M/S A-ONE ENCLAVE,UJJAIN vs. THE PR.CIT, UJJAIN

आदेश / O R D E R

PER KUL BHARAT, J.M: This appeal by the assessee is directed against order of

the Principal Commissioner of Income Tax, Ujjain dated

27.3.2017 in respect of the assessment year 2012-13.

2. Briefly stated facts are that assessment u/s 143(3) of

the Income Tax Act, 1961 (hereinafter called as ‘the Act’)

was completed by the A.O. on 5.3.2015 assessing income

at Rs.39,78,892/-. Subsequently, Ld. Principal CIT

invoked the provisions of section 263 of the Act and issued

a notice to the assessee as to why the assessment framed

should not be revised on the grounds mentioned in the

show cause notice dated 14.3.2017. In response thereto

written submissions dated 24.3.2017 was filed on behalf of

the assessee requesting to drop the proceedings u/s 263 of

the Act. The submission of the assessee was not

acceptable by the Ld. Principal CIT and he proceeded to

revise the assessment order. Ld. Principal CIT considering

facts of the case was of the view that the assessment order

so framed was erroneous in so far it was prejudicial to the

interest of the revenue and therefore assessment order was

set aside. The A.O. was directed to re-examine the issues

in the light of the observations made by the Principal CIT.

Aggrieved by this, the assessee is in the present appeal.

4. On the contrary, Ld. D.R. opposed the submissions

and supported the order of Principal CIT. He submitted

that there is no illegality in the order passed by the Ld.

Principal CIT as the A.O. has not applied his mind on the

facts of the case. He further submitted non conducting of

the enquiry has resulted into the order being erroneous

and prejudicial to the interest of the revenue. He

submitted that at the stage of invocation of the proceedings

u/s 263 of the Act, it is sufficient that on some issues A.O.

did not apply his mind. In the present case, he submitted

that ex-facie, the A.O. has not examined the issues,

therefore, it cannot be stated that the A.O. has applied his

mind and adopted one of the plausible view.

materials available on records and gone through the orders

of the authorities below. It is settled position of law that

powers u/s 263 of the Act can be exercised if twin

conditions are satisfied i.e. any order passed under the Act

by the Assessing Officer is erroneous so far as it is

prejudicial to the interest of the revenue. Now in the

present case, it is to be examined whether these twin

conditions are satisfied?. The basis of revising the order by

the Ld. Principal CIT is that no expenses were allowable on

the surrendered income as such income cannot be

categorised as the business income. Further, the claim

related to set off of depreciation and allowability of

donation was also not examined. On the other hand, as

per assessee, all these issues were examined in regular

assessment proceedings and order is being revised purely

on the basis of change of opinion. It is also the submission

of the assessee that explanation inserted in the section 263

of the Act by the amendment would not be applicable in the

year under consideration as the same would be applicable w.e.f. the assessment year 2017-18. For the sake of clarity,

the relevant contents of the order is reproduced as under:

“2. The assessee is engaged in the business of let out Garden for various programmes, Hotel Running, Restaurant. During the year under consideration a survey u/s 133A was conducted on the business premises of the assessee and during the course of survey it was found that the investment in the construction of Hotel was more than the investment shown in the books of the account of the assessee and the assessee agreed to declare additional income of Rs.1,25,01,135/- in his return for the year under consideration. The same income has been declared in his return in addition to regular income. The income is considered as income under section 69 of the Act. After discussion the following issues have been emerged:-

On the perusal of computation of income, it is found that the assessee firm has claimed deduction for remuneration to the partners amounting to Rs.9,00,000/-. The assessee was asked to explain the justification of claiming such higher remuneration while there is a loss to the assessee. In the reply it is submitted that the assessee has declared the sum of Rs.1,25,01,135/- as such it income is arrived at Rs.43,52,627/- as such the calculation of remuneration to partners is correctly made. I have considered the submission of the assessee and found not acceptable. The assessee during the course of survey has declared investment in the hotel Imperial source of which could not be explained as such the declared income is considered as income under section 69 of the Act.

As such the income from declaration in the investment of Hotel cannot be treated as business income and cannot be included in the income while calculating the remuneration u/s 40(b) of the Act. Reliance is placed on the decision of ITAT Chandigarh in the case of M/s. Makson Distributors, Vs. The DCIT in ITA No.53/Chd/2011 wherein the Tribunal has held as under:

6. From the above order, it is clear that the assessing

officer is conscious of the fact that the income so

surrendered did not partake character of the business

income. However, he disallowed the claim of partners

remuneration but allowed claim of set off of

loss/expenditure against the income so surrendered.

Further, it is also noted that the assessment order does not

speak of consideration of claim of donation by the

assessing officer. The moot question in the present case is

that whether assessee is entitled for the allowance of

expenses and set off of loss? The assessee has failed to

demonstrate the income so surrendered during the course

of search had any link with the business receipts. In the

absence of such link, the set off of expenditure against

such income would not be allowed. Therefore, the

allowance of such expenditure by the A.O. in the absence

of supporting evidence of business income is patently

erroneous and consequently prejudicial to the interest of

the revenue. We do not see any infirmity into the order of

the Ld. CIT(A). Grounds raised by the assessee are

dismissed.

dismissed.

Order was pronounced in the open court on 05 .12.2018.

Sd/- Sd/- (MANISH BORAD) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIALMEMBER Indore; �दनांक Dated : 05/12/2018 VG/SPS Copy to: Assessee/AO/Pr. CIT/ CIT (A)/ITAT (DR)/Guard file. By order

Assistant Registrar, ITAT, INDORE