The Principal Commissioner Of Income Tax v. Kalpeshkumar B Verma

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/TAX APPEAL NO. 762 of 2019 ==========================================================THE PRINCIPAL COMMISSIONER OF INCOME TAX VersusKALPESHKUMAR B VERMA ==========================================================Appearance:MRS MAUNA M BHATT(174) for the Appellant(s) No. 1 for the Opponent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALAand HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 10/02/2020 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1.This tax appeal under Section-260A of the Income Tax Act, 1961 [for short 'The Act, 1961'] is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad 'C' Bench, Ahmedabad dated 18[th] February, 2019 in the ITA No.1245/AHD/2018 for the A.Y. 2010-11. 2.The Revenue has proposed the following two questions of law for the consideration of this Court:- “[A] Whether the Appellate Tribunal has erred in law and on facts in reversing the order passed under Section-263 of the Act by holding that the assessment order cannot be branded as erroneous as there has been enquiry with regard to claims made and mere inadequacy cannot be ground for taking action under Section-263 of the Act? [B] Whether the Appellate Tribunal has erred in law and on facts in not appreciating the fact that interest expenditure amounting to Rs.47,18,327/- was not incurred by the assessee wholly and exclusively for the purpose of earning interest income but was in fact utilized for making investment in shares/securities? [C] Whether the Appellate Tribunal has erred in law and on facts in not appreciating the fact that the Assessing Officer allowed the expenditure towards cost of improvement of Rs.25,50,000/- without verifying admissibility of the same?” 3.It appears from the materials on record that the assessee had filed his return of income for the A.Y.2010-11 declaring the total income at Rs.52,88,849/-. The return of income was filed on 19[th] September, 2010. The assessment was finalized on 18[th] March 2013 under Section-143(3) of the Act accepting the returned income as assessed income. It appears that thereafter, a search under Section-132 of the Act was undertaken on 26[th] April, 2013 in connection with the Anand Group of Builders. The case of the assessee was also included. The case was centralized and thereafter, a notice under Section-153A was issued on 21[st] October, 2013. The assessment was finalized and the order under Section-153A read with Section-143(3) of the Act was passed dated 29[th] February, 2016 determining the assessed income at Rs.53,17,564/-. 4.The CIT thought fit to invoke its revisional powers under Section-263 of the Act. The CIT took notice of the fact that the assessee had shown to have received Rs.42,67,765/- as the interest income in the year under consideration. The CIT also took note of the fact that the assessee had claimed interest expenditure of Rs.47,18,327/- resulting into the declaration of loss of Rs.4,50,562/- under the head “Income from Other Sources”. The CIT also took note of the fact that the borrowed funds had been utilized for making the investment in shares/securities. In such circumstances, the CIT in its order observed as under:- “5.The reply of the assessee has been carefully considered. 4.The CIT thought fit to invoke its revisional powers under Section-263 of the Act. The CIT took notice of the fact that the assessee had shown to have received Rs.42,67,765/- as the interest income in the year under consideration. The CIT also took note of the fact that the assessee had claimed interest expenditure of Rs.47,18,327/- resulting into the declaration of loss of Rs.4,50,562/- under the head “Income from Other Sources”. The CIT also took note of the fact that the borrowed funds had been utilized for making the investment in shares/securities. In such circumstances, the CIT in its order observed as under:- “5.The reply of the assessee has been carefully considered. Assessment records of the A.O. have also been perused. The arguments put forth by the assessee are not found tenable. Further, the judicial pronouncements relied upon by the assessee are also not squarely applicable in the instance case. On verification of records, it is noticed that the claim of the assessee has been allowed by the A.O. without verifying its allowability as per Income-tax Act, thereby the AO has made inadequate enquiries before allowing the above claim of the assessee. The assessing officer, upon the receipt of the return of income u/s.153A of the Act, gave an opportunity to the assessee. Thereafter, the assessee was required to give details of interest/ capital gain etc. In response thereto, the only details/ evidences filed by the assessee are merely copy of his ledger accounts. The assessing officer, without carrying out any exercise of acting/ verification on the ledgers, has concluded the assessment by determining the amounts as given by the assessee. The phrase “prejudicial to the interests of the Revenue” should be understood in ordinary meaning; it is of wide import and it is not confined to laws of tax. Since while passing the order, the AO has just accepted what the assessee wanted him to accept without discussing the allowability or disallowance, the provisions of section 263 of the I.t. Act are found applicable to the assessee's case. The AO has not at all examined the eligibility of the assessee to claim deduction of these interest and land improvement expenses and has merely allowed them on the basis of copy of ledger accounts only. The AO has not made any enquiry and has accepted the facts on its face value. This is to be termed as a case of only half-hearted enquiry as no definite conclusion can be arrived at merely on the filing of ledgers before the AO. Accordingly, it is held that there has been a complete non-application of mind by the AO while examining the expenditure. Thus, the view taken by the AO is prima-facie incorrect and therefore, there is reason to hold that such an order is erroneous and prejudicial to the interest of revenue. 6.Further, during the course of assessment as well as proceedings u/s.263 of the Act, the assessee has also contended that the AO had no power u/s.153A r.w.s.143(3) of the Act to examine the issue of allowability of these expenditures on the ground that the assessment for the year under consideration had already abated on the date of search. And the assessment under consideration, being made u/s.153A in consequence of search, is required to be restricted to the documents/ incriminating material found in the course of search for assessing the undisclosed income. As per the assessee, the subject matter of revision u/s.263 of the Act does not fall within its preview. 6.2In the case in hand, the AO has, upon receipt of the return in response to the notice u/s.153A of the Act, given an opportunity to the assessee and required him to give certain details and in response to which the assessee has filed merely copy of his ledger accounts. All that followed thereafter is the AO, without carrying out any exercise of acting/verifying the accounts and admissibility of the accounts involved, has concluded the assessment by determining the amounts as given by the assessee in respect of these claims. 6.2In the case in hand, the AO has, upon receipt of the return in response to the notice u/s.153A of the Act, given an opportunity to the assessee and required him to give certain details and in response to which the assessee has filed merely copy of his ledger accounts. All that followed thereafter is the AO, without carrying out any exercise of acting/verifying the accounts and admissibility of the accounts involved, has concluded the assessment by determining the amounts as given by the assessee in respect of these claims. 7.In the light of the above facts, the assessment order u/s.153A r.w.s.143(3) of the Income-tax Act, 1961 for A.Y.2010-11 passed by the AO on 29.02.2016 is erroneous and prejudicial to the interests of the Revenue to this extent. Accordingly, the order is set aside and AO is directed to make assessment in this regard after concluding enquiry and verification of the facts of the case and after giving sufficient opportunity of being heard to the assessee before finalizing the set aside assessment order.” 5.The sum and substance of what has been conveyed in the order passed by the CIT is that there was no proper inquiry at the end of the Assessing Officer. 6.The assessee being dissatisfied with the order passed by the CIT preferred an appeal before the Tribunal and the Tribunal vide impugned order allowed the appeal and thereby, quashed and set aside the order passed by the Commissioner. The Tribunal while allowing the appeal preferred by the assessee observed thus:- “2.On verification of the case records of the assessee for A.Y.2009-10, it is noticed that the assessee has shown to have received Rs.42,11,011/- as interest income in the year under consideration. He has also claimed interest expenditure of Rs.57,37,042/- resulting into declaration of loss of Rs.15,26,031/- under the head “Income from Other Sources”. Further, perusal of records reveal that the borrowed funds have been utilized for making investment in shares/securities. Thus, the interest payment/expenditure has not been utilized wholly and exclusively for the purpose of earning interest income. On perusal of his reply dated 23.12.2015submitted on 29.12.2015 during course of assessment proceedings, it is noticed that the assessee has …. submitted the ledgers of interest received and interest payment, but not furnished the proof establishing the nexus between source of funds and its utilization. His submission made during assessment proceedings by simply: filing copy of ledger accounts has been accepted by the A.O. without conducting verification of nexus and without verifying their admissibility under the I.T. Act. Accordingly, the said interest expenditure has been allowed erroneously and is prejudicial to the interest of revenue. 3.Thus, impugned assessment for A.Y. 2009-10 passed on 29.02.2016 by the Assessing Officer i.e. DCIT, Central Circle-3, Baroda u/s.153A r.w.s.143(3) of the Act order is erroneous and prejudicial to the interest of Revenue within meaning of section 263 of the Income Tax Act. 4.Now assessee has come before us with the grievance for order passed by the ld. Pr. CIT is wrong and already had adequate enquiry have been made by the Assessing Officer. 5.In this case, assessee has shown has to received Rs.42,11,011/- as interest income in the year under consideration, and has also claimed interest expenditure of Rs.57,37,042/- resulting into declaration of loss of Rs.15,26,031/- under the head “Income from Other Sources”. 6.We can see in this case, during search no incriminating material was found and ld. A.O. made adequate enquiry in this case. 4.Now assessee has come before us with the grievance for order passed by the ld. Pr. CIT is wrong and already had adequate enquiry have been made by the Assessing Officer. 5.In this case, assessee has shown has to received Rs.42,11,011/- as interest income in the year under consideration, and has also claimed interest expenditure of Rs.57,37,042/- resulting into declaration of loss of Rs.15,26,031/- under the head “Income from Other Sources”. 6.We can see in this case, during search no incriminating material was found and ld. A.O. made adequate enquiry in this case. 7.In support of its contention, ld. A.R. cited an order in the matter of CIT Vs. Amit Corporation (2012) 81 CCH 0069 (Guj.) High Court wherein it is held that “during the course of framing of assessment, Assessing Officer had access to all records of assessee, after pursuing such record Assessing Officer framed assessment, such assessment could not have been re-opened in exercise of revision power u/s.263 for making further inquiries.” 8.In this case, assessee cannot be branded as erroneous as there has been inquiry with regard to claims made and mere inadequacy cannot be ground for taking action u/s.263 of the Income Tax Act. 9.Ld. A.R. also cited a case of Pr. CIT Vs. Saumya Construction Pvt. Ltd. 81 taxmann.com 292 (Guj.) wherein has been held that assessment “u/s.153A, relation to material disclosed during search or requisition; if no incriminating material is found during search, no addition can be made on basis of material collected after search.” 7.Thus, the Tribunal while allowing the appeal preferred by the assessee relied upon two decisions of this Court; (i) CIT Vs. Amit Corporation, (2012) 81 CCH 0069 (Guj.) And (ii) Principal CIT Vs. Saumya Construction Pvt. Ltd., 81 taxmann.com 292 (Guj.). 8.Having heard the learned counsel appearing for the Revenue and having gone through the materials on record, we are of the view that none of the two questions as proposed by the Revenue could be termed as the substantial questions of law involved in this appeal. The Tribunal has recorded a specific finding that during the search, nothing incriminating was recovered and Assessing Officer made adequate inquiry in the case. It is not in dispute that during the course of framing of assessment, the Assessing Officer had access to all the records of the assessee and after perusal of such records ultimately the Assessing Officer framed the assessment. The Tribunal is right in its final conclusion that such assessment order could not have been taken into revision in exercise of revisional power under Section-263 of the Act as the assessment order cannot be said to be erroneous and prejudicial to the interest of the revenue. 9.We are convinced with the impugned order passed by the Tribunal. No interference is warranted. 10.In the result, this appeal fails and is hereby dismissed. (J. B. PARDIWALA, J) aruna (BHARGAV D. KARIA, J)