Hon'ble Subhash Chandra Nigam,J.
(Delivered by Hon'ble Rajes Kumar, J)
Paper-books containing typed copies of the documents filed
today. It may be taken on record.
At the instance of the Commissioner of Income Tax, the
Tribunal has referred the following question of law under Section 256
of the Income Tax Act for consideration of this Court.
Whether on the facts and in the circumstances of the case, the
Hon'ble Tribunal was justified in holding that in the assessment order
dated 3.1.94, there was no error in the order and it cannot be said to
be erroneous and thereby quashing the order passed under Section
263 of the Income Tax Act, 1961?
The brief facts of the case are as follows:
The assessee, a liquor contractor, filed its return on 31.10.1993
declaring income of Rs. 5910/-. In the trading account, gross sales of
Rs.2,74,29,952/- were disclosed on which gross profit of Rs.
27,23,950/- giving out gross profit rate of 9.9% was shown. The A.O.
completed the assessment on 03.01.1994. However, during the
security of the assessment order, the learned Commissioner held that
the same was erroneous and prejudicial to the interest of the
Revenue. He held so on the ground that the A.O. has not given any
reason for arriving at the conclusion that the gross profit rate
disclosed at 9.9% was considered to be reasonable. According to
learned C.I.T., neither any detailed enquiry through notice U/s 143(3)
was made nor the assessee was required through order-sheet entry
to prove the trading results. It was further held that the A.O.
committed a gross error in accepting the book results without making
proper enquiry and without bringing out the material on record. The
learned C.I.T. also observed that as the assessee had not produced
cash memo for verification of sales, the order of the A.O. was not a
proper order and had been passed without appreciating the facts of
the case and without proper application of mind. It was also held by
the learned Commissioner that the assessing officer has failed to
examine the genuineness of the security deposits supposedly made
by the employees of the assessee and allowed interest on security
deposits without properly examining the taxability of the same. The
learned Commissioner on the basis of reasons given in his order set
aside the order of the A.O. and directed him to make the assessment
afresh after carrying out necessary enquiries and affording
opportunity of hearing to the assessee.
Against the order of the Commissioner of Income Tax, the
assessee has filed an appeal before the Tribunal. The Tribunal, vide
impugned order, allowed the appeal and set aside the order passed
under Section 263 of the Income Tax Act.
The Tribunal has recorded the following findings:
"We have given our utmost consideration to the issue in
dispute.
As would be seen, the A.O. examined and perused the
books of accounts, which he found to have been maintained in
regular course of business. He also accepted the trading
results and found the gross profit reasonable. On the basis of
the information already placed on record, as was explained
and demonstrated before us by Shri Garg, debit side as well as
credit side of the trading account were explainable and that
being so, the accounts appear to have been rightly acceptable
by the A.O. along with the trading result. Even at the cost of
repetition, it may be stated that the non-issue of cashmemos of
retail sales was explained by the assessee and the method
adopted finds support from the decision of the jurisdictional
High Court in the case of Ramjilal and sons, referred to supra.
The law applied by the learned Commissioner in the case of
Awadesh Pratap Singh is also found to be distinguishable.
In the circumstances, it appears difficult for us to say
that the order rendered by the A.O. on the point of gross profit
is erroneous. No legal error could be pointed out. For arriving
at a legal error, there must be some prima facie material shown
to exist whereby it could be said that the A.O. faltered or took
an incorrect or incomplete interpretation of law whereby a
lesser tax than what was due under the relevant statutes was
imposed. The learned Commissioner, exercising jurisdiction u/s
263, must being on record certain cogent material and advance
good ground to come to the conclusion that the assessment
order suffered from a legal error. In view of what has been
instated by us above, it is difficult to concur with him,
particularly when the gross profit rate arrived at by the A.O.
was backed by examination of account books produced by him
and acceptance of trading results etc. It may also not be out of
place to say that even in liquor cases, the possibility of the
occurring of a loss to the assessee cannot be ruled out as was
upheld by the Tribunal in the case of Ram Narain Hiralal, copy
found at pages 85 to 91 of the assessee's paper book.
Reference may also be made to a decision of the Madhya
Pradesh High Court in the case of Jayantilal Kirhori Lal Vs.
C.I.T., reported in 154 ITR 821, where it was held that in case
result shown by a country liquor dealer was verifiable, net profit
rate could not be resorted to.
We will not pass on to the other points taken by the
learned Commissioner. Certain expenses were disallowed by
the A.O. in respect of which an appeal was preferred by the
assessee. These disallowances were deleted. Obviously
nothing survived before the learned Commissioner, which
could have been revised by him. A reference to the provisions
of Sec. 263(1)(c) do not help the Department as they refer only
to such matters as have not been considered and decided in
an appeal preferred by the assessee. It is only then and then
alone that the powers of the Commissioner shall extend to
such aspect of the matter. We would not like to make
comments on the observations made by the learned
Commissioner that the A.O. failed to scrutinise the item of
expenses and made only lump sum disallowances, deleted by
the learned C.I.T.(A). It was for the Department to have
preferred an appeal before the Tribunal if they were really
aggrieved of such deletion rather than the assumption of
jurisdiction by the learned Commissioner u/s 263 of the Act,
which is legally wholly untenable. The issue clearly got merged
in the first appeal order snatching the jurisdiction of the
Commissioner u/s 263. The Commissioner, whether
administrative or appellate, does not have any second appeal
powers which vest only in the Appellate Tribunal by virtue of
Sec. 253 of the Income-tax Act, 1961.
The last objection of the learned Commissioner is about
the genuineness of the security deposits made by the
employees.
In this connection, it was contended on behalf of the
assessee that confirmatory letters from the person concerned
were placed on record. The deposits of security by the
salesmen was a part of service condition, which the learned
authorised representative for the assessee submitted, was an
imperative requirement in view of the fact that such salesmen
dealt with cash and the assessee having 39 shops, had not
physical control over them all the time. Such deposits
appeared at the beginning of the accounting period and,
therefore, could not even be considered as cash credits in the
hands of the assessee. In this connection, reliance was placed
on the decision of the jurisdiction High Court in the case of
C.I.T. Vs. Jaiswal Motor Finance, reported in 141 ITR 706. It
was also submitted that the A.O. found and observed in the
assessment order that it was customary in the liquor business
that salesmen were required to deposit security money with the
firm which was returned back to them after the confirmation
was over. The assessment order also went to say that
confirmation from the salesmen had been filed as required by
the A.O. and placed on record.
We feel that even on this score there is nothing, which
appears, could be unusual, much less warranting any action
u/s 263 of the Act. If the security deposits by the salesmen
were found at the beginning of the accounting period and the
taking of such deposits was customary in the relevant period,
which deposits were eventually returned, what else the
assessee could have done except filing confirmatory letters
from the salesmen, which he did. There also appears to be
some force in the contention raised that if any addition could
have been made, the same could be in the hands of a
particular employee if he could not satisfy the A.O. about the
source of the money, which he deposited with the assessee.
In the circumstances, we are of the considered view that
there was no error in the assessment order and that being so,
it cannot be said to be erroneous. In response to the notice
issued by the learned Commissioner, the assessee showed
that the order could not be revised as it was neither erroneous
not prejudicial to the interest of the revenue. This certainly
deprived the Commissioner to take any further action. In view
of the aforesaid, we are unable to uphold the action taken by
the learned Commissioner. The order rendered by him u/s 263
is, therefore, quashed.
Appeal allowed.
Heard Shri R.K. Upadhyay, learned standing counsel.
Learned standing counsel submitted that a huge sum of Rs.
10,22,500/- was found deposited in the books of account of the
assessee in the names of 84 employees, who were working as
salesmen, and their deposits have been accepted merely on the
basis of the certificates/confirmatory letters furnished by them before
the assessing authority without making any further inquiry about the
source of deposits. Therefore, the Commissioner of Income Tax has
rightly initiated the proceedings under Section 263 of the Income Tax
Act and has held that the order was erroneous.
We have perused the assessment order. On perusal of the
assessment order, it reveals that the firm had 48 shops, located in
district Rai Bareilly, wherein salesmen were appointed to carry out
the sales of the country liquor. It was found that it was customary in
this business that the salesmen are required to deposit security
money with the firm. The assessing authority further found that the
amount so deposited was returned back to them after the contract
was over and the confirmatory letters were filed by the salesmen.
Therefore, it cannot be said that in respect of the deposits made by
salesmen, the assessing authority has not applied his mind and has
not made any enquiry. It may be that the inquiry, according to the
Commissioner of Income Tax, was not a detailed inquiry which ought
to have been done but that will not make the order erroneous. This
Court in the case of C.I.T. Vs. Goel Private Family Specific Trust,
reported in 171 ITR 698 has held that orders of the Income Tax
Officer may be brief and cryptic, but that by itself is not sufficient
reason to brand the assessment orders as erroneous and prejudicial
to the interest of revenue. The Apex Court in the case of Malabar
Industrial Co. Vs. CIT held that the revisional power cannot be
exercised where two views are possible. We further find that the
Tribunal has dealt with each and every aspects in details on the basis
of material on record and recorded the findings of facts that the
assessment order was not erroneous. The proceedings under
Section 263 of the Income Tax Act can only be taken in case if the
assessment order is found to be erroneous and prejudicial to the
interest of Revenue. Therefore, both the conditions should coexist. If
one of the conditions does not exist the power under Section 263 of
the Income Tax Act could not be exercised.
In the facts and circumstances of the case, we do not see any
error in the order of the Tribunal. The question referred is, therefore,
answered in affirmative in favour of the assessee and against the
Revenue.
Date: 06.01.2010
MK/