D.b. Income Tax Appeal v. M/S Hari Singh And Associates

D.B. Income Tax Appeal No. 126/2007 Commissioner of Income Tax-II Vs M/s Hari Singh and Associates DATE OF ORDER: 20[th] February 2014 HON’BLE MR. JUSTICE DINESH MAHESHWARIHON’BLE MR. JUSTICE P.K. LOHRA Mr. Sunil Bhandari for the appellant.Mr. Dinesh Mehta for the respondent. <><><> This appeal by the Revenue is directed against the orderdated 04.10.2005 passed by the Income Tax Appellate Tribunal,Jodhpur Bench, Jodhpur [‘the ITAT’] in ITA No.412/JDPR/2005relating to the assessment year 1996-97. By the order impugned,the ITAT has allowed the appeal filed by the assessee and has setaside the order passed by the Commissioner of Income Tax-II,Jodhpur [‘the Commissioner’] on 24.03.2005 in exercise of hispowers under Section 263 of the Income Tax Act, 1961 [‘the Act’].This appeal has been admitted on the following substantial questionof law:- “1. Whether in the facts and circumstances of the case, the ITATwas legally justified in setting aside the order passed by theCommissioner of Income Tax II, Jodhpur under Section 263 of theAct treating the said order as invalid and without jurisdiction?” The sum and substance of the case, so far relevant for theappeal, is that the assessee, an Association of Persons (‘AOP’)came into being in the year 1993 to carry on the business of purchase and sale of agricultural land. It had filed the return ofincome for the assessment year 1996-97 declaring net loss of Rs.64,298/- but ultimately, the income of the assessee was assessed atRs. 42,78,794/- under Section 143(3)/148 by the order dated31.03.2014. Against the assessment order dated 31.03.2004, the assesseepreferred an appeal which was pending before the Commissioner ofIncome Tax Appeals-II, Jodhpur [‘CIT(A)’]. However, during thependency of this appeal, the Commissioner of Income Tax-II,Jodhpur proceeded to issue a show cause notice under Section 263on 01.03.2005 and ultimately, set aside the assessment order,treating the same as erroneous and prejudicial to the interest ofRevenue. The only ground on which the learned Commissioner setaside the order of the Assessing Officer was that the addition of Rs.38,17,000/- ought to have been towards undisclosed income of AOPinstead of being taxed under the head ‘income from business’. Therelated parts of the order impugned read as under: “I have carefully considered the submissions and it is clearfrom the assessment order that the Assessing Officer was indilemma and he has mentioned two contradictory things indifferent paras of the assessment order. The Assessing Officerhad the suspicion and he had stated that it might be possible thatM/s Hari Singh & Associates have used their undisclosed incomeand invested in the purchase of land. He further stated, “ I am ofthe view the ld. Assessing Officer should have made the additionof Rs. 38,17,000/- considering the same as undisclosed income ofthe AOP instead of treating the same as business income of theassessee and to this extent the order passed by the AssessingOfficer is erroneous and requires to be set aside u/s 263 of the ITAct.” ………………….. “The order of the Assessing Officer iserroneous in treating Rs. 38.17 lakhs as business income asmoney received as advance cannot be treated as income. I,therefore, set aside this order passed by the Assessing Officer inconsidering Rs. 38.17 lakhs as business income whereas theaddition should have been considering the same as undisclosedincome of the AOP and to this extent the order of the Assessing Officer is erroneous and is set aside, in so far as it is prejudicial tothe interest of Revenue.” Officer is erroneous and is set aside, in so far as it is prejudicial tothe interest of Revenue.” In appeal, the ITAT found such an approach of theCommissioner erroneous and wholly without jurisdiction. The ITATalso observed that when the matter was pending in appeal, passingof the revisional order under Section 263 of the Act was unjustified.The ITAT found that so far the amount of Rs. 38,17,000/- wasconcerned, it could have been treated by the Assessing Officer asincome from other sources or income from undisclosed sources; andthe Assessing Officer opted for one of the legally permissible optionavailable before him. The ITAT, inter alia, observed as under:- “9. In the given case the ld. Assessing Officer hasdiscussed both the options available before him, as discussed inthe impugned order itself. The ld. Assessing Officer opted for onecourse of action out of two legally possible options before him. Sothe order cannot be said to be erroneous. It may be prejudicial tothe interest of the revenue. Therefore, one conditions of the twosine qua non is missing, and which ousts the jurisdiction of the ld.CIT. The ld. CIT cannot substitute his own option u/s 263 of theAct. The above decision of the Hon'ble Apex Court further heldthat when an Income-tax Officer has adopted one of the coursespermissible in law and it has resulted in loss of revenue, or wheretwo views are possible and the Income-tax Officer has taken oneview with which the ld. CIT does not agree, it cannot be treated asan erroneous order prejudicial to the interest of the revenue,unless the view taken by the Income-tax Officer is unsustainablein law. In this case the AOP received as signing (advance) moneyof Rs. 38,17,000/- for the sale of agricultural land and the ld.Assessing Officer considered the same as business income andtaxed the same under the head ‘income from business’ that is saleof agricultural land. This view of the ld. Assessing Officer is legallypermissible view. Nothing has been argued by the department thatit is not a legally permissible act of the ld. Assessing Officer.” Aggrieved by the order aforesaid, the Revenue has preferredthis appeal which has been admitted on the question of law asnoticed at the outset. After having heard on the matter and having examined therecord with reference to the law applicable, we find absolutely noforce in this appeal. In the case of CIT, Bikaner Vs. M/s Ganpat Ram Bishnoi, DBIncome Tax Appeal No. 43/1999, reported in 296 ITR 292 (Raj.), thisCourt has observed, as regards jurisdiction under Section 263, asunder:- “From the record of the proceedings, in the present case,no presumption can be drawn that the Assessing Officer had notapplied his mind to the various aspects of the matter. In suchcircumstances, without even prima facie laying the foundation forholding that assessment order is erroneous and prejudicial tointerest in any matter merely on specious ground that theAssessing Officer was required to make an enquiry, cannot beheld to satisfy the test of necessary condition existing for invokingjurisdiction under section 263 of the Income-tax Act. In the case of CIT, Bikaner Vs. M/s Ganpat Ram Bishnoi, DBIncome Tax Appeal No. 43/1999, reported in 296 ITR 292 (Raj.), thisCourt has observed, as regards jurisdiction under Section 263, asunder:- “From the record of the proceedings, in the present case,no presumption can be drawn that the Assessing Officer had notapplied his mind to the various aspects of the matter. In suchcircumstances, without even prima facie laying the foundation forholding that assessment order is erroneous and prejudicial tointerest in any matter merely on specious ground that theAssessing Officer was required to make an enquiry, cannot beheld to satisfy the test of necessary condition existing for invokingjurisdiction under section 263 of the Income-tax Act. Undoubtedly, the jurisdiction under section 263 is wide andis meant to ensure that due revenue ought to reach the publictreasury and if it does not reach on account of some mistake oflaw or fact committed by the Assessing Officer, the Commissionerof Income-tax can cancel that order and require the concernedAssessing Officer to pass a fresh order in accordance with lawafter holding a detailed enquiry. But when enquiry in fact has beenconducted and the Assessing Officer has reached a particularconclusion, though reference to such enquiries has not beenmade in the order of assessment, but the same is apparent fromthe record of the proceedings, in the present case, withoutanything to say how and why the enquiry conducted by theAssessing Officer was not in accordance with law, the invocationof jurisdiction by the Commissioner of Income-tax wasunsustainable. As the exercise of jurisdiction by the Commissionerof Income-tax is founded on no material, it was liable to be setaside. Jurisdiction under section 263 cannot be invoked formaking short enquiries or to go into the process of assessmentagain and again merely on the basis that more enquiries ought tohave been conducted to find something. The finding of the Tribunal that the Income-tax Officer hadpassed the assessment order after relevant enquiries andconsidering the aspects of the matter required by theCommissioner of Income-tax to be considered by him is a findingof fact and on the basis of which, the jurisdiction assumed by theCommissioner of Income-tax being non-existent must be held tobe not sustainable.” In the present case, it is more than apparent that the learnedCommissioner has proceeded to invoke his jurisdiction under Section 263 of the Act only on his own opinion as to how the amount of theincome concerned ought to have been treated. We may observe thatso far this amount of Rs. 38,17,000/- is concerned, it was not thecase that the assessee had not disclosed the same at all. It isdifferent matter that the same was treated by the Assessing Officerto be part of income of business after consideration of the recordand with the finding that the same was to be treated as profit fromthe business of sale of agricultural land. In the given set of facts and circumstances of the case,particularly when the said income has been duly added to theincome of the assessee, neither the order of the Assessing Officer onthis ground could have been considered as erroneous nor it couldhave been treated as operating prejudicial to the interest ofRevenue. In the aforesaid view of the matter, and when we find that theorder passed by the ITAT is in consonance with the law applicableand cannot be said to be legally unjustified, the formulated questionin this case is required to be answered in the affirmative i.e., againstthe Revenue and in favour of the assessee. In the given set of facts and circumstances of the case,particularly when the said income has been duly added to theincome of the assessee, neither the order of the Assessing Officer onthis ground could have been considered as erroneous nor it couldhave been treated as operating prejudicial to the interest ofRevenue. In the aforesaid view of the matter, and when we find that theorder passed by the ITAT is in consonance with the law applicableand cannot be said to be legally unjustified, the formulated questionin this case is required to be answered in the affirmative i.e., againstthe Revenue and in favour of the assessee. Before parting, we may take note of the position that assesseeconcerned had otherwise filed the regular appeal bearing No.148/2004-05/CIT(A)-II/JDR, which was pending before theCommissioner of Income Tax (Appeals-II), Jodhpur at the relevanttime. However, the CIT(A), by the order dated 27.09.2005, chose toclose the proceedings in the appeal in view of the fact that theassessment order under appeal had been set aside under Section 6 263 of the Act by the Commissioner. When the order passed underSection 263 of the Act has been set aside by the ITAT and the orderof ITAT stands affirmed by this Court, obviously the said order underSection 263 of the Act, shall have to be treated as non est from itsinception. As a necessary consequence, the aforesaid appeal, whichwas earlier dismissed only because of the order under Section 263of the Act, shall require consideration on its merits. It is, therefore,made clear that the said appeal by the assessee bearing number148/2004-05/CIT(A)-II/JDR shall stand revived for consideration inaccordance with law. Subject to the observations foregoing, this appeal standsdismissed. (P.K.LOHRA),J. (DINESH MAHESHWARI),J. Sudhir