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Madhya Pradesh High Court · body

2009 DIGILAW 478 (MP)

CIT v. Shalimar Housing and Finance Ltd.

2009-04-15

DIPAK MISRA, R.K.GUPTA

body2009
ORDER Dipak Misra, J. 1. The present appeal preferred under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act) was admitted on the following substantial question of law: Whether in the obtaining factual matrix, the Tribunal is justified in holding that the action taken by the Commissioner under Section 263 of the Act is not justified despite the fact that a finding had been recorded by the said authority as regards the suppression of work-in-progress for a sum of Rs. 18,41,35,526? 2. The facts which are necessary to be adumbrated for adjudication of this appeal are that a search and seizure operation was carried out under Section 132(1) of the Act in the premises of the respondent-assessee and the said operation commenced on 21-2-2002 and was concluded on 13-3-2002. The assessing officer framed the block assessment order under Section 158BC on 17-9-2004 and made several additions against the assessee. 3. Being dissatisfied with the aforesaid order the assessee preferred an appeal before the Commissioner (Appeals)-II, Bhopal who vide order dated 5-10-2005 allowed the appeal in part. When the matter stood thus, the Commissioner, Bhopal examined all the records of the assessment of the assessee-respondent for the block period 1-4-1995 to 27-2-2002 and observed that while framing the order of assessment on 17-9-2004 for the block period the assessing officer had failed to consider certain issues namely, (i) from the project-wise analysis it was perceptible the "work in progress" as per the seized documents amounted to Rs. 26,83,97,827 as against Rs. 8,42,62,301 as arrived at by the assessee which resulted in undervaluation of the work in progress to the extent of Rs. 18.41 crores: (ii) that Shri Vijay Mirchandani, director of the company had categorically admitted to have received the salary and perquisites which were not recorded in the books of accounts of the assessee-company; and (iii) that the assessing officer in the individual case of directors had held that each directors had been paid salary and perquisites to the tune of Rs. 84,000 but while framing the assessment of the assessee, salary and perquisites of only one director were added to the income of the assessee-company; and (iv) that during the assessment proceeding of M/s Jherneshwar Nagrik Sahkari bank Ltd. which is run by the assessee, it could not explain the deposit of Rs. 84,000 but while framing the assessment of the assessee, salary and perquisites of only one director were added to the income of the assessee-company; and (iv) that during the assessment proceeding of M/s Jherneshwar Nagrik Sahkari bank Ltd. which is run by the assessee, it could not explain the deposit of Rs. 79,40,246 and, therefore, the addition of the said amount was made in the case of the bank on protective basis with the finding that above addition should be considered on substantive basis in the hands of various depositors and also protective addition should be made in the hands of the assessee but the same was not considered by the assessing officer while framing the assessment in the assessee-companys case. Because of the aforesaid grounds the assessment order was considered to be erroneous and prejudicial to the interest of the revenue and a notice under Section 263 of the Act was issued to the assessee. The Commissioner considered both submissions of the assessee and upon perusal of the assessment records came to hold that the assessment order passed by the assessing officer on 17-9-2004 was erroneous and prejudicial to the interest of the revenue and accordingly in exercise of jurisdiction under Section 263 of the Act set aside the assessment made under Section 158BC read with Section 144 of the Act and directed the assessing officer to frame the assessment de novo after carrying out proper inquiries and investigation affording an opportunity of hearing to the assessee. 4. Being aggrieved by the aforesaid order the assessee preferred an appeal before the Tribunal and the Tribunal allowed the appeal, and set aside the order of the CIT and restored that of the assessing officer. The Tribunal referred to the decisions rendered in CIT v. K.L. Rajput (1987) 164 ITR 197 (MP)(FB), CIT v. Simplex Metalica (MP)(FB), Gilt Pack Ltd. v. CIT 4 TTJ 326 (MP), CIT v. Bharath Earth Movers Ltd. (1998) 234 ITR 535 (Karn), CIT v. Jaykumar B. Paul (1999) 236 ITR 469 (SC), Straw Products Ltd. v. Asstt. CIT (2001) 252 ITR 444 (Cal), CIT v. Shri Arbuda Mills Ltd. (1998) 231 ITR 50 (SC), Smt. Sujata Grover v. Dy. CIT (2002) 74 TTJ (Del-Trib) 347, Rernex Constructions/Remex Electricals v. ITO and Ors. CIT (2001) 252 ITR 444 (Cal), CIT v. Shri Arbuda Mills Ltd. (1998) 231 ITR 50 (SC), Smt. Sujata Grover v. Dy. CIT (2002) 74 TTJ (Del-Trib) 347, Rernex Constructions/Remex Electricals v. ITO and Ors. (1987) 166 ITR 18 (Bom), Oil India Ltd. v. CIT (1982) 138 ITR 836 (Cal), CIT v. Gabrial India Ltd. (1993) 203 ITR 108 (Bom), CIT v. Kanda Rice Mills (1989) 178 ITR 446 (P&H), CIT v. Shiv Hari Madhu Sudan (1998) 233 ITR 649 (Raj) and CIT v. G.K. Kabra (1995) 211 ITR 336 (AP) and many other decisions and eventually concluded as follows: 11. As noted above the assessing officer has examined all the seized records and investigated all the issues subject-matter of the proceeding under Section 263 and thereby took one of the possible view in the matter while framing the block assessment order; the order of the assessing officer cannot be treated as erroneous and prejudicial to the interest of the revenue. The reply of the assessee is not considered by the learned Commissioner in proper perspective and hence proceedings under Section 263 are not valid. We are fortified in our view by the decision of Gauhati High Court in the case of Smt. Lila Choudhury v. CIT (Gau). Hon'ble Gauhati High Court in the case of B & A Plantation & Industries Ltd. and Anr. v. CIT (2007) 290 ITR 395 (Gau) held that if no independent mind applied by Commissioner, revision proceeding not valid. The present case before us appears to be same. The decisions cited by learned Departmental Representative are therefore, clearly distinguishable on facts and are not applicable to advance the contention of learned senior Departmental Representative. 12. Considering the facts, circumstances and discussion above, we are of the view that the learned Commissioner has not legally assumed the jurisdiction under Section 263 of the Income Tax Act. The order of the learned Commissioner dated 8-12-2006 is set aside and quashed. The order of the assessing officer is restored. The appeal of the assessee is accordingly allowed. 5. It is worth noting the Tribunal further clarified that as the appeals preferred by the assessee and the department were pending disposal before the Tribunal against the order of the Commissioner (Appeals) dated 5-10-2005 the finding and observation given in the order of the Tribunal shall not tantamount to expression of any opinion on the merits of the case. 5. It is worth noting the Tribunal further clarified that as the appeals preferred by the assessee and the department were pending disposal before the Tribunal against the order of the Commissioner (Appeals) dated 5-10-2005 the finding and observation given in the order of the Tribunal shall not tantamount to expression of any opinion on the merits of the case. 6. We have heard Mr. Rohit Arya, learned senior counsel along with Mr. Sanjay Lal, for the appellant-Revenue and Mr. Sumit Nema, learned Counsel for the respondent. 7. The real thrust of the matter is whether in the obtaining factual matrix the Tribunal is justified in dislodging the order passed by the Commissioner under Section 263 of the Act. Section 263 of the Act reads as under: 263. Revision of orders prejudicial to revenue--(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the assessing officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation--For the removal of doubts, it is hereby declared that, for the purpose of this Sub-section,-- (a) an order passed on or before or after the 1-6-1988, by the assessing officer shall include-- (i) an order of assessment made by the Assistant Commissioner or Dy. CIT or the Income Tax Officer on the basis of the directions issued by the Jt. CIT or the Income Tax Officer on the basis of the directions issued by the Jt. CIT under Section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an assessing officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under Section 120; (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this Sub-section and passed by the assessing officer had been subject-matter of any appeal filed on or before or after the 1-6-1988, the powers of the Commissioner under this Sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. 8. On a perusal of Clause (c) of the aforesaid provision it is vivid that the aforesaid section clearly stipulates that powers of the Commissioner shall extend to such matters as had not been considered and decided in such appeal. On a perusal of the order passed by the learned Commissioner in exercise of power under Section 263 of the Act the first issue that arises for consideration relates to work in progress. On a perusal of the order passed by the Commissioner (Appeals), dated 5-10-2005 it is luminescent that the appellate authority has adverted to the same. The Tribunal while dwelling upon the same has opined thus: 8.2 It is not in dispute that in this case search was conducted in the assessees group and as such block assessment was passed. We are of the view that even if there is an amendment in Chapter XIV-B in the definition of undisclosed income under Sections 158B(b) and 158BB(1), the scheme or purpose of enacting Chapter XIV-B has not undergone a major change in the sense that the block assessment pertained to a number of years distinct from assessment under Section 143(3) pertaining to a single assessment year. The block assessment could be made in respect of undisclosed income if during block period undisclosed income is recovered as result of evidence found during the course of search and not as result of other documents or material which came to possession of the assessing officer subsequent to the conclusion of search operation unless and until such material or document is relatable to such evidence recovered during the course of the search. The amended definition of Section 158BB clearly suggests that some evidence is to be found as a result of search operation and it is only thereafter the remaining part of the provision comes into play. The work-in-progress is a part of trading item and in the case of the assessee could also be treated as stock-in-trade. No specific evidence or material is found during the course of search to show that assessee has shown undervaluation of the stock. The details filed by learned Departmental Representative in the paper book are the calculation of the assessing officer. It is settled accounting position that closing stock could be shown in the accounts/balance sheet at the end of the accounting year. No evidence is brought on record that assessee would not show the details of work-in-progress/closing stock in the balance sheet and the regular returns. Learned Counsel for assessee vehemently submitted that no physical verification of work-in-progress was done on the date of the search. This contention of learned Counsel for assessee is not disputed by the revenue. The assessing officer considering the reply of the assessee and explanation on the work-in-progress, expenses and examining the books of accounts was of the view that assessee has not produced complete books of accounts because the same were incomplete. The only option left with the assessing officer to reject the book results of the assessee under Section 145 of the Income Tax Act which the assessing officer did in this case and took the figure of disclosed sales and undisclosed sales and directed to apply net profit rate of 15 per cent on the consolidated sales to make the addition of Rs. 6.97 crores being undisclosed income in the block period. Separate addition in one year was also made on account of work-in-progress being undisclosed income in a sum of Rs. 83.99 lakhs. 6.97 crores being undisclosed income in the block period. Separate addition in one year was also made on account of work-in-progress being undisclosed income in a sum of Rs. 83.99 lakhs. It is not a denying fact that in the subsequent assessment years 2002-03 and 2003-04 the assessing officer after the block assessment order on the same set of facts did not make separate addition on account of undisclosed work-in-progress because he has applied net profit rate of 10 per cent to work out the profit. Hon'ble Allahabad. High Court in the case of CIT v. Banwarilal Banshidhar (1998) 229 ITR 229 (All) held that once GP rate is applied, it would take care of everything and there is no need to make separate (trading) addition. In this case separate addition was made on account of bogus purchases which order of the authorities below was not approved. The above facts therefore, show that when the assessing officer applied net profit rate of 15 per cent though in the subsequent regular assessment, the assessing officer in the case of the same assessee on the identical facts applied net profit rate of 10 per cent therefore, there is no reason to term the order of the assessing officer to be erroneous and prejudicial to the interest of the revenue. Tribunal, Pune Bench (Third Member) in the case of Jamnadas T. Mehta v. ITO (2002) 257 ITR 90 (Pune-Trib)(TM)(AT) held that the scope of Section 263--section 263 can be resorted to only for setting right distortions and not for reviewing order of Income Tax Officer. Assessing officer taking note of two possible views cannot be revised. It was further held where two views are possible and the assessing officer has taken one view with which the Commissioner does not agree it cannot be treated as an erroneous order prejudicial to the interest of revenue, unless the view taken by the assessing officer is unsustainable in law. Tribunal, Mumbai Bench in the case of Mrs. Khaitiza S. Oomerbhoy v. ITO (supra) took the same view and held that every loss of revenue cannot be treated as prejudicial and if the assessing officer has adopted one of the courses permissible under the law of where two views are possible and the assessing officer has taken the one to which the Commissioner does not agree, the order cannot be treated as erroneous. Considering the finding in the impugned order, we find that even the learned Commissioner did not mention that the view adopted by the assessing officer was not possible or sustainable in law. The similar issue is considered by the learned Commissioner (Appeals) in the order dated 5-10-2005. Therefore, on the principle of merger, the learned Commissioner was also not justified in invoking the jurisdiction under Section 263 of the Income Tax Act. 9. As regards payment of salary to the directors Tribunal in para 8.3 has expressed the view as under: 8.3 The learned Commissioner in para 4 of the impugned order noted that one of the directors Shri Vijay Meerchandani admitted in statement to have received salary/perquisite from the assessee company which raises the doubt that other directors might have also received the salary. The learned Commissioner noted that this issue was taken up in the cases of all the directors in their individual cases and additions are made. Therefore, on the same pattern he was of the view that addition should be considered in the case of the assessee company. The learned Commissioner also noted that in the individual cases learned Commissioner (Appeals) deleted the addition. On going through these facts we find that the learned Commissioner merely on presumption found that order of the assessing officer is erroneous and prejudicial to the interest of revenue on account of payment of salary and perquisite to the directors. The Commissioner (Appeals) in the case of Harish Meerchandani, one of the directors vide order dated 25-4-2005 deleted the similar addition in his individual case in the block assessment. The basis of the learned Commissioner has therefore, no leg to stand and therefore, cannot be basis for reopening the assessment under Section 263 of the Income Tax Act. It is also settled law that statement of third person cannot be read in evidence unless it is put to the person against whom it has to used in evidence. At no stage such statement of Vijay Meerchandani was confronted to any of the other directors or the assessee company and nothing is specified as to how it has any relevance in their cases. Therefore, there is no basis to initiate proceeding under Section 263 on this issue. At no stage such statement of Vijay Meerchandani was confronted to any of the other directors or the assessee company and nothing is specified as to how it has any relevance in their cases. Therefore, there is no basis to initiate proceeding under Section 263 on this issue. Moreover, this fact is recorded by the assessing officer in the assessment order at pages 79, 80 and 96 and made the addition in the case of the assessee company in a sum of Rs. 3,00,000 each in all the block assessments. The learned Commissioner (Appeals) vide order dated 5-10-2005 deleted the same addition, therefore, on the principle of merger such matter could not be taken up by the learned Commissioner under Section 263 of the Income Tax Act. 10. As far as unexplained deposit is concerned, the Tribunal in para 8.4 has stated thus: 8.4 The learned Commissioner in para 5 also noted that protective assessment is to be made in the case of the assessee being unexplained deposits in the case of M/s Jhameshwar Nagrik Sahkari Bank Ltd., the assessing officer made addition of Rs. 85. lacs on this issue in the block assessment order being unexplained deposit in Jhameshwar Nagrik Sahkari Bank Ltd. The learned Commissioner (Appeals) deleted the addition vide order dated 5-10-2005. Even as per the learned Commissioner the deposits were in the names of various account holders and therefore, directed that this issue ought to have been considered in the assessment of the present assessee. The block assessment order in the case of the assessee was made on 17-9-2004 whereas block assessment order in the case of Jhameshwar Nagrik Sahkari Bank Ltd. was passed on 7-2-2005 therefore, there is no question of the same being considered in the case of the assessee company because on the date of the block assessment order, the assessment order of the bank did not exist. Since this issue is considered in detail by the assessing officer as well as by the learned Commissioner (Appeals), therefore, on the principle of merger the same could not have been considered in the proceeding under Section 263 of the Income Tax Act. Tribunal, Madras Bench in the case of L. Soroja (supra) held that protective assessment qua the person sought to be covered under Section 158BB cannot be sustained. Therefore, there is no basis for initiating the proceeding under Section 263 on this issue. Tribunal, Madras Bench in the case of L. Soroja (supra) held that protective assessment qua the person sought to be covered under Section 158BB cannot be sustained. Therefore, there is no basis for initiating the proceeding under Section 263 on this issue. 11. From the aforesaid it is crystal clear that the Tribunal has adverted to the factual position in a detailed manner and has appreciated those issues that have been taken up by the CIT while exercising jurisdiction under Section 263 of the Act; it has held that the said facets have already been dealt with by the Commissioner (Appeals) and, therefore, by virtue of Clause (c) of Section 263(1) the CIT was not competent to assume the jurisdiction and direct for reassessment. 12. In this context we may profitably refer to the decision in CIT v. Max India Ltd. (2007) 295 ITR 282 (SC) wherein their Lordships relying on the earlier decision rendered in Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) has held thus: The phrase prejudicial to the interest of the revenue in Section 263 of the Income Tax Act, 1961, has to be read and in conjunction with the expression erroneous order passed by the assessing officer. Every loss of revenue as a consequence of an order of the assessing officer cannot be treated as prejudicial to the interest of the revenue. For example, when the assessing officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the assessing officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the revenue, unless the view taken by the assessing officer is unsustainable in law. 13. In this regard we may fruitfully refer to the decision in CIT v. Associated Food Products (P) Ltd. (2006) 280 ITR 377 (MP) wherein it has been held as under: In view of the aforesaid pronouncement of law and taking into consideration the language employed under Section 263 of the Act, it is clear as crystal that before exercise of powers two requisites are imperative to be present. In the absence of such foundation exercise of a suo motu power is impermissible. It should not be presumed that initiation of power under suo motu revision is merely an administrative act. In the absence of such foundation exercise of a suo motu power is impermissible. It should not be presumed that initiation of power 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 with regard to existence of adequate material to satisfy that the decision taken by the assessing officer is erroneous as well as prejudicial to the interests of the revenue. The concept of prejudicial to the interests of the revenue has to be correctly and soundly understood. It precisely rneans an order which has not been passed in consonance with the principles of law which has in ultimate eventuate affected realisation of lawful revenue either by the State has not been realised or it has gone beyond realisation. These two basic ingredients have to be satisfied as sine qua non for exercise of such power. On a perusal of the material brought on record and the order passed by the Commissioner it is perceptible that the said authority has not kept in view the requirement of Section 263 of the Act inasmuch as the order does not reflect any kind of satisfaction. As is manifest the said authority has been governed by a singular factor that the order of the assessing officer is wrong. That may be so but that is not enough. What was the sequitur or should have been focussed upon. That having not been done, in our considered opinion, exercise of jurisdiction under Section 263 of the Act is totally erroneous and cannot withstand scrutiny. Hence the Tribunal has correctly unsettled and dislodged the order of the CIT. 14. In the case at hand, as is evident from the order passed by the Tribunal, the Tribunal has adverted to the facts in detail and has expressed the view that the Commissioner (Appeals) had dealt with the aspects in his order dated 5-10-2005. Once the same has been dealt with, in exercise of appellate jurisdiction, the order cannot be regarded as incorrect and prejudicial to the interest of revenue on the basis of which the Commissioner can exercise jurisdiction under Section of the Act. Once the same has been dealt with, in exercise of appellate jurisdiction, the order cannot be regarded as incorrect and prejudicial to the interest of revenue on the basis of which the Commissioner can exercise jurisdiction under Section of the Act. We have reproduced the paras in extenso from the order passed by the Tribunal only to highlight that the matter has been dealt with by the Commissioner (Appeals) and the Tribunal has analyzed the same in proper perspective. It is also worth noting that the Tribunal has expressed the view that the finding given by the Tribunal would not tantamount to expressing on merits of the case. In our considered opinion, the entire case hinges on facts and the Tribunal has properly dealt with it and, therefore, no substantial question of law arises. 15. Consequently, the appeal has to pave the path of dismissal, which we direct. There shall be no order as to costs.