Itta/58/2002 Of M/S Vaibhav v. Joint Comm. Of Income Tax Range 3 Hyd

IN THE HIGH COURT AT HYDERABAD WEDNESDAY, THE FOURTEENTH TWO THOUSAND AND PRESENTTHE HONOURABLE ANDTHE HONOURABLE [JUSTICE C.V. ] I.T.T.A. NOS: 58 0F [2002 ] [134 ][0F ][2003] ITTA NO.5oF 2002: lncomeTaxTribunalAppealunderSection260(A)ofthelncomeTaxAct,1961 against the [order ][of ][the ][lncome Tax Appellate Tribunal, Hyderabad Bench ][.4,]' in [ITA No.246lHydl2oo1 ][for ][assessment ][year ][1997-98 dated ][2810112002]Hyderabad preferredagainsttheorderoftheCommissioneroflncomeTax(Appeals)-V(Central)Hyderabad'lTANo.2093/SR.3/clT(A)(Cent)/2000-2001dated2710212001preferred against the order [of the ][Joint commissioner ][of ][lncome ][Tax ][(Assts) ][Spl']Range-3, Hyderabad [GIR No.V-301/SR.3 dated 30/03/2000'] Between: M/sVaibhav,apartnershipfirmrep.byitsManagingPartnerSriD.VenugopalRao,51-847, Koti, Hyderabad. ...A''ELLANT AND The Joint Commissioner [of lncome Tax (Assessments), Special Range-3']Hyderabad ...RES'.NDENT For the Appellant [: ] [A.V.KRISHNA ][KOUNDINYA, SENIOR COUNSEL] For the Respondent [: ] [J.V'PRASAD, SC ] [l'T ] ITTA NO.134 0F [2003:] lncome Tax [Tribunal Appeal under Section 260 ][(A) ][of ][the ][lncome ][Tax ][Act']lg6l,againsttheorderofthelncomeTaxAppellateTribunal,HyderabadBench,A'HyderabadinlTANo.246lHl2OOlforassessmentyearlggT-9Bdated2Bl0112002preferredagainsttheorderoftheCommissioneroflncomeTax(Appeals)-V(Central)Hyderabad,lTANo.2OS3/SR-3/CIT(A)(Cent)/2OOO-2001dated2710212001 preferred agaifist the Order of the Joint Commissioner of lncome Tax [(Assts) ][Spl.]Range-3, Hyderabad dated 30/03/2000 PAN/ GIR No.V-301/SR.3, Between: The Commissioner of lncome Tax-lV Hyderabad....APPELLANTANDM/s Vaibhav, 5-1-847, Kothi, Hyderabad....RESPONDENT ...APPELLANT For the Appellant : SRI J.V.PRASAD, SC FOR I.T.DEPARTMENT For the Respondent : SRI A.V.KRISHNA KOUNDINYA, SRI CHALLA GUNARANJAN The Court delivered the following [: ]COMMON JUDGIVENT THE HON'BLE THE CHIEFJUSTICE UJE.L BHUYAN AND THE HON'BLE SRIJUSTICE C.V.BHASKAR REDDY I.T.T.A,Nos.58 of 2002 & 134 of 2003 COMMON JUDGMENT : @cr tc llon'bh te Chil Jtttriu tJjial Bttayan) This order will dispose of I.T.TANo.58 of 20A2 andI.T.T.A.No.13 4 of 2aa3. 2. I.T.T.ANo.5S of 20A2 is fiied by the assessee whereasI.T.T.A.No.13 4 oi 2aa3 is filed bv the revenue. 3. We have heard Mr. A.V.Knshna I(oundinya, leamed SeniorCounsel for the assessee and Mr. J.V.Prasad, Ieamed StandingC-ounsel for the Income Tax Department appearing for therevenue. 4. Leamed counsel for the revenue submits that both theappeals filed under Section 250-,4. of the Income Act,1967 (briefly'the Act'hereinafter) arise out of the order dated28.0l.2002 passedby the Income Tax Appellate Tribunal, Hyderabad Bench 'A',Hyderabad (briefly 'Tribunal' herehafter) in I.T.ANo.2a6/H'yd/ 2OO1 for the assessmenr year 1997-98. I I I i I COMMON JUDGMENT : @cr tc llon'bh te Chil Jtttriu tJjial Bttayan) This order will dispose of I.T.TANo.58 of 20A2 andI.T.T.A.No.13 4 of 2aa3. 2. I.T.T.ANo.5S of 20A2 is fiied by the assessee whereasI.T.T.A.No.13 4 oi 2aa3 is filed bv the revenue. 3. We have heard Mr. A.V.Knshna I(oundinya, leamed SeniorCounsel for the assessee and Mr. J.V.Prasad, Ieamed StandingC-ounsel for the Income Tax Department appearing for therevenue. 4. Leamed counsel for the revenue submits that both theappeals filed under Section 250-,4. of the Income Act,1967 (briefly'the Act'hereinafter) arise out of the order dated28.0l.2002 passedby the Income Tax Appellate Tribunal, Hyderabad Bench 'A',Hyderabad (briefly 'Tribunal' herehafter) in I.T.ANo.2a6/H'yd/ 2OO1 for the assessmenr year 1997-98. I I I i I 5. Appellant in i.T.T.ANo.58 of 2002 is an assessee under theAct having the status of Pannership Firm. For the assessment year7997-98, assessee filed return of income on 28.La.1997 declaringNIL income after setting off the brought forward losses. In thecourse of assessment proceedings, assessing officer took the viewthat there was conceaiment of income by the assessee andelaborated upon the alleged nodu operurdi of the assessee.Foliowing a factual analpis, excess of Rs.2,73,A7)93.00 over theamolrnt declared by the assessee to its banker while availingfinancial credit facilities was treated as investment of the assesseeand brought to tax as "Income from other sources". Assessingofficer funher observed that there were a good number of sundrycrediton from whom the assessee had shown to have availedcredit. [\When ]explanation was sought for and obtained, the samewas found to be not satisfactory. Accordingly, a sum ofRs.43,01,985.00 was added to the income of the assessee again as"Income from other sources". fusessing officer funher noticedcenain discrepancies in the closing cash balance and found that a difference of Rs. 1,87,718.00 could not be explained satisfactorilyby the assessee. Accordingly, the same was added to the income ofthe assessee under Section 68 of the Act as "Income from othersources". Thus, by the assessment order dated 30.03.2000 passedunder Section 1a3(3) of the Act, the aforesaid addidons were madeto the total income of the assessee. 6. Aggrieved by the above order of the assessment, assesseepreferred first appeal before the Commissioner of Income Tax(Appeals)-V (C-entral), Hvderabad, (briefly'CIT($' hereinafter). Inthe course of appellate proceedings, CIT(A) agreed with theassessing oificer that the difference in stocls declared by theassessee to the bank and to the assessing officer representsundisclosed investment in stock It was noticed that there wassubstantial difference between the two disclosures and that thestock position declared to the bank was only to satisfy the debitratio, current ratio, capital base required bythe bank 7. As a matter of fact, CIT($ put the assessee on notice as towhy the sum of Rs. 2,74,,36,502.00 should not be added to the income of the assessee as unexplained investment as [against]Rs.2,13,,A7393.C0 added by the assessing officer. Explanationfumished by the assessee was found to be not satisfactory.Accordingly, [qT(A) ]uide the order dated 27.02.2CC1 directed theassessing officer to treatRs.2,74,36,5A2.A0 as u.rexplainedinvestment and to add the same to the income of the assessee. 8. Insofar the other two additions of Rs. [43,01,985.00 ][and]Rs. 1,87,218.00 are concemed, CXT(A) did not found any infirmityin the decision taken by the assessing officer and therefore,confirmed the above two conditions by the appellate orderdated 27.02.2001..9. Assessee preferred funher appeal before the Tribunalassailing the order of CT(A) dated 27.02.2001. Tribunal, by theorder dated 28.01,.20A2, deleted the additions made by the assessingofficer as enhanced/affirmed by AT(4. But, at the same time,exercising power under Section 145 of the Act, determined netprofit of the assessee at Rs.63,i3,326.00. Funher making allowancefor business loss and depreciation of earlier )tars, the income of 8. Insofar the other two additions of Rs. [43,01,985.00 ][and]Rs. 1,87,218.00 are concemed, CXT(A) did not found any infirmityin the decision taken by the assessing officer and therefore,confirmed the above two conditions by the appellate orderdated 27.02.2001..9. Assessee preferred funher appeal before the Tribunalassailing the order of CT(A) dated 27.02.2001. Tribunal, by theorder dated 28.01,.20A2, deleted the additions made by the assessingofficer as enhanced/affirmed by AT(4. But, at the same time,exercising power under Section 145 of the Act, determined netprofit of the assessee at Rs.63,i3,326.00. Funher making allowancefor business loss and depreciation of earlier )tars, the income of the assessee was quantified at Rs. 22,61,520.00. It is this order ofthe Tribunal, nhich is under impugnment in the two appeals before us 10. In the appeal filed by the assessee [2.e., ]I.T.T.ANo .58 [o{ 20a2,]the substantial question of law raised [is ][whether ][Tribunal ][could]have quantified the profit of the assessee after setting [aside the]additions made by the assessing officer and CIT($ [under]Section 25a(1) of the Act [as ]well [as ]under [Section ][145 ][of ][the ][Act ][?]11. In the appeal filed by the revenue 2.e., [I.T.T.ANo.134]of 2003, the basic question urged [is ][whether ][the ][order ][of ][the]Tribunal suffers from pervenity [while ][deleting ][the ][additions ][made]by the assessing officer, [which ][were ][enhanced ][and confirmed ][by]or(A)? 12. Learned Senior Counsel for [the ][assessee ][submits ][that ][vrhile]he is in agreement with the view [expressed by ][the ][Tribunal ][while]setting aside the additions [made ]by [the lower ][revenue authority,]Tribunal had however, committed [manifest ][error ][by ][exceeding ][its] jurisdiction in going beycnd the grounds of appeal urged by theassessee before it. Tribunal had [exceeded ][its ][jurisdiction ][by]quantifying afresh the income of the [assessee. ][According ][to ][the]leamed Senior C-ounsei, Tribunal ought to [have ][stopped]adjudication after setting aside the [additions ][made. ][Tribunai ][does]not have the power to make anyenhancement to [the ][income ][of ][the]assessee. That apan, Tribunal was not [justified ][in ][invoking ][the]provisions of Section 145 ol the Act [as ]the [said ][provision ][is]available onlyto the assessing officer and not to the [Tribunai.]assessee before it. Tribunal had [exceeded ][its ][jurisdiction ][by]quantifying afresh the income of the [assessee. ][According ][to ][the]leamed Senior C-ounsei, Tribunal ought to [have ][stopped]adjudication after setting aside the [additions ][made. ][Tribunai ][does]not have the power to make anyenhancement to [the ][income ][of ][the]assessee. That apan, Tribunal was not [justified ][in ][invoking ][the]provisions of Section 145 ol the Act [as ]the [said ][provision ][is]available onlyto the assessing officer and not to the [Tribunai.] 13. Leamed Senior Counsel has drawn the attention of the C-ounto the expression ['thereon' ]as appearing in [sub-section ][(1) ][of]Section 254 of the Act to suppoll his contention that [Tribunai]cannot traverse beyond the order appealed [against ][belore ][it.]Learned Senior C-ounsel has also referred to the distinction in [the]language employed bythe statute in Section 257 and Section 254 ofthe Acl Vhile under Section 251(t)(a) of the Act, CIT(A) [has ]beenconferred the power to either confirn or reduce or enhance orannul the assessment in an appeal before it, under Section 254 [(1)] of the Act, Tribunal can only pass such orden arising out of theorder in appeal. 13. Leamed Senior Counsel has drawn the attention of the C-ounto the expression ['thereon' ]as appearing in [sub-section ][(1) ][of]Section 254 of the Act to suppoll his contention that [Tribunai]cannot traverse beyond the order appealed [against ][belore ][it.]Learned Senior C-ounsel has also referred to the distinction in [the]language employed bythe statute in Section 257 and Section 254 ofthe Acl Vhile under Section 251(t)(a) of the Act, CIT(A) [has ]beenconferred the power to either confirn or reduce or enhance orannul the assessment in an appeal before it, under Section 254 [(1)] of the Act, Tribunal can only pass such orden arising out of theorder in appeal. 14. Explaining the significance of the expression'thereon'appearing in sub-section (1) oI Section 254, the leamed SeniorCor-rnsel has submitted a compilation of case laws wherefrom hesubmits that the word 'thereon' appearing in sub-section (1) ofSection 254 restricts the [jurisdiction ]of the Tnbunal to the subjectmatter of the appeal. Therefore, Tribunal has no power to enhancethe assessment, In this connection, he has placed reliance on adecision of the Sr-rpreme C,oun in Mcorp Global (P) Ltd. v/sCIT1. 15. Leamed Senior C..ounsel for the assessee has also referred toRule 11 of the Income Tax (Appellate Tribunal) Rules, 1963(briefly 'the Rules' hereinafter) to contended that i{ the Tribunaldesires to decide on any ground other than the ground urgedbefore it, it would have to give sufficient opponunity of beingheard to the panies before it, as the decision of the Tribunal would ' lzooo; [:oo ][rtn ][r:r ][1sc;] adversely affect the panies. In the instant case, this Rule was not followed. 76. He, therefore, submits that the second portion of rhe orderof the Tribunal whereby on its own Tribunal quantified the incomeof the assessee should be set aside. 17. On the other hand, leamed counsel for the rcvenue hasstrenuouly argued that the reasons given by the Tribunal areabsurd and on such reasoning, additions rnade by the assessingofficer as conlirmed by the CT(A) could not have been dislodgedby the Tribunal. If the additions were not deleted, question ofTribunal quantifying income of the assessee on its own would nothave arisen. That being the position, he submits that order of theTribunal should be set aside in its entiretyand consequently, orderpassed by CIT(A) should be restored. 18. We have heard the leamed counsel for the parties andperused the nuterials on record. - 79. Insofar the order passed by the Tribunal is concemed, wefind that the approach adopted bythe Tribunal does not appear tobe sound. It is the admitted position that the assessee hadsubmitted two statements as to the stock position- one before thebank and the other before the revenue. According to the assessee, itwas because of financial compulsion and the need for meeting thebank norms that it had given a higher figure in the statement beforethe banlr In this connection, assessee relied upon a letterdated 28.03.2000 received from his Chanered Accountant]vlls. Vasireddy and Company, but the said company allegedforgeryof the signature. 19.1. In Paragraph 19.4, Tnbunal observed that it was possible thatonlysignature on the statements for the year ending 31.03.1998 wasforged and not the signature on the shtements for the yearending 3L.03.1997 with which the Tribunal was concemed, futherobserving that this was a matter which could be decided only by ahand writing expen. Strangely enough, instead of discarding theletter, Tribunal found fault with the assessing officer in not referring the letter to the hand writing expen. Thereafter, [Tribunal]proceeded ahead and concluded that the accounts submitted to thebank were anificial and no additions could be made on the basis ofsuch accounts. 19.1. In Paragraph 19.4, Tnbunal observed that it was possible thatonlysignature on the statements for the year ending 31.03.1998 wasforged and not the signature on the shtements for the yearending 3L.03.1997 with which the Tribunal was concemed, futherobserving that this was a matter which could be decided only by ahand writing expen. Strangely enough, instead of discarding theletter, Tribunal found fault with the assessing officer in not referring the letter to the hand writing expen. Thereafter, [Tribunal]proceeded ahead and concluded that the accounts submitted to thebank were anificial and no additions could be made on the basis ofsuch accounts. 20. Tribunal funher heid that revenue could not counter theaverments of the assessee that the accounts were corrupted afterregular audit; that this was possible and probable; and x'hen theaccounts were allegedly comrpted and the assessee was not able toproduce the boola of accounts for verification by the assessingofficer, the assessing officer ought to have rejected the books ofaccounts and estimation of profits. On the abor.e basis, all thethree additions were deleted bythe Tribunal. 21. On thorough consideration of all aspects of the matter, weare of the unhesitant view that the procedure adopted by theTribunal is wholly inconsistent with the settled principles of lawand procedure bordering on absurdity. - 22. Not content with the setting [aside ][of ][the ][additions ][made,]Tribunal observed that [the ][assessee ][should ][not ][go ][scot-free ][and]thereafter adopted its own [procedure whereafter net ][profit of ][the]assessee for the assessment [year ][under ][consideration ][was ][quandfied]at Ik.63,13,326.00/-. This [was ][arrived ][at ][by ][the ][Tribunal ][by]adopting a procedure unknown [to ][or ][contemplated ][under]Secrion 25aQ) of [the ][Act.] 23. That being the position, [we set ][aside ][the ][order]dated 28.OL2AA2 passed [by the ][Tribunal ][in]I.T.T.A.No.246/Hyd/2aC1 for [the ][assessment ][year ][1997-98 ][in ][irs]entirety and remand the [matter back ][to ][the Tribunal ][for ][a ][fresh]decision on the appeal [within ][the bounds ][of ][law ][and ][procedure ][in]terms of the Act and [the ][Rules.] 24. Since the assessment [year ][under ][consideration ][s ][t997-98 ][and]appeal before the [Tribunal ][is ][of ][the ][year2OOl', ][we ][are ][of ][the ][view]that the appeal should [be ][decided expeditiously ][and ][at ][any ][rate]within a period of six [months ][from ][the ][date ][of ][receipt ][of ][a ][copy ][of]this order. 25. Both these appeals are accordingly allowed ro rhe exrenrindicated above. No costs. fu a sequel, miscellaneor-s peririons, pending if any, standdismissed. Sd/.K,SRINIVASAoJOINT REGIRAR//TRUE COPY'JOINT REGIRAR//TRUE COPY' SECTION OFFICER To1The lncome Tax Appellate Tribunal, at Hyderabad Bench'A' Hyderabad.The Commissioner of lncome Tax (Appeals)-V, (Central), Hyderabad.1The lncome Tax Appellate Tribunal, at Hyderabad Bench'A' Hyderabad.The Commissioner of lncome Tax (Appeals)-V, (Central), Hyderabad.3The Joint Commissioner of lncome Tax, (Assessments) Special Range-3,Hyderabad.Hyderabad.4One CC to Sri J.V.Prasad, Advocate 5One CC to Sri A.V.Krishna Koundinya, Advocate 6Two CD Copies7One Spare Copy5One CC to Sri A.V.Krishna Koundinya, Advocate 6Two CD Copies7One Spare CopyKj$'{v$'{v HIGH COURTDATED:1410912022 ?H1W1COMMON JUDGMENTITTA.No.58 of 2002 and 134 of 2003 ALLOWING THE BOTH APPEALS WITHOUT COSTS. q1\[\DX{A]