आदेश / O R D E R PER G. MANJUNATHA, Accountant Member:
These two appeals filed by the assessee are directed against separate orders of CIT(Central), u/s 263 of the Income Tax Act, 1961 (hereinafter called as 'the Act') and CIT(A)-3, Visakhapatnam u/s 250 of the Act, for the assessment year 2013-14. Since, the facts are identical and issues are common, they are clubbed, heard together and disposed off, by way of this common order, for the sake of convenience.
2. The brief facts of the case are that the assessee is a Chartered Accountant by profession and partner in M/s. Sudhakar and Kumar Associates, deriving income from business, house property and other sources has filed his original return of income for the assessment year 2013-14 on 30.9.2013 admitting nil total income. There was a search u/s 132 of the Act, on 20.12.2012 in the Gayatri Group. During the course of search & seizure operation, cash of Rs.30 lakhs was found and seized in a locker in the name of the assessee in State Bank of India, Kohinoor branch, near Aqua Sports complex, Pandurangapuram, Visakhapatnam. A statement was recorded from the assessee u/s 132(4) of the Act and he was asked to explain the source for the cash. The assessee while deposing before the investigation officer, admitted that
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the cash found in the locker is his income from profession for the financial year 2012-13 and he had earned professional income in his individual capacity in addition to remuneration received from his partnership firm M/s. Sudhakar and Kumar Associates. The assessee further stated that he would admit entire amount of Rs.30 lakhs as his personal professional income for the assessment year 2013-14.
3. Consequent to search, the assessee case was notified to Central circle, Visakhapatnam and accordingly notice u/s 153A of the Act was issued. In response to notice, the assessee has filed his return of income for the assessment year 2013-14 on 30.9.2013 admitting nil total income after claiming set off of brought forward losses from earlier years. The case has been selected for scrutiny and accordingly, notice u/s 142(1) & 143(2) of the Act were issued. In response thereto, the authorized representative of the assessee appeared from time to time and furnished relevant information. During the course of assessment proceedings, the assessee was asked to explain the sources of income for cash seized during the course of search. The assessee vide his letter dated 11.2.2015 stated that during the course of search & seizure operations u/ 132 of the Act cash of Rs.30 lakhs found in the locker no.6 of State Bank of India, jointly held in my name and my wife Smt. P. Vishnu Vandana. The source for cash is out of professional income
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earned by me in my individual capacity for the financial year 2013-14. The A.O. after considering the explanations of the assessee held that the assessee has offered explanation for cash found during the course of search as his professional income for the assessment year 2013-14 and hence, no further addition is made on this account. With these observations, completed assessment u/s 143(3) r.w.s. 153A of the Act and accepted income returned by the assessee.
4. The CIT(Central) issued show cause notice dated 27.11.2015 and asked to explain why the assessment order passed by the assessing officer u/s 143(3) of the Act dated 11.3.2015 shall not be revised under the provisions of section 263 of the Act. The CIT, proposed to revise the assessment order for the reason that the assessing officer, at the time of completion of assessment u/s 143(3) of the Act, has wrongly assessed cash found and seized during search under the head
"professional income", whereas the addition is to be made u/s 69A of the Act. The CIT, further, observed that the assessing officer has failed to verify the issue and applied correct provisions of the Act. The assessing officer accepted returned income after adjusting setting off brought forward loss from the earlier years, ignoring specific provision of section 115BBE of the Act, which render the assessment order erroneous in so far as it is prejudicial to the interest of the revenue.
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With these observations, issued a show cause notice and asked to explain why the assessments order dated 11.3.2015 shall not be revised under the provisions of section 263 of the Act.
5. In response to show cause notice, the assessee submitted that the order passed by the A.O. u/s 143(3) of the Act dated 11.3.2015 is not erroneous, in so far as it is prejudicial to the interest of the revenue, as the A.O. has examined cash found during the course of search, at the time of completion of assessment u/s 143(3) of the Act. The assessee further submitted that he had admitted cash found during the course of search as his professional income earned in the individual capacity for the financial year 2012-13 and accordingly, declared such income in the return filed for the assessment year 2013-14. The assessee further submitted that he had not maintained regular books of accounts for his profession. Had he maintained regular books of accounts and recorded professional receipts, there would have been cash balance in the books of accounts equal to the amount seized during the course of search. Merely because books of accounts were not produced at the time of search, an inference cannot be drawn that cash found was unexplained. Once the source of cash found was explained and even admitted for tax, the cash balance represented by such income cannot any more be considered as unexplained in terms of section 69A of the Act. The
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assessee further submitted that it is a settled position of law that the admission u/s 132(4) of the Act is binding on the assessee and is evident by itself. Therefore, the deposition made in sworn statement cannot be ignored to arrive at a different conclusion. The assessee further submitted that all these facts were brought to the notice of the A.O. at the time of assessment and the A.O. after considering the explanations, accepted returned income, therefore, the assessment order passed by the A.O. cannot be termed as erroneous in so far as it is prejudicial to the interest of the revenue.
6. The CIT, after considering the submissions of the assessee held that assessing officer has failed to verify the issue in proper perspective and also applied incorrect provisions of the Act. The CIT, further, held that when the cash was seized during the course of search, the A.O. should have applied the provisions of section 69A of the Act to bring unexplained money to tax. However, the A.O. has applied incorrect provisions of the Act, ignoring specific provision provided u/s 115 BBE of the Act, which is erroneous and prejudicial to the interest of the revenue. The CIT, further, held that the A.O. has failed to call for necessary details and also failed to apply his mind on the issue. In the absence of such verification and non-application of correct provisions of the Act, the assessment order so framed by the A.O. is not only
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erroneous but also prejudicial to the interest of the revenue. Accordingly, the assessment order for the assessment year 2013-14 is set aside with a direction to the A.O. to re-do the assessment afresh after examining details and after providing an opportunity to the assessee. Aggrieved by the CIT order, the assessee is in appeal before us.
7. The Ld. A.R. for the assessee, submitted that the Ld. Principal Commissioner of income -tax is not justified in assuming jurisdiction u/s 263 of the Act, in as much as the assessment order u/s 143(3) of the Act dated 11.3.2015 is neither erroneous nor prejudicial to the interest of the revenue. The A.R. further submitted that the CIT is not justified in observing that amount of Rs.30 lakhs admitted as professional income ought to have been assessed as unexplained money u/s 69A of the Act. The A.R. further submitted that the provisions of section 115BBE of the Act are applicable only when addition is made u/s 69A of the Act. But, in the present case on hand, the assessee has explained cash found during the course of search as his professional income which was accepted by the A.O. at the time of completion of assessment u/s 143(3) of the Act, therefore, it is not correct to say that the A.O. has ignored the provisions of section 115BBE of the Act. The A.R. further submitted that the CIT ought to have appreciated the fact that the A.O.
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has initiated enquiries in respect of above issue and as such it is not a case of lack of enquiry to enable the CIT to invoke the provisions of section 263 of the Act.
8. On the other hand, the Ld. D.R. strongly supported the order of the CIT.
9. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The CIT assumed jurisdiction to revise the assessment order for the reason that the A.O. has not conducted proper enquiry before completion of assessment, thereby the assessment order passed by the A.O. u/s 143(3) of the Act, dated 11.3.2015 is erroneous in so far as it is prejudicial to the interest of the revenue. The CIT, revised the assessment order for the reason that the A.O. has completed assessment by applying incorrect provisions of the Act towards cash found during the course of search. The CIT further observed that though assessee explains cash found during the course of search as his professional income for the financial year 2012-13, failed to substantiate the claim with necessary evidences. The A.O. without examining the issue, simply accepted explanations furnished by the assessee and completed the assessment by accepting cash seized during the course of search as assessee's income from profession. The CIT further was of
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the opinion that the A.O. has completed assessment without applying his mind, as there is a specific provision is provided by way of section 115BBE of the Act to deal with the cases of search, wherein it is specifically provided that where the total income of an assessee includes any income referred to in section 68, section 69 and section 69A to 69D, no deductions or allowances in respect of expenditure is allowed against such income. The A.O. without examining the applicability of the provisions of section 115BBE of the Act, simply accepted income declared by the assessee under the head "professional income", therefore, the assessment order passed by the A.O. u/s 143(3) of the Act, is erroneous in so far as it is prejudicial to the interest of the revenue.
10. It is the contention of the assessee that the assessment order passed by the A.O. is not erroneous in so far as it is prejudicial to the interest of the revenue. The assessee further contended that the issue pointed out by the CIT with regard to cash found during the course of search was examined by the A.O. at the time of assessment. The assessee further contended that it has explained sources for cash found during the course of search as his professional income, earned in the individual capacity for the financial year 2012-13 at the time of deposition before the assessing officer while recording statement u/s
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132(4) of the Act. We find force in the arguments of the assessee for the reason that the A.O. has examined the issue of cash found during the course of search at the time of assessment u/s 143(3) of the Act. The A.O. after considering explanations furnished by the assessee dealt the issue vide para-4.1 of his assessment order dated 11.3.2015, wherein the A.O. stated that the issue has been examined and no addition is called for. We further noticed that the assessee has explained sources for cash found during the course of search as his professional income right from the beginning and accordingly disclosed said income in his return of income filed for the assessment year 2013-
14. Therefore, we are of the view that the CIT was not correct in coming to the conclusion that the A.O. has not examined the issue of cash seized during the course of search and accordingly the assessment order passed by the A.O. is not erroneous in so far as it is prejudicial to the interest of the revenue.
11. The CIT, assumed jurisdiction to revise the assessment order on the ground that there is a lack of enquiry on the part of the A.O., in examining the issue of cash found during the course of search at the time of completion of assessment u/s 143(3) of the Act. The CIT was of the opinion that the A.O. has applied incorrect provisions of the Act, to deal with cash found during the course of search, as against separate
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provisions provided by way of section 115BBE of the Act. The CIT further, observed that as per the provisions of section 115BBE of the Act, where the total income of an assessee includes any income referred to in section 68 to 69D of the Act, then notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance (or set off of any loss) shall be allowed to the assessee under any provision of this Act, in computing his income referred to in clause
(a) of sub section (1) of section 115 BBE of the Act. The CIT was of the opinion that the A.O. ignoring the provisions of section 115BBE of the Act, accepted income declared by the assessee under the normal provisions of income from profession and further allowed set off of brought forward loss from earlier years, which render the assessment order erroneous in so far as it is prejudicial to the interest of the revenue. We do not see any merits in the findings of the CIT for the reason that the assessee right from the beginning claims that cash found during the course of search represents his professional income earned in the individual capacity for the financial year 2012-13, accordingly included cash found during course of search as his professional income for the assessment year 2013-14 and filed returns of income. We further noticed that the assessee has admitted entire cash seized during the course of search as his professional income
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without there being any deductions towards expenditure, but, claimed set off of brought forward business loss of earlier years against such additional income. The allegation of the CIT is that when any income is admitted consequent to search proceedings, no deductions towards any expenditure or allowances or set off of loss shall be allowed against such income. But, the fact is that as per the provisions of sub section (2) of section 115BBE of the Act, which was amended by the Finance Act, 2016 w.e.f. 1.4.2017 which is applicable from the assessment year 2017-18 and subsequent years, there is a bar on set off of loss from A.Y. 2017-18, however, there is no bar to claim set off of loss up to A.Y. 2016-17. Therefore, even assuming for a moment that the A.O. has applied incorrect provisions of the Act, to tax cash found during the course of search, the assessee can always claim set off of brought forward loss from earlier years up to the assessment year 2016-17, even if the same has been added under the provisions of sec. 68 to 69D of the Act. Therefore, we are of the view that the assessment order passed by the A.O. is neither erroneous nor prejudicial to the interest of the revenue, as there is no prejudice is caused to the revenue.
12. The CIT has power to revise the assessment order u/s 263 of the Act, but to invoke the provisions of section 263 of the Act, the twin conditions must be satisfied i.e. (1) the order of the A.O. is erroneous
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(2) further it must be prejudicial to the interest of the revenue. Unless both the conditions are satisfied, the CIT cannot assume jurisdiction u/s 263 of the Act. It is not necessary that every order which is erroneous must be prejudicial to the interest of the revenue or vice versa. In some cases, the order passed by the A.O. may be erroneous, but it may not be prejudicial to the interest of the revenue or vice versa. Unless the order passed by the A.O. is erroneous and also prejudicial to the interest of the revenue, the CIT cannot assume jurisdiction to revise the assessment order, this is because the twin conditions i.e. the order is erroneous and the same is prejudicial to the interest of the revenue are co-exist. In the present case on hand, on perusal of the facts available on record, we find that the A.O. has conducted detailed enquiry on the issue of cash found during the course of search and considering the explanations offered by the assessee has accepted the explanation that sources for cash found during the course of search as his professional income. Moreover, the assessment order passed by the A.O is not prejudicial to the interest of the revenue, as the issue of cash found during the course of search has been properly examined by the A.O. and considered under appropriate provisions of the Act. Though, the CIT alleged that the A.O. has ignored the provisions of section 115BBE of the Act, the amended provisions of sub section (2) of section 115BBE of
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the Act, makes it clear that the assessee can claim brought forward loss against such additional income even if such income is brought to tax u/s 69A of the Act up to the A.Y. 2016-17. Therefore, we are of the view that the assessment order passed by the A.O. u/s 143(3) of the Act, dated 11.3.2015 is not erroneous in so far as it is prejudicial to the interest of the revenue.
13. Now, it is pertinent to discuss the case law relied upon by the assessee. The assessee relied upon the decision of coordinate bench of Visakhapatnam Tribunal, in the case of Nu Tech Engineers Vs. CIT in ITA No.570/Vizag/2013 dated 10.6.2016. The coordinate bench of this Tribunal, under similar circumstances held that once the A.O. examined issues on which the CIT wants further verification, the CIT cannot assume jurisdiction on the same issues which was already examined by the A.O. at the time of assessment, by stating that the A.O. has conducted inadequate enquiry or there is a lack of enquiry. The relevant portion of the order is reproduced hereunder:
"CIT(A) assumed jurisdiction to revise the assessment order on the sole ground that there is a lack of enquiry on the part of the A.O. in examining the issues referred to in his show cause notice. The question of low net profit declared by the assessee and also TDS on rent and hire charges have been considered by the A.O. at the time of completion of assessment. The assesses filed a paper book which contains the details furnished before the A.O. at the time of assessment. On perusal of the paper book filed by the assessee, ITAT find that the A.O. has issued a detailed questionnaire in respect of net profit and also TDS in respect of rent and hire charges. The A.O. after satisfied with the explanations
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furnished by the assessee has accepted the income returned. Therefore, ITAT are of the view that once the issues which are subject matter of revision u/s 263 of the Act, have been examined by the A.O. at the time of assessment, the CIT has no jurisdiction to entertain fresh enquiry on the same issues, because he has a different opinion on the issues. In ITAT considered opinion, the issue of net profit and TDS on rent and hire charges has been examined by the A.O. at the time of assessment, therefore, the CIT was not correct in coming to the conclusion that the A.O. has not examined the issues".
14. Considering the facts and circumstances of this case and also respectfully following the ratio of the coordinate bench, we are of the view that the assessment order passed by the A.O. u/s 143(3) of the Act dated 11.3.2015 is not erroneous in so far as it is prejudicial to the interest of the revenue. Therefore, we quash the order passed by the CIT u/s 263 of the Act and restore the order passed by the A.O. u/s 143(3) of the Act.
15. In the result, the appeal filed by the assessee is allowed.
ITA 32/Vizag/2016:
16. The assessee has filed this appeal, challenging the order of the CIT(A)-3, Visakhapatnam confirming levy of penalty u/s 271(1)(b) r.w.s. 274 of the Act for the assessment year 2013-14. The facts which lead to imposition of penalty u/s 271(1)(b) of the Act are that during the course of assessment proceedings, the assessing officer issued notice u/s 143(2) of the Act dated 14.11.2013, 142(1) of the Act dated 10.9.2014 & 142(1) of the Act dated 12.11.2014, requiring assessee to furnish certain information in connection with the assessment
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proceedings. Since, the assessee has not complied with any of notices, a letter was issued on 3.11.2014 reminding to submit information as called for vide notices u/s 142(1) of the Act. The assessee neither appeared before the A.O. nor furnished any information as required by the A.O., accordingly, the A.O. initiated penalty proceedings u/s 271(1)(b) of the Act, by issuing notice on 9.12.2014. In response to penalty notice, the assessee filed his reply vide letter dated 16.12.2014 and submitted that non-attendance on the date of hearing is not intentional, as he was busy in collecting information sought by the A.O. in connection with the assessment proceedings. The assessee further submitted that the A.O. sought huge information for the period of 7 years, as such he could not able to gather all the information required by the A.O. within the time given in the notices. The assessee further submitted that I am always cooperating with the department for smooth completion of proceedings and I do not have any intention to avoid proceedings, hence, request the A.O. to drop penalty proceedings initiated u/s 271(1)(b) of the Act. The A.O. after considering the explanation furnished by the assessee, held that the assessee has failed to appear on the date of hearing and also failed to seek adjournment. The A.O. further held that the assessee has not offered any explanation for not appearing on the date fixed for hearing, therefore opined that the assessee has not complied with
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statutory notices dated 14.11.2013, 10.9.2014 and dated 12.11.2014 and hence is liable to pay penalty of ` 10,000/- each for such failure. Accordingly, an amount of ` 30,000/- is being levied within the meaning of section 271(1)(b) of the Act for each failure to comply with statutory notices.
17. Aggrieved by the penalty orders, the assessee preferred an appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made before the A.O. The assessee further submitted that the A.O. was not correct in levying penalty u/s 271(1)(b) of the Act, as he has fully cooperated with the A.O. for smooth completion of assessment, which is evident from the fact that the assessment order is passed u/s 143(3) of the Act. The assessee further submitted that the A.O. has issued all these notices with short period of 7 days to furnish huge information for a period of 7 years. Since, the information called for by the A.O. is huge, he is unable to gather information within a span of 7 days, accordingly, could not appear on the date fixed for hearing. The assessee further submitted that non-appearance before the A.O. is not purposeful. Because of voluminous materials required to be collected, he could not attend, however, the fact remains that he had submitted all the information required by the A.O. and the A.O. has
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completed the assessment u/s 143(3) of the Act. Therefore, the A.O. was not correct in holding that the assessee has failed to comply with statutory notices which warrants penalty u/s 271(1)(b) of the Act. In support of his contentions relied upon the following judgements:
1) Swarnaben M. Khanna & Ors Vs. DCIT (2010) 132 TTJ 0001(UO) Ahd Trib.
2) Akhil Bhartiya Prathmik Shikshak Sangh Bhawan Trust Vs. ADIT (2008) 115 TTJ 0419 Ahd Trib
3) Karnavati CIT(A), Rajahmundry Air Conditiners (P) Ltd Vs. ITO (2012) 32 CCH Ahd. Trib.
4) Pole Star Securities Ltd. Vs. ACIT (2014) 40 CCH 0374 Del Trib.
18. The CIT(A) after considering the explanations furnished by the assessee, held that a mere non-compliance of initial notices without a different recourse taken by the A.O., does not warrant penalty proceedings u/s 271(1)(b) of the Act. The intention for non-compliance must proceed and thought alone can give inference to the A.O. for levy of penalty. In the instant case, though there was initial failure on the part of the assessee for compliance of notices, the proceedings were completed u/s 143(3) of the Act, after supplying full information to the satisfaction of the A.O. Therefore, non-compliance will become technical and nothing serious in so far as assessment proceedings u/s 143(3) of the Act. With these observations, held that the A.O. has given insufficient time i.e. 8 days for notice u/s 142(1) of the Act in search related assessments, accordingly, directed the A.O. to delete penalty
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levied for the assessment year 2007-08 to 2013-14. In respect of A.Y. 2013-14, this plea cannot be accepted for notice u/s 142(1) of the Act, where the A.O. has given sufficient time of 15 days to comply with the requirements. With these observations, upheld the levy of penalty of Rs. 10,000/- u/s 271(1)(b) of the Act, for non-compliance of notice for the assessment year 2013-14. Aggrieved by the CIT(A) order, the assessee is in appeal before us.
19. The Ld. A.R. for the assessee submitted that the Ld. CIT(A) is not justified in partly sustaining penalty levied u/s 271(1)(b) of the Act, to the extent of ` 10,000/- as the assessee has explained before the A.O. the reasons for non-attendance as on the date of hearing. The A.R. further submitted that the CIT(A) ought to have appreciated the fact that the assessee's case falls within the scope of section 273B of the Act and as such levy of penalty is not warranted.
20. On the other hand, the Ld. D.R. for the assessee supported the order of CIT(A). The D.R. further submitted that the assessee has failed to comply with statutory notices without any reasons, therefore, the A.O. has rightly levied penalty and his order should be upheld.
21. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The
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A.O. levied penalty u/s 271(1)(b) of the Act for failure to comply with statutory notices issued u/s 142(1) of the Act. The A.O. was of the opinion that the assessee has failed to offer proper explanation for non- attendance as on the date of hearing. It is the contention of the assessee that non-attendance as on the date of hearing is not intentional, as the A.O. has called for voluminous information for 7 assessment years within a short period of 7 to 15 days. The information called for by the A.O. is voluminous and he could not gather all the information and accordingly, not able to appear before the A.O. as on the date of hearing. We find force in the arguments of the assessee for the reason that the assessee has appeared on all the occasions and furnished necessary information for completion of assessment which is evident from the fact that the A.O. has completed the assessment u/s 143(3) of the Act. Though, assessee initially not appeared before the A.O. in one or two occasions, the reason given by the assessee for non- appearance appears to be reasonable and bonafide. Therefore, we are of the view that the A.O. was not correct in levying penalty u/s 271(1)(b) of the Act. Though, the CIT(A) appreciated the facts, failed to consider the explanation offered by the assessee for the assessment year 2013-14, in view of voluminous information called for by the A.O. and also the assessment being a search assessment. Normally, search
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assessments are done for 7 years, wherein the assessee is required to furnish information at one stretch for all the assessment years, for which sufficient time is required. In the present case on hand, the A.O. has given 7 to 15 days time. In our opinion, it is difficult to gather all the required information within a short period. Therefore, we are of the view that the explanations offered by the assessee that he could not attend on the dates of hearing because of insufficient time to collect voluminous information appears to be reasonable and bonafide. Accordingly, we direct the A.O. to delete the penalty levied for the assessment year 2013-14.
22. In the result, the appeal filed by the assessee is allowed.
The above order was pronounced in the open court on 26thAug'16. Sd/- Sd/-
(वी. दगुा राव) (जी. मंजनुाथा)
(V. DURGA RAO) (G. MANJUNATHA)
यायक सद य/JUDICIAL MEMBER लेखा सद य/ACCOUNTANT MEMBER
#वशाखापटणम /Visakhapatnam:
'दनांक /Dated : 26.08.2016 VG/SPS
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आदेश क त)ल#प अ*े#षत/Copy of the order forwarded to:-
1. अपीलाथ / The Appellant - Shri Pillala Ramakrishna Rao, Flat No.101, Fiar Fields Apartments, Kirlampudi Layout, Visakhapatnam.
2. याथ / The Respondent - The ACIT, Central Circle-2, Visakhapatnam
3. आयकर आयु+त / The Principal CIT(Central), Visakhapatnam
4. आयकर आय+ुत (अपील) / The CIT (A)-3, Viakhapatnam,
5. #वभागीय त न.ध, आय कर अपील य अ.धकरण, #वशाखापटणम /
DR, ITAT, Visakhapatnam
6. गाड फ़ाईल / Guard file
आदेशानुसार / BY ORDER // True Copy // व1र2ट नजी स.चव (Sr.Private Secretary) आय कर अपील य अ.धकरण, #वशाखापटणम /
ITAT, VISAKHAPATNAM
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