Mait/81/2004 Of Commissioner Of Income Tax-Ii,Jabalpur v. Ramesh Singh

HIGH COURT OF MADHYA PRADESH, JABALPUR M.A.I.T. Appeal No.81/2004 Commissioner of Income Taxcll....... ee Appellant Versus| Shri Ramesh SINGN. 20... cece ceeeceeceeeeseeesesse For the appellant : Shri Sanjay Lal, Advocate. For the respondent: Shri G. N. Puronit, Senior Advocate, witn Shri Abhishek Oswal, Advocate. Present : HONOURABLE SHRI JUSTICE AJIT SINGHHONOURABLE SHRI JUSTICE R. S. JHA| ORDER(24.4.2012) The following order of the Court was delivered by : Ajit Singh, JThis appeal against the order dated 16.3.2004passed in ITA No.30/JAB/2002 by the Income Tax AppellateTribunal, Jabalpur Bench (in short “the Tribunal’) has been.admitted on the following substantial questions of law : 1]Whether on the facts and in the circumstances of tne case, the learned Tribunal was rignt in law in|holding that the CIT was not justified in holding|tnat the addition of Rs.25,000/- to the trading|results in the opinion of assessing officer just and|proper and merely because the C.I.T. feels that|tne additions is not adequate he cannot seek to|invoke his powers under Section 263 of the Act? tne case, the learned Tribunal was rignt in law in|holding that the CIT was not justified in holding|tnat the addition of Rs.25,000/- to the trading|results in the opinion of assessing officer just and|proper and merely because the C.I.T. feels that|tne additions is not adequate he cannot seek to|invoke his powers under Section 263 of the Act? 2.Whether on the facts and in the circumstances of |the case the learned CIT was not justified in|nolding tnat the credits did not relate to or was not|availed in the previous years Dut was an oOldbalance of earlier years, no enquiry could have|been validly undertaken by the assessing officer|regarding these credits, the CIT was not justified|in invoking nis powers under Section 263 of the|Act on this ground?the case the learned CIT was not justified in|nolding tnat the credits did not relate to or was not|availed in the previous years Dut was an oOldbalance of earlier years, no enquiry could have|been validly undertaken by the assessing officer|regarding these credits, the CIT was not justified|in invoking nis powers under Section 263 of the|Act on this ground? cmWhether on the facts and in the circumstances of tne case the learned Tribunal was right in law in|quashing the order of CIT under Section 263 of theAct witnout giving any finding on the issue of|valuation of closing stock of stores/spare parts? tne case the learned Tribunal was right in law in|quashing the order of CIT under Section 263 of theAct witnout giving any finding on the issue of|valuation of closing stock of stores/spare parts? 2.The facts in brief are these. The respondent assessee isan individual. He is an authorized dealer of car manufacturer.Tne name and style of his proprietary business is M/s Star Line’Automobiles. He is also a partner in the partnersnip firm.named as M/s Star Automobiles. For the assessment year1997-1998 ne filed his return of income deciaring total income|of Rs.13,02,090/- along with audit certificate under section44AB of the Income Tax Act (in short “the Act”). The Assessing.Officer (in short, “AO”) selected the case of respondent forscrutiny and issued notice under section 143(2) to him. Inresponse to the notice, respondent explained the facts of thecase to the AO througn his counsel and accountant. Tne DookKSof accounts produced by the respondent were examined by testcheck and during the course of proceedings he filed written.reply along with other details. The AO in his assessment order.dated 1.10.1999 observed that the expenses debited in tneprofit and loss account were on the higher side compared tolast year. He also under facts and circumstances of the case)and for want of evidence and vouchers added lump sum ofRs.25,000/- to the total income to cover up possible leakages.The AO thus computed the total income of respondent atRs.13,27,090/-. 3.Tne Commissioner of Income Tax — II, Jabalpur (in short,“CIT™), nowever, in exercise of his powers under section 263 oftne Act called for the record to examine the same as well as tneorder dated 1.10.1999 passed by the AO. He then issued ashow cause notice to the respondent. 4Tne respondent responded to the snow cause notice bySubmitting a detailed reply. But the CIT did not agree with the Same and held that there were no details before the AO as to'whether the respondent was an authorized dealer of HindustanMotors in the matter of selling cars or whether the sales were)done in any other capacity and also whether the respondentwas dealing in sales of cars produced by other manufacturers.Tne CIT observed tnat the terms and conditions petween tne|manufacturers of cars and the respondent were not furnishedwhich was a very vital information necessary to ascertain thecorrectness of the profit earned by the respondent. He alsoopserved that while authorized dealer carries out free services,free replacement and free repair within the warranty period,tne manufacturer reimburses ali these cost to the dealer and|likewise the manufacturer generally pay all the expenses that)are incurred in transporting vehicles from the place ofmanufacture to the sales-offices of the dealer. According to theCIT valuation of closing stock of stores and spare parts and taxpaid goods were based on respondent's estimate after applying.a pre-determined gross profit at his whims and fancies and tnattne account of expenses claimed at Satna and Jabalpur officesougnt to nave scrutinized by tne AO especially the labourcharges incurred in respect of these two establishments. TheCIT has even referred to some excessive expenses which therespondent claimed to nave incurred at Satna office wnen therewas no business transaction there. As regard to unsecured loan.of Rs.6,70,000/- appearing in the balance sheet of respondent,tne CIT neld that thougn the same did not relate to previous.year put was a old balance, the AO snould have examined tnegenuineness of these credits and if it was not found to begenuine then the question of making addition in the year inwhich it was availed snould have been considered by the AQ.Tne CIT, therefore, held that the AO snould have conducted anenquiry. For these reasons, the CIT set aside the assessment.order dated 1.10.1999 and remanded tne matter to the AO to.makeadfreshassessmentafter|noiding|detailed.enquiry/investigation. 5.Aggrieved, the respondent filed an appeal before theTribunal and argued that the CIT committed an illegality pysetting aside the assessment order in exercise of hiS powers.under section 263 of the Act particularly when the order was.neither erroneous nor prejudicial to the interest of the revenue. 6.The Tribunal, relying upon the Division Bench decision ofthe Bombay High Court in Commissioner of Income Tax Vs.Gabriel India Limited (1993) 203 ITR 108 (Bombay) regardingtne revisional jurisdiction of CIT under section 263 of tne Actand also after examining the materials placed on record by acetailed order dated 16.3.2004 has held tnat interference in tnepresent case with the assessment order was not justified. 5.Aggrieved, the respondent filed an appeal before theTribunal and argued that the CIT committed an illegality pysetting aside the assessment order in exercise of hiS powers.under section 263 of the Act particularly when the order was.neither erroneous nor prejudicial to the interest of the revenue. 6.The Tribunal, relying upon the Division Bench decision ofthe Bombay High Court in Commissioner of Income Tax Vs.Gabriel India Limited (1993) 203 ITR 108 (Bombay) regardingtne revisional jurisdiction of CIT under section 263 of tne Actand also after examining the materials placed on record by acetailed order dated 16.3.2004 has held tnat interference in tnepresent case with the assessment order was not justified. J.Later, a Division Bench of this High Court also inCommissioner of Income Tax Vs. M/s Associated Food ProductsPvt. Limited, Jabaipur, decided on 21.11.2005 followed tneabove decision of the Bombay High Court and held that it isclear as crystal that before exercise of powers under section.263 of the Act two requisites are imperative to be present. In.the absence of such foundation exercise of a suo motu power isimpermissible. It should not be presumed that initiation ofpower under suo motu revision is merely an administrative act.It is an act of a quasi judicial authority and based on formation.of an opinion witn regard to existence of adequate material toSatisfythat the decision taken by the Assessing Officer iserroneous as well as prejudicial to the interest of the RevenueThe concept of ‘prejudicial to the interest of revenue’ has to becorrectly and soundly understood. It precisely means an orderwhich has not been passed in consonance with the principles oflaw and which has in ultimate eventuate affected realization of.lawful revenue. Tnese two basic ingredients have to be satisfied as sine gua non for exercise of such power. 8.In the light of the settled legal position with regard to thepowers of CIT under section 263 of the Act we shall now.examine whether, in the present fact situation of the case, theTribunal rightly interfered witn the order dated 13.12.2001.passed by the CIT. The Tribunal has noted that complaint ofCIT in the snow cause notice was that the trading resultcompared to the past was not better for the assessment year1997-98: tne expenditure claimed under the various heads|lacked details; the closing stock was not valued properly; the)expenses at Satna Head Office were claimed witnout therebeing any business; genuineness of credits appearing in tneDalance sneet had not been examined by the AO and paymentto specified persons under section 40A(2)(b) had not beenexamined by the AO but in the order CIT took up certain issues.like manufacturer must be bearing all costs of pre-delivery|expenses; about free servicing and free replacement of partsand the respondent, as authorized dealer, could not haveclaimed those expenses, and tnese issues were not mentionedin the snow cause notice. The Tribunal nas aiso taken note tnat|in the order CIT has observed that the AO did not ask for anyinformation|voluntarilyand.consideredthe.informationfurnished by the respondent mechanically in the assessment.proceedings. In tnis regard the Tribunal nas held tnat the AO,in fact, nad applied nis mind to the various items of expenditureclaimed by the respondent in nis profit and loss account and,tnerefore, the AO found the expenses claimed were excessive.and he accordingly added lump sum of Rs.25,000/- to the totalincome to cover up possible leakages. The Tribunal has also.neld that the AO in his order nas clearly observed tnat he nadscrutinized the books of accounts of the respondent on a testcheck Dasis and tnis opservation by him cannot be brushedaside. According to the CIT, the enquiries made by the AO were.not adequate. But this was not a case where the enquiry hadbeen conducted. The Tribunal has, therefore, rightly held thatCIT cannot be allowed to substitute his judgment with that ofthe AO and the order of AO was not erroneous warranting: interference under section 263 of the Act. Apart from this, wealso find that CIT has nowhere held as to how the order of AQ|for lack of enquiry was prejudicial to the interest of revenue. OQ.We are in complete agreement with the finding of theTribunal that since the credits appearing in the balance sneet ofrespondent did not relate to or were not availed in the previous.year but was old balance of earlier years, no enquiry could havebeen validly undertaken by the AO regarding these credits.Further, with regard to the question of disallowance to be made|under section 40A(2)(b) the Tribunal has neld that CIT has notgiven any definite finding of error on this point in the order ofAO and for this reason the order of AO also could not have beenset aside under section 263 of the Act. We find no good groundto disagree with these finding of the Tribunal as there is nofinding of the CIT on this point. | 10.We,therefore,ansSwe thequestionsagainsttneappellant, which are even otherwise essentially questions offact and not substantial questions of law. 11.Tne appeal nas no merit. It is accordingly dismissed putwithout any order as to costs. (AJIT SINGH)JUDGE (R. S. JHA)JUDGE| SSDS