having heard both the parties and looking to the facts and circumstances of the case, we find that no doubt the assessee O/TAXAP/1318/2006 JUDGMENT has surrendered unaccounted income of Rs.27,77,989 at the time of survey, but at the same time the fact that the assessee has reconstructed the accounts on the basis of unaccounted income and filed its return of income cannot be overlooked. Further the Assessing Officer has added this amount as business income. This facts cannot also be overlooked. The CIT was of the view that since the undisclosed income which was detected during the course of survey and not recorded in the books of accounts in the normal course cannot be treated as part of book profit as understood in terms of Section 40(b). Since the assessee has reconstructed its accounts including the surrendered amount and has filed return, we are of the considered view that the net profit required to be ascertained by applying the provisions of Section 40(B). Explanation 3 of Section 40(b) defines “book-profit” to mean the net profit is shown in the profit and loss account for the relevant previous year, computed in the manner laid down in Chapter IV-D as increased by the aggregate amount of the remuneration paid or payable to all the partners of the firms, if such amount has been deducted while computing the net profit. Therefore, we are of the view that the deduction in question as claimed by the O/TAXAP/1318/2006 JUDGMENT assessee has rightly been allowed in the assessment and we are of the further view that the assessment was not prejudicial to the interest of Revenue and therefore, provisions of Section 263 does not apply in the instance case. Considering the facts and circumstances of the case, we, therefore, set aside the order of the CIT and and restore that of the Assessing Officer.” 5.Looking to the facts of the case, it would be relevant to reproduce Explanation 5 to Section263 of the Income Tax Act, which reads as under:- “263(1).ThePrincipalcommissioneror Commissioner may call for and that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assesseee 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. Explanation- For the removal of doubts, it is hereby declared that, for the purpose of this sub-section- (a) an order passed on or before or after the 1[st] day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the AssistantCommissionerorDeputy Commissioner or the Income Tax Officer on the basis of the directions issued by the Joint Commissioner under Section 144A. (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under Section 120. (a) an order passed on or before or after the 1[st] day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the AssistantCommissionerorDeputy Commissioner or the Income Tax Officer on the basis of the directions issued by the Joint Commissioner under Section 144A. (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under Section 120. (b)“record” shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1[st] day of 6. O/TAXAP/1318/2006 JUDGMENT June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2)No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3)Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, (National Tax Tribunal,], the High Court or the Supreme Court. Explanation- In computing the period of limitation for the purpose of sub section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.” O/TAXAP/1318/2006 JUDGMENT opinion that the Tribunal has given cogent and convincing reasons in arriving at the conclusion and we are in complete agreement with the view taken by the Tribunal. The Tribunal has rightly held that the the assessment was not prejudicial to the interest of Revenue and therefore, the provisions of Section 263 does not apply in the instance case. Apart from that, learned advocate for the appellant-revenue is not in a position to show how the findings of the Tribunal are bad in law and on facts or perverse so as to answer the question of law in favour of the revenue. 7.In that view of the matter, we do not find any error in the order of the Tribunal. Hence, the present appeal is dismissed. Accordingly, the question of law raised in this appeal is answered in favour of the assessee and against the revenue. (K.S.JHAVERI, J.) (K.J.THAKER, J) pawan