C.I.T.II vs. M/S HARI SINGH and ASSOCIATES

Vs Vs DATE OF ORDER : 20th February 2014 HON’BLE MR. JUSTICE DINESH MAHESHWARI HON’BLE MR. JUSTICE P.K. LOHRA Mr. Sunil Bhandari for the appellant. Mr. Dinesh Mehta for the respondent. <><><>

This appeal by the Revenue is directed against the order dated 04.10.2005 passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur [‘the ITAT’] in ITA No.412/JDPR/2005 relating to the assessment year 1996-97. By the order impugned, the ITAT has allowed the appeal filed by the assessee and has set aside the order passed by the Commissioner of Income Tax-II, Jodhpur [‘the Commissioner’] on 24.03.2005 in exercise of his powers under Section 263 of the Income Tax Act, 1961 [‘the Act’]. This appeal has been admitted on the following substantial question of law:- “1. Whether in the facts and circumstances of the case, the ITAT was legally justified in setting aside the order passed by the Commissioner of Income Tax II, Jodhpur under Section 263 of the Act treating the said order as invalid and without juri iction?” The sum and substance of the case, so far relevant for the appeal, is that the assessee, an Association of Persons (‘AOP’) income for the assessment year 1996-97 declaring net loss of Rs. 64,298/- but ultimately, the income of the assessee was assessed at Rs. 42,78,794/- under Section 143(3)/148 by the order dated 31.03.2014. Against the assessment order dated 31.03.2004, the assessee preferred an appeal which was pending before the Commissioner of Income Tax Appeals-II, Jodhpur [‘CIT(A)’]. However, during the pendency of this appeal, the Commissioner of Income Tax-II, Jodhpur proceeded to issue a show cause notice under Section 263 on 01.03.2005 and ultimately, set aside the assessment order, treating the same as erroneous and prejudicial to the interest of Revenue. The only ground on which the learned Commissioner set aside the order of the Assessing Officer was that the addition of Rs. 38,17,000/- ought to have been towards undisclosed income of AOP instead of being taxed under the head ‘income from business’. The related parts of the order impugned read as under: “I have carefully considered the submissions and it is clear from the assessment order that the Assessing Officer was in dilemma and he has mentioned two contradictory things in different paras of the assessment order. The Assessing Officer had the suspicion and he had stated that it might be possible that M/s Hari Singh & Associates have used their undisclosed income and invested in the purchase of land. He further stated, “ I am of the view the ld. Assessing Officer should have made the addition of Rs. 38,17,000/- considering the same as undisclosed income of the AOP instead of treating the same as business income of the assessee and to this extent the order passed by the Assessing Officer is erroneous and requires to be set aside u/s 263 of the IT Act.” ………………….. “The order of the Assessing Officer is the interest of Revenue.” In appeal, the ITAT found such an approach of the Commissioner erroneous and wholly without juri iction. The ITAT also observed that when the matter was pending in appeal, passing of the revisional order under Section 263 of the Act was unjustified. The ITAT found that so far the amount of Rs. 38,17,000/- was concerned, it could have been treated by the Assessing Officer as income from other sources or income from undisclosed sources; and the Assessing Officer opted for one of the legally permissible option available before him. The ITAT, inter alia, observed as under:- “9. In the given case the ld. Assessing Officer has discussed both the options available before him, as discussed in the impugned order itself. The ld. Assessing Officer opted for one course of action out of two legally possible options before him. So the order cannot be said to be erroneous. It may be prejudicial to the interest of the revenue. Therefore, one conditions of the two sine qua non is missing, and which ousts the juri iction of the ld. CIT. The ld. CIT cannot substitute his own option u/s 263 of the Act. The above decision of the Hon'ble Apex Court further held that when an Income-tax Officer has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the ld. CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law. In this case the AOP received as signing (advance) money of Rs. 38,17,000/- for the sale of agricultural land and the ld. Assessing Officer considered the same as business income and taxed the same under the head ‘income from business’ that is sale of agricultural land. This view of the ld. Assessing Officer is legally permissible view. Nothing has been argued by the department that it is not a legally permissible act of the ld. Assessing Officer.” In the case of CIT, Bikaner Vs. M/s Ganpat Ram Bishnoi, DB Income Tax Appeal No. 43/1999, reported in 296 ITR 292 (Raj.), this Court has observed, as regards juri iction under Section 263, as under:- “From the record of the proceedings, in the present case, no presumption can be drawn that the Assessing Officer had not applied his mind to the various aspects of the matter. In such circumstances, without even prima facie laying the foundation for holding that assessment order is erroneous and prejudicial to interest in any matter merely on specious ground that the Assessing Officer was required to make an enquiry, cannot be held to satisfy the test of necessary condition existing for invoking juri iction under section 263 of the Income-tax Act. Undoubtedly, the juri iction under section 263 is wide and is meant to ensure that due revenue ought to reach the public treasury and if it does not reach on account of some mistake of law or fact committed by the Assessing Officer, the Commissioner of Income-tax can cancel that order and require the concerned Assessing Officer to pass a fresh order in accordance with law after holding a detailed enquiry. But when enquiry in fact has been conducted and the Assessing Officer has reached a particular conclusion, though reference to such enquiries has not been made in the order of assessment, but the same is apparent from the record of the proceedings, in the present case, without anything to say how and why the enquiry conducted by the Assessing Officer was not in accordance with law, the invocation of juri iction by the Commissioner of Income-tax was unsustainable. As the exercise of juri iction by the Commissioner of Income-tax is founded on no material, it was liable to be set aside. Juri iction under section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiries ought to have been conducted to find something. The finding of the Tribunal that the Income-tax Officer had passed the assessment order after relevant enquiries and considering the aspects of the matter required by the Commissioner of Income-tax to be considered by him is a finding of fact and on the basis of which, the juri iction assumed by the Commissioner of Income-tax being non-existent must be held to be not sustainable.” In the present case, it is more than apparent that the learned Commissioner has proceeded to invoke his juri iction under Section Vs 263 of the Act only on his own opinion as to how the amount of the income concerned ought to have been treated. We may observe that so far this amount of Rs. 38,17,000/- is concerned, it was not the case that the assessee had not disclosed the same at all. It is different matter that the same was treated by the Assessing Officer to be part of income of business after consideration of the record and with the finding that the same was to be treated as profit from the business of sale of agricultural land. In the given set of facts and circumstances of the case, particularly when the said income has been duly added to the income of the assessee, neither the order of the Assessing Officer on this ground could have been considered as erroneous nor it could have been treated as operating prejudicial to the interest of Revenue. In the aforesaid view of the matter, and when we find that the order passed by the ITAT is in consonance with the law applicable and cannot be said to be legally unjustified, the formulated question in this case is required to be answered in the affirmative i.e., against the Revenue and in favour of the assessee. Before parting, we may take note of the position that assessee concerned had otherwise filed the regular appeal bearing No. 148/2004-05/CIT(A)-II/JDR, which was pending before the Commissioner of Income Tax (Appeals-II), Jodhpur at the relevant time. However, the CIT(A), by the order dated 27.09.2005, chose to close the proceedings in the appeal in view of the fact that the assessment order under appeal had been set aside under Section Vs 263 of the Act by the Commissioner. When the order passed under Section 263 of the Act has been set aside by the ITAT and the order of ITAT stands affirmed by this Court, obviously the said order under Section 263 of the Act, shall have to be treated as non est from its inception. As a necessary consequence, the aforesaid appeal, which was earlier dismissed only because of the order under Section 263 of the Act, shall require consideration on its merits. It is, therefore, made clear that the said appeal by the assessee bearing number 148/2004-05/CIT(A)-II/JDR shall stand revived for consideration in accordance with law.

Subject to the observations foregoing, this appeal stands dismissed.

(P.K.LOHRA),J.

(DINESH MAHESHWARI),J. Sudhir