The Commissioner Of Income Taxpanchkula v. M/S. G.m.g. Industries,Yamuna Nagar

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 239 of 2006Date of decision: 1.12.2010 The Commissioner of Income TaxPanchkula --- Appellant Versus M/s. G.M.G. Industries,Yamuna Nagar --- Respondent --- CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present:Mr. Yogesh Putney, Standing Counselfor the appellant-Revenue. None for the respondent-assessee --- 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 theorder dated 28.2.2005, passed by the Income Tax Appellate TribunalChandigarh Bench ‘A’, Chandigarh (in short “the Tribunal”) in ITA No.648/CHANDI/2004, relating to the assessment year 1999-2000. The following substantial question of law has been claimed for determination by this Court: “Whether on the facts and in the circumstances of the case, the Ld. ITAT was right in quashing the order passed by theCIT, Panchkula, u/s 263 of the I.T. Act?” The facts of the case, necessary for adjudication and as narrated in the appeal, are that the assessee filed return for theassessment year 1999-2000 declaring net taxable income of Rs.6,865/- whereas an advance tax of Rs. 2,00,000/- had been depositedby him as against the tax worked out at Rs. 2,405/-. The assessee,thus, claimed refund of Rs.1,97,595/-. A survey operation u/s 133-A ofthe Act was carried out at the business premises of the assessee on11/12.3.1999. Certain discrepancies were noticed in the stock and thebooks of accounts of the assessee. As a consequence thereof, theassessee made a surrender of Rs. 14,00,000/-. The assesseethereafter filed its return of income but he retracted from the proposal ofsurrender of Rs. 14,00,000/- and instead made a surrender of Rs.3,81,400/- only. The return was processed under Section 143(1) of theAct and a refund of Rs. 21,305/- was worked out. Subsequently, thecase was taken up for scrutiny. The assessee was issued notice underSection 263(1) of the Act to show cause why the assessment orderearlier made be not cancelled. The Commissioner of Income Tax (inshort “the CIT”) in the order dated 30.3.2004, passed in revisionalproceedings, observed that the order of the assessing officer passedunder Section 143(3) was erroneous and prejudicial to the interest ofthe Revenue and accordingly set aside the said order with a direction to make fresh assessment after affording full opportunity of hearing to theassessee. The CIT in its order passed under Section 263 hadnoticed certain short-comings in the order of the assessing officer. Theobservations made by the said revisional authority, insofar as the sameare relevant for adjudication of the issue, are as under: “The perusal of assessment record and other relevantdocuments/ material revealed that the assessing officer hadaccepted the assessee’s explanation dated 7.2.02 and thechanged explanation dated 15.3.2002 without application ofmind, without proper examination of record and the materialbefore him. It has been observed that the books ofaccounts have not been examined by the Assessing Officer.There is no mention either in the note sheet or in the bodyof the assessment order to indicate that books of accountswere examined. The AO simply accepted the assessee’sproposition that if there were sales outside the regularbooks of accounts, there must be corresponding purchasesalso outside the books of accounts while it had categoricallystated in its earlier letter dated 7.2.2002 that the purchaseshad been included in the total purchases recorded till thedate of survey. The partner had admitted on the date ofsurvey that the purchases had been recorded but that thesales had not been recorded. In the process, the value ofgross profit worked out by the assessee on these lines wasnot correct and was deflated to that extent. Moreover, by adopting these sales, and keeping all other values constantas these are not disputed, the trading account would yield amuch higher gross profit rate. It was all the more necessarythat detailed examination and investigations should havebeen carried out to arrive at the correct gross profit rateduring this particular year irrespective of what has beenshown by the assessee in earlier years. Further, in thetrading account prepared as per books of account on11.3.1999, the wages were taken at a figure of Rs.1,41,279/-. In the return filed, these expenses have beenshown at Rs. 2,28,279/- as on 31.3.1999. The books ofaccount had been written up to 8.3.1999 as per thestatement recorded on the date of survey and as actuallyseen at that time. Within 22 days, wages of Rs. 86,792/-had been paid. This aspect has not been examined to seeif these expenses debited to the trading account weregenuine. These facts revealed that the Assessing Officerhad not applied his mind to the facts and material beforehim and the results arrived at stemmed from miscarriage ofjustice due to incorrect application of facts, wrongunderstanding and application of accounting principles andmisapplication of law. The order of the assessing officer wasconsidered erroneous and prejudicial to the interest ofrevenue.” Feeling not satisfied, the assessee filed appeal before theTribunal. The appeal was allowed and the order of the CIT passed under Section 263 of the Act, was set aside by the Tribunal vide theorder under appeal. Hence, this appeal at the instance of the Revenue. The point for determination in this appeal is, whether theCIT was justified in resorting to the revisional jurisdiction under Section263 of the Act in respect of surrender of Rs.14,00,000/- made by theassessee at the time of survey of its premises. The Tribunal while allowing the appeal of the assessee hasnullified the order passed by the CIT under Section 263 of the Act, andrecorded as under: “We have heard the rival submissions, perused the orderspassed by the AO and the CIT, the paper-book and the caselaw cited by the assessee. We find that in this case, originalassessment was framed by the AO after considering detailsand evidence submitted by the assessee in respect ofpurchase/ sale and the reason for the difference in stockand other documents found at the time of survey and haspassed an order u/s 143(3), whereas the CIT presumedwhile invoking section 263 that the AO did not apply hismind in right perspective and took the view that the samehas resulted in understatement of correct income and,therefore, the assessment order is prejudicial to theinterests of the revenue. The admitted facts in this case arethat during the course of survey conducted on 11/12.3.1999,the survey party found certain discrepancies and detected ag.p. of Rs. 13,13,958/-. To cover up the discrepancies, the partner of the assessee-firm surrendered an additionalincome of Rs. 14 lacs. However, the assessee in its returnhas declared an income of Rs. 3,81,400/- only. During thecourse of assessment proceedings, the assessee producedthe details, documents and evidence before the AO, dulyreconciling the difference earlier found at the time of surveyconducted on 11/12.3.1999. Now, we find from the recordthat the AO completed the assessment u/s 143(3) after onlyverifying the details, i.e. relevant documents, tradingaccount furnished by the assessee and thereafter formedan opinion that the results shown were justified. Therefore,the assumption of jurisdiction u/s 263 by the CIT on thereasoning that such view of the AO was erroneous andprejudicial to the interests of the revenue, on the basis ofrecast trading account, tantamounts to the second view byrecasting the trading result of the assessee for the sameperiod, which had already been considered by the AO whilecompleting the assessment u/s 143(3) and such order of theAO cannot be held prejudicial to the interests of therevenue, as held by the apex court in the case of MalabarIndustrial Co. Ltd. (supra). While coming to suchconclusion, we draw support from the latest decision of theTribunal in the case of Nahar Exports Ltd. Vs. ACIT,reported in 92 ITD 484 (Chd), wherein it was held that if theAO had taken one of the possible views the Commissionerwill have no jurisdiction to interfere with the view taken by the AO by exercising his power u/s 263. We, therefore,keeping in view the above facts of the present case and thedecisions (supra), are of the considered opinion that theorder of the CIT passed u/s 263 is contrary to law and factsand cancel the same by accepting the grounds raised in theassessee’s appeal.” The assessee had surrendered a sum of Rs. 14,00,000/- asadditional income during the course of survey on 11/12.3.1999 subjectto no penalty and no prosecution. However, while filing the return ofincome, a sum of Rs. 3,81,400/- only had been surrendered anddisclosed as its income. No plausible explanation had been furnishedby the assessee for retraction from its earlier statement made duringsurvey. In the absence thereof, there was, prima facie, no justificationfor accepting the surrendered income of Rs. 3,81,400/- instead ofRs.14,00,000/-. A perusal of the aforesaid order of the Tribunal shows thatthe Tribunal had not discussed the material produced by the assesseeduring the assessment proceedings and also had failed to record anyfirm finding based thereon. Further, no cogent reasons have beenassigned for accepting the retraction of the assessee from the earliersurrender of income of Rs. 14,00,000/- made by it during the surveyconducted on 11/12.3.1999. Thus, the Tribunal erred in nullifying theorder passed by the CIT under Section 263 of the Act. In view of the above, the substantial question of law isanswered accordingly, the order of the Tribunal is set aside and thematter is remanded to the Tribunal to take a fresh decision in accordance with law on the issue under discussion. The appeal stands disposed of. (AJAY KUMAR MITTAL) JUDGE December 1, 2010*rkmalik* (ADARSH KUMAR GOEL) JUDGE