The Commissioner Of Income Taxkarnal v. M/S. Modern Feed Industriesindustrial Area, Kurukshetra

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 271 of 2006Date of decision: 13.12.2010 The Commissioner of Income TaxKarnal --- Appellant Versus M/s. Modern Feed IndustriesIndustrial Area, Kurukshetra --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. Yogesh Putney, Senior Standing Counselfor the appellant. Mr. Amit Rawal, Advocatefor the respondent. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the orderdated 28.2.2005, passed by the Income Tax Appellate TribunalChandigarh Bench ‘B’ Chandigarh (in short “the Tribunal”) in ITA No.375/CHANDI/2004, relating to the assessment year 2000-2001. The appeal was admitted on 10.12.2007 for determination of the following substantial question of law by this Court: “Whether on the facts and in the circumstances of the case,the Tribunal was right in law in canceling the order passed bythe CIT under Section 263 of the Income Tax Act, 1961,when the fresh assessment in pursuance to order passedunder Section 263 of the Act has already been finalized on28.12.2004 (whereas the order of the Tribunal has beenpassed on 28.2.2005) and the assessee has itself voluntarilysurrendered the additional income of Rs.1,24,004/- onaccount of difference in stock, during the course of freshassessment?’ The facts, in brief, necessary for adjudication, as narrated inthe appeal are that a survey under Section 133A of the Act wasconducted on the business premises of the respondent-assessee firmwhen an excess stock of Rs. 1,24,004/- was found in the books ofaccounts. The assessee surrendered the amount of excess stock as itsadditional income for the assessment year in question. The assesseefiled its return of income on 28.9.2000 declaring total income of Rs.88,750/-. Subsequently the case of the assessee was selected forscrutiny and the assessment was completed at an income of Rs.1,43,050/- by making certain additions by the assessing officer videorder dated 26.6.2001. The Commissioner of Income Tax [for short “theCIT”] found that the assessee had not declared the excess stock of Rs.1,24,004/- during the course of survey in its return of income and it didnot include the said amount as additional income which wassurrendered. The order passed by the assessing officer was found to be erroneous, inasmuch as the same was found to be prejudicial to theinterest of the Revenue because excess stock found during survey wasto be treated as current year’s income of the assessee-firm. Theassessment order was consequently set aside by the CIT under Section263 of the Act vide order dated 1.3.2004. The assessing officer was,thus, directed to complete the assessment afresh. The assessee feeling aggrieved by the order of the CITpreferred appeal before the Tribunal. The Tribunal after relying uponvarious judgments noticed in its order did not concur with the view of theCIT and consequently, by order dated 28.2.2005 cancelled the orderpassed by the CIT. Hence, this appeal at the instance of the Revenue. In the meantime, the assessing officer re-considered thematter and after examining the controversy in the light of theobservations made by the CIT, completed the assessment at Rs.2,48,490/- vide order dated 28.12.2004. In the said proceedings, theassessing officer had made addition of an amount of Rs. 1,24,004/- asassessee’s additional income which was surrendered by the assessee. We have heard learned counsel for the parties and perusedthe record. In the meantime, the assessing officer re-considered thematter and after examining the controversy in the light of theobservations made by the CIT, completed the assessment at Rs.2,48,490/- vide order dated 28.12.2004. In the said proceedings, theassessing officer had made addition of an amount of Rs. 1,24,004/- asassessee’s additional income which was surrendered by the assessee. We have heard learned counsel for the parties and perusedthe record. Learned counsel for the Revenue vehemently submitted thatthe CIT in exercise of power under Section 263 of the Act held that theorder of assessment passed by the assessing officer on 26.6.2001 waserroneous and prejudicial to the interest of the revenue as the assessingofficer had failed to tax the excess stock of Rs. 1,24,004/-. Thepremises of the assessee were surveyed on 10.3.2001 when on physicalverification excess stock valuing Rs. 1,24,004/- was found. Theasssessee had surrendered this amount as additional income which was not taken into consideration by the assessing officer while passing theassessment order on 26.6.2001. The further case of the Revenue wasthat after the order of the revision passed under Section 263 by the CIT,the assessee had again surrendered additional income of Rs. 1,24,004/-on account of difference in stock during the course of fresh assessmentwhich was finalized on 28.12.004, i.e. prior to the impugned orderpassed by the Tribunal on 28.2.2005 and, therefore, the Tribunal was notjustified in holding that the exercise of jurisdiction under Section 263 ofthe Act by the CIT was erroneous. Learned counsel for the assessee, on other hand, supportedthe order passed by the Tribunal. After hearing learned counsel for the parties we findconsiderable weight in the submissions made by learned counsel for theRevenue. Learned counsel for the assessee was unable to dispute thatthe assessee had made surrender of Rs. 1,24,004/- on account ofexcess stock in the course of survey conducted on 10.3.2001 which wasnot taken into consideration by the assessing officer while passingassessment order dated 26.6.2001. The order of assessment dated26.6.2001 was, thus, erroneous in so far as it was prejudicial to theinterest of Revenue. Further, the CIT in the order passed under Section 263 of theAct, in paras 4 to 6 had recorded as under: 4. I have carefully considered the submissions of theassessee and material on record. It is seen from the Auditedtrading and profit and loss account filed along with the returnof income that the assessee has not made any disclosure ofthe additional income of Rs. 1,24,004/- surrendered by it during the course of survey. Rather the gross profit wasdisclosed @ 6% as against 6.8% in the A.Y. 1999-2000 and@ 7.31% in the assessment year 1998-99. It is further seenthat certain expenses which are debited to the P&L accountat a substantial figure have not been carefully examined bythe A.O. like payment of sales commission to its sisterconcern. The Assessing Officer has not cared to examine ifthese expenses were justified in the facts of the case of theassessee. 5.Further, if excess stock is found in the course survey, theamount representing extra stock is to be treated as currentyear’s income as held in the case of Jewellery House Vs.ACIT 57 ITD 544 (Banglore Tribunal). In this case thedifference of stock worked out by the department during thecourse of survey and admitted by the assessee should havebeen added as income by the assessee in its return whichwas not shown by the assessee nor was added back by theA.O. concerned while finalization of assessmentproceedings. 6. In view of above, it is apparent that the assessment hasbeen finalized without proper verification of the resultsdeclared. The assessment being erroneous in so far as it isprejudicial to the interest of revenue deserves to be set asideand is restored to the A.O. for completing the assessmentcarefully after examining the material on record.” 6. In view of above, it is apparent that the assessment hasbeen finalized without proper verification of the resultsdeclared. The assessment being erroneous in so far as it isprejudicial to the interest of revenue deserves to be set asideand is restored to the A.O. for completing the assessmentcarefully after examining the material on record.” In view of the above, it can not be held that the Tribunal wasjustified in holding that the CIT could not have assumed jurisdiction under Section 263 of the Act and the substantial question of law is to beanswered in favour of the Revenue. Accordingly, the appeal is allowed and the substantial question of law is answered in favour of the Revenue. No costs. (AJAY KUMAR MITTAL) JUDGE December 13, 2010*rkmalik* (ADARSH KUMAR GOEL) JUDGE