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Pyare Lal Jaiswal v. Commissioner of Income-tax, Varanasi
Factual and Procedural Background
The assessee filed a return showing income of Rs. 2,91,340. The Assessing Officer (AO) completed assessment under section 143(3) for assessment year 2009-10 on a total income of Rs. 3,24,250 by order dated 24.12.2011. The AO proposed to the Commissioner that the assessment order was erroneous and prejudicial to the interests of Revenue under section 263 of the Income-tax Act. The Commissioner (ld. CIT) issued a show cause notice dated 14.06.2012 under section 263, and after considering several issues found the AO's order to be erroneous and prejudicial and set aside the assessment order directing the AO to frame the assessment afresh (de novo). Key factual items cited in the impugned revision order included substantial bank cash deposits (reported via AIR), the assessee's engagement in country liquor business, discrepancies between bank deposits and reported turnover/sales, the alleged need for audit under section 44AB, and claimed annual license fee and deductions. The assessee filed an application for rectification under section 154, which the Commissioner forwarded to the AO and thereafter disposed of without considering the assessee's objections; the assessee appealed to the Tribunal. The Tribunal considered rival submissions and the record and heard the appeal.
Legal Issues Presented
- Whether the Commissioner was justified in invoking revisional jurisdiction under section 263 to set aside the assessment order as erroneous and prejudicial to the interest of Revenue.
- Whether the Commissioner properly considered the explanations and evidence furnished by the assessee in response to the show cause notice and in response to notices issued at assessment stage.
- Whether the Commissioner could forward the assessee's rectification application under section 154 to the Assessing Officer instead of deciding it himself.
- Whether the Commissioner could re-adjudicate issues that had already been considered and decided in appeal (doctrine of merger / limits on section 263 jurisdiction).
- Whether the requirement for audit under section 44AB could be triggered by total bank deposits rather than by turnover/gross receipts.
- Whether the Commissioner could pass adverse orders on matters not raised in the section 263 notice (e.g., annual license fee and Chapter VI-A deduction) or on figures the assessee contended were incorrect.
Arguments of the Parties
Appellant's (Assessee's) Arguments
- The AO had issued detailed statutory notices (notice under section 142(1) dated 01.09.2011 and summons under section 131) and recorded the assessee's statement; specific queries regarding bank deposits were raised and answered. The assessee provided bank statements, ledger entries and other documents to explain the deposits.
- The figure of cash deposit relied upon (Rs. 1,01,35,500) was contended by the assessee to be incorrect; the assessee explained actual deposits (e.g., ~Rs. 62,85,500 in one bank) and sources (withdrawals and redeposits, amounts from AOP, and sales), leaving only a small unexplained balance which was claimed to be from sales.
- The AO, after enquiries, accepted the assessee's explanations and materials; therefore the AO's order could not be branded erroneous and prejudicial merely on a change of opinion by the Commissioner.
- On turnover estimation and extra-profit addition: the AO estimated turnover at Rs. 36,00,000 after rejecting books; the assessee argued that sales were Rs. 29,30,110 and that if section 44AF applied it would override. The assessee noted that the appellate authority (CIT(A)) had deleted an extra profit addition (Rs. 79,250) by order dated 03.05.2012, and the Commissioner could not revisit issues already decided on appeal.
- Compulsory audit under section 44AB depends on turnover/gross receipts, not bank deposits; the Commissioner erred in treating bank deposits as turnover for this purpose.
- The Commissioner raised issues (e.g., annual license fee of Rs. 17,47,200/- and Chapter VI-A deduction) that were not included in the section 263 notice; thus the Commissioner had no jurisdiction to pass an adverse order on those points.
- The assessee relied on an ITAT Rajkot decision (Antala Sanjay Kumar Ravjibhai v. CIT) to argue that revisional jurisdiction is not justified where the AO has considered the matter in detail.
Respondent's (Department/CIT) Argument as Presented
- The ld. Departmental Representative supported the ld. CIT's order, submitting that no proper enquiry had been done by the AO and therefore the Commissioner was justified in revising the assessment under section 263.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Smt. Lila Choudhury v. CIT (Gauhati High Court) [2007] 289 ITR 226/[2008] 167 Taxman 1 | Explanation of the assessee in response to a section 263 notice must be considered; revision without considering explanation is not valid. | The Tribunal relied on this principle to hold that the Commissioner failed to consider the assessee's explanations and therefore the revisional order under section 263 was invalid. |
| Cit v. M/s. Vikas Polymers (Delhi High Court) [2012] 341 ITR 537/[2010] 194 Taxman 57 | Where the Commissioner's revision order does not consider the assessee's explanation, the revision is not valid. | Applied to support the finding that the ld. CIT did not consider the assessee's replies and hence his revision order was not valid. |
| Commissioner Of Income-Tax v. Goyal Private Family Specific Trust (Allahabad High Court) [1988] 171 ITR 698/[1987] 35 Taxman 522 | An assessment order being brief or cryptic is not, by itself, sufficient to conclude it is erroneous and prejudicial to Revenue. | Used to support the view that the AO's order, though brief, was not necessarily erroneous given the enquiries made; it therefore did not justify revision under section 263. |
| CIT v. Shalimar Housing & Finance Ltd. (M.P. High Court) [2010] 320 ITR 157 | Doctrine of merger: Commissioner cannot assume section 263 jurisdiction on issues already dealt with by the Commissioner(A); revisional jurisdiction is limited where appeals have merged and been decided. | The Tribunal relied on this principle to hold that the Commissioner could not revisit issues already decided in appeal (e.g., extra profit addition deleted by CIT(A)). The text notes this decision was confirmed by the Supreme Court. |
| Malabar Industrial Co. Ltd. v. CIT (Supreme Court) [2000] 243 ITR 83/109 Taxman 66 | The AO may take one of the possible views in the matter; the Commissioner cannot substitute his view for that of the AO merely because he prefers a different view. | The Tribunal invoked this Supreme Court authority to support the conclusion that the AO's assessment could not be branded erroneous merely because the Commissioner took a different view. |
| Commissioner Of Income-Tax v. Smt. R.G Umaranee (Madras High Court) [2003] 262 ITR 507/127 Taxman 265 | In absence of any notice by the Commissioner on a particular point, it is not open to the Commissioner to direct an enquiry and treat an item as unexplained investment/disclosed income. | The Tribunal cited this authority to hold the Commissioner had no jurisdiction to pass adverse orders on issues not raised in the section 263 notice (e.g., the alleged annual license fee figure). |
| Antala Sanjay Kumar Ravjibhai v. CIT (ITAT Rajkot Bench) [2012] 135 TTD 506/[2011] 16 taxmann.com 238 | Where the AO has considered the matter after detailed enquiry, the Commissioner’s suo motu revisional jurisdiction may not be justified. | The assessee relied on this ITAT decision; the Tribunal noted this line of authority in the assessee's submissions to support the position that revisional jurisdiction was not justified where AO had examined material. |
Court's Reasoning and Analysis
The Tribunal examined the assessment record, the statutory notices issued by the AO, the assessee's statements recorded under section 131, and the written replies and documentary material placed before the AO (bank statements, ledger accounts, certificates). The AO had issued a detailed questionnaire under section 142(1) and explicitly sought explanation for AIR-reported deposits. The assessee had given specific explanations (for example, contesting the AIR figure and explaining withdrawals and redeposits, funds from an AOP, and sales) and produced supporting bank statements and ledger accounts. The AO tested and considered those materials and accepted the assessee’s explanation regarding bank deposits in his assessment order.
The Tribunal found that the ld. Commissioner, in passing the revision under section 263, did not take the assessee's explanations and documentary responses properly into account. When the assessee filed a rectification application under section 154 (pursuant to directions by the Tribunal), the Commissioner forwarded that application to the AO instead of considering and deciding it himself, which the Tribunal observed was improper: a rectification application should be considered and disposed of by the same authority who passed the order being rectified. Forwarding the section 154 application to the AO amounted to non-application of mind and an improper delegation of the Commissioner’s function.
On specific points the Tribunal analysed as follows (based on the record and the submissions it accepted):
- Bank deposits: The AO had made detailed enquiries and accepted the assessee’s explanation and supporting documents; therefore the AO’s assessment could not be treated as erroneous and prejudicial merely because the Commissioner preferred a different view.
- Turnover estimation and extra-profit addition: The extra-profit addition was examined and deleted by the Commissioner (Appeals) before the Commissioner issued the section 263 notice; the Tribunal applied the doctrine of merger (and cited relevant authority) to conclude the Commissioner could not re-open an issue already decided in appeal.
- Compulsory audit (section 44AB): The Tribunal accepted the assessee's submission that audit provisions turn on turnover/gross receipts and not bank deposits; the Commissioner erred in treating total bank deposits as turnover for section 44AB purposes.
- Annual license fee and Chapter VI-A deduction: These points were not raised in the Commissioner’s section 263 notice; the Tribunal held the Commissioner had no jurisdiction to pass adverse orders on issues not raised in the notice and cited supporting precedent.
The Tribunal concluded that the Commissioner had not applied his mind properly to the assessee’s replies either under the section 263 proceedings or in disposing of the section 154 rectification application. Because the AO had examined the matter and taken one of the possible views, the Commissioner could not substitute his view under section 263. The cumulative effect of these defects led the Tribunal to find the revision order invalid.
Holding and Implications
Core Ruling: The appeal is allowed. The Tribunal set aside and quashed the impugned order passed by the Commissioner under section 263 of the Income-tax Act and restored the assessment order passed by the Assessing Officer under section 143(3) dated 24.12.2011.
Implications:
- Direct effect: The Commissioner’s revision order under section 263 is quashed and the AO’s assessment order under section 143(3) stands restored for the assessment year 2009-10. The assessee’s appeal is allowed.
- On procedure and jurisdiction: The decision reinforces that a Commissioner exercising revisional jurisdiction must consider the assessee's explanations, cannot re-open issues already decided in appeal (doctrine of merger), cannot treat bank deposits as turnover for section 44AB without proper basis, and must decide rectification applications under section 154 himself rather than forwarding them to the AO.
- Precedential effect: The Tribunal’s order is based on application of established authorities; the opinion does not purport to create a new principle of law beyond the application of cited precedents to the facts of this case.
This summary is strictly based on the content of the provided opinion and does not add, infer, or interpret facts beyond those expressly recorded in the opinion.
ORDER
Bhavnesh Saini, Judicial Member - This appeal by the assessee is directed against the order of ld. CIT, Varanasi dated 13.08.2012 u/s. 263 of the IT Act for the assessment year 2009-10.
2. The facts of the case are that the assessee filed return of income at Rs.2,91,340/- and assessment u/s. 143(3) was completed by the Assessing Officer on total income of Rs.3,24,250/- vide assessment order dated 24.12.2011. The Assessing Officer submitted the proposal u/s. 263 of the IT Act to the Commissioner being the assessment order erroneous and prejudicial to the interest of the Revenue. The ld.CIT on perusal of the assessment record found the assessment order to be erroneous and prejudicial to the interest of Revenue and issued show cause notice u/s. 263 dated 14.06.2012 seeking explanation of the assessee. The assessee appeared before the ld. CIT through his counsel and filed the required details and written submissions. The ld.CIT considering several issues found the order of the Assessing Officer to be erroneous and prejudicial to the interest of Revenue and set aside the same to the file of the Assessing Officer with the direction to pass the assessment order afresh de novo on various issues discussed by him the impugned order. The issues considered by the ld. CIT(A) are briefly as under :
3. The ld. Counsel for the assessee challenged the impugned order on several grounds and initially at the time of hearing of the present appeal, the ld. Counsel for the assessee brought to our notice that there were certain inconsistencies and mistakes in the impugned order u/s. 263 of the IT Act and the assessee has preferred the rectification application u/s. 154 of the IT Act before the ld. CIT, Varanasi and his rectification application has not been decided by the ld. CIT. Considering the above submission, it was found proper to direct the ld. Commissioner to decide the application of the assessee u/s. 154 of the IT Act. The ld. Counsel for the assessee now intimated that the ld. Commissioner took up the application of the assessee u/s. 154 of the IT Act as per directions of the Tribunal and the assessee was given opportunity, in which also, the assessee explained each and every issue on which the assessment order was set aside, but the ld. Commissioner did not apply mind to the submissions of the assessee and rejected/disposed of the application u/s. 154 of the IT Act vide order dated 27.12.2012, copy of which is filed at page 185 of the paper book. He has submitted that on all the issues, the assessee again explained the issues before the Commissioner, but instead of deciding the objections of the assessee and considering the mistakes in the impugned order, the ld. CIT held that since the issues are already pending for verification before the Assessing Officer, therefore, application of the assessee was forwarded to the Assessing Officer separately so that the discrepancies pointed out by the ld. Counsel for the assessee could be verified in the assessment proceedings. The ld. Counsel for the assessee, therefore, submitted that merely forwarding the rectification application of the assessee u/s. 154 of the Act filed against the impugned order to the file of the Assessing Officer is nothing, but non-application of mind to the facts of the case and there is no provision in law to forward the rectification application against the order u/s. 263 of the IT Act. He has submitted that the ld. Commissioner did not examine any of the issue correctly and on distorted and wrong figures he has passed the impugned order u/s. 263 of the IT Act. Therefore, the same is liable to be set aside. The ld. Counsel for the assessee referred to PB-181 to 183 and the supporting documents on each and every issues which were submitted before the ld. CIT in the proceedings u/s. 154 of the IT Act and submitted that all the issues were again explained, but the same have not been appreciated and considered by the ld. Commissioner. The ld. Counsel for the assessee elaborating each and every issue on which 263 order has been passed, has filed a detailed written submission supported by all the documents on record. The gist of his submissions on all the issues is as under :
4. On the other hand, the ld. DR relied upon the order of the ld. CIT and submitted that no proper enquiry has been done in the matter. Therefore, the ld. CIT was justified in revising the assessment order.
5. We have considered the rival submissions, impugned orders and considered the material available on record.
6. The Assessing Officer, in the assessment order specifically mentioned that the assessee's representative appeared from time to time, filed details replies and produced relevant material /documents before him, which have been test-checked. The Assessing Officer issued detailed questionnaire to the assessee way back from 01.09.2011 (PB-4) when notice u/s. 142(1) was issued to the assessee for completion of assessment, in which on 9 points, the explanation of the assessee was called for. In the same, the Assessing Officer also mentioned AIR information received regarding deposit of Rs.1,01,35,500/-. The assessee filed reply to the same and statement of assessee on oath was also recorded, in which the assessee has explained that aforesaid figure of Rs.1,01,35,500/- is incorrect in Uttaranchal Gramin Bank, Dehradun because the correct figure was Rs.62,54,500/- (P.B.-98). It was explained that there were withdrawals from the same bank and other amounts were withdrawn from AOP, which were deposited in the bank account of the assessee. The same are supported by the bank statement of assessee and bank statement & ledger account of the AOP. Thus, there was balance of Rs.2,36,500/-, which the assessee claimed to be deposited after making the sales. Regarding other bank accounts with Bank of Baroda and State Bank of India, the assessee filed detailed reply before the Assessing Officer at assessment stage, copies of which are filed in the paper book at pages 119, 120 and 121 and it was also explained that the figure of Rs.17,00,000/- in Bank of Baroda, BHU, Branch was incorrect because correct amount was Rs.9,50,000/-. The Assessing Officer was satisfied with the explanation of the assessee and accepted the claim of assessee regarding deposit in the bank account. The assessee explained same issues before the ld. Commissioner and it was also explained that figure shown in the show cause notice u/s. 263 is incorrect, but the ld. Commissioner did not take notice of the same. When the same facts were explained before the Commissioner u/s. 154 of the IT Act, despite directions by the Tribunal to consider the objections of the assessee, the ld. Commissioner merely reiterated his stand taken in the impugned order and surprisingly also forwarded the rectification application u/s. 154 to the Assessing Officer, where the matter is still pending before him for adjudication, so that the discrepancies pointed out by the assessee could be verified at the assessment proceedings. It is well settled law that rectification application shall have to be considered and disposed of as per law by the same authority who has passed the order, on which rectification application has been filed. The ld. Commissioner was, therefore, having no power to delegate his authority to decide the application u/s. 154 to the Assessing Officer. Since the order u/s. 263 has been passed by the ld. Commissioner, therefore, rectification application u/s. 154 should not have been forwarded to the Assessing Officer for reconsideration. It would, therefore, show that the ld. Commissioner instead of rectifying the mistakes in the impugned order, has confirmed his stand and blatantly did not take into consideration the reply of the assessee in proper perspective and even on wrong figures revised the assessment order. Since the replies of the assessee have not been considered by the ld. CIT under 263 proceedings as well as proceedings u/s. 154 of the IT Act, on this sole reason itself, the impugned order is liable to be set aside. Hon'ble Gauhati High Court in the case of Smt. Lila Choudhury v. CIT [2007] 289 ITR 226/[2008] 167 Taxman 1 held that explanation of the assessee in response to notice u/s. 263 must be considered. The order of Revision without considering the explanation is not valid. Hon'ble Delhi High Court in the case of Cit v. M/S. Vikas Polymers [2012] 341 ITR 537/[2010] 194 Taxman 57 held that explanation of the assessee not considered by the Commissioner - order of Revision not valid. Hon'ble Allahabad High Court in the case of Commissioner Of Income-Tax v. Goyal Private Family Specific Trust. [1988] 171 ITR 698/[1987] 35 Taxman 522 observed that the order of the ITO may be brief and cryptic, but that by itself is not sufficient reason to brand the assessment order as erroneous and prejudicial to the interest of Revenue. Since on the issue of bank deposits, detailed queries have been raised and the assessee furnished all explanations and also explained that the figures taken by the ld. Commissioner are incorrect and the Assessing Officer after detailed enquiry accepted the claim of assessee, which was just and proper in the matter, therefore, the ld. CIT should have examined the same details in proper perspective and should not have directed the Assessing Officer to re-frame the assessment on the same facts afresh by passing the order u/s. 263 of the IT Act. The Assessing Officer examined all the material on the issue. Therefore, there was no justification for the ld. CIT to have set aside the impugned order. Further, with regard to estimate of sales, the matter was examined by the Assessing Officer at assessment stage and rejected the book results of assessee and enhanced the turnover of assessee for the purpose of making addition. The assessee challenged the extra profit addition before the ld. CIT(A), Varanasi, who vide order dated 03.05.2012 deleted the extra profit addition. Therefore, this issue was considered by the ld. CIT(A) prior to issue of show cause notice u/s. 263 of the IT Act. Therefore, on the principle of merger, this issue cannot be taken in the proceedings u/s. 263 of the IT Act. The provisions of section 263(1)(c) clearly prohibits the ld. CIT to adjudicate upon the issue which has already been dealt with in appeal. We are fortified in our view by the judgment of Hon'ble M.P. High court in the case of CIT v. Shalimar Housing & Finance Ltd. [2010] 320 ITR 157 , in which it was held on the issue of doctrine of merger that the Commissioner revising the order of the Assessing Officer - issue taken up by the Commissioner already dealt with by the Commissioner (Appeals)- Commissioner not competent to assume jurisdiction u/s. 263 of the IT Act. This judgment has been confirmed by the Hon'ble Supreme Court. Therefore, the ld. Commissioner was not justified in revising the assessment order on the issue of estimate of turnover. With regard to compulsory audit u/s. 44AB, the ld. Counsel for the assessee rightly contended that under the provisions of section 44AB, the total sales/ turnover or gross receipts shall have to be considered and not the bank deposits. Therefore, on such an issue, the ld. Commissioner was not justified in holding that the accounts of the assessee are required to be audited u/s. 44AB of the IT Act. On the issue of license fee of Rs.17,47,200/-, the assessee has explained that it was a figure of minimum guarantee for lifting of goods for whole year, which is supported by the certificate of Excise Officer (P.B.- 123), against which the assessee made total purchase of Rs.24,73,525/-, which is also shown in the trading account. Therefore, minimum guarantee for lifting of goods should not have been adversely considered by the ld. Commissioner against the assessee and this figure would not come in the profit and loss account and balance sheet of the assessee. Further on this issue no notice u/s. 263 has been issued, therefore, the ld. Commissioner would not have any jurisdiction to pass any adverse order against the assessee on this issue. Similarly for deduction claimed under Chapter VI-A (LIP deduction), the assessee claims that it is covered by drawings. Therefore, there is no question of showing the same on asset side. On this issue also, no notice u/s. 263 has been issued against the assessee. Therefore, no order can be passed adverse against the assessee by the ld. Commissioner. We rely upon the decision of Hon'ble Madras High Court in the case of Commissioner Of Income-Tax v. Smt. R.G Umaranee [2003] 262 ITR 507/127 Taxman 265 , wherein it was held as under :
"Held, (i) that in the absence of any notice by the Commissioner to treat the cost of construction of the building as undisclosed income of the assessee it was not open to the Commissioner to hold that the cost of construction of the building would represent undisclosed income of the assessee and hence the Commissioner was not justified in directing the Income-tax Officer to initiate an enquiry regarding the cost of construction of the building, and after ascertaining the valuation, treat the unexplained investment as the undisclosed income of the assessee."
The Assessing Officer at the assessment stage selected the case for scrutiny on the basis of AIR information and issued several statutory notices against the assessee and also recorded the statement of assessee. The assessee filed several replies before the Assessing Officer as well as details and evidences, copies of which are filed in the paper book would show that the Assessing Officer applied his mind to the facts and circumstances of the case and considered each and every issue and made detailed and proper enquiries and investigations into the matter. Therefore, the same could not be said to be the assessment order passed in hurried manner. The Assessing Officer took one of the views possible in the matter and the ld. Commissioner cannot substitute the view of the AO in the garb of proceedings u/s. 263 of the IT Act. We rely upon the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 . Therefore, the order of the Assessing Officer cannot be said to be erroneous in so far as prejudicial to the interest of Revenue. We may again note here that when all the discrepancies in the impugned order were pointed out in the rectification application u/s. 154 of the IT Act, the ld. Commissioner should have verified all the facts in proper perspective and should not have forwarded the rectification application to the Assessing Officer for verifying the discrepancies pointed out before him by the assessee. In view of the above discussion, we are of the view that the ld. Commissioner was not justified in revising the assessment order in the proceedings u/s. 263 of the IT Act. We accordingly, set aside the order u/s. 263 of the IT Act and quash the same. Resultantly, the assessment order u/s. 143(3) dated 24.12.2011 is restored. As a result, the appeal of the assessee is allowed.
7. In the result, the appeal of the assessee is allowed.
S.K.J
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