VIJAY KUNDU,NEW DELHI vs. PR. CIT, DELHI

That by condoning the delay, no loss would cause to the revenue and the assessee will get proper justice while in case of its decline, the assessee will suffer irreparable loss.” For Vijay Kundu Sd/- (Appellant) Individual Submitted:- Verified today the 11th day of FEBRUARY, 2017 3. During the course of hearing, the ld. Counsel for the assessee submitted that the delay took place on account of mistake and wrong 3 Vijay Kundu legal advice by the Counsel Sh. Rakesh Bobal, Advocate. In support of the above, an affidavit of Advocate Sh. Rakesh Bobal was filed which is placed on record. It was stated that the delay took place for a bonafide reason, the same may be condoned. The reliance was placed on the following case laws: � Vijay Vishin Meghani Vs DCIT 398 ITR 250 (Bom.) � Oracle India (P) Ltd. 118 TTJ 812 (Del.) � Perfect Scale Co. (P) Ltd. Vs DCIT (2013) 60 SOT 255 (Mum.) Request has been made to condone the delay.

In his rival submissions, the ld. CIT DR opposed the application for condonation of delay filed by the assessee.

After considering the submissions of both the parties and the material on record. In the present case, the explanation of the assessee for the delay was that the same occurred due to wrong advice of the Advocate Sh. Rakesh Bobal who has also filed an affidavit stating therein as under: “I Rakesh Bobal, S/o Late Shri I. S. Bobal, R/o E-48, Greater Kailash, Part-1, New Delhi, do hereby state on solemn affirmation as under:

In the present case also, the delay occurred due to wrong advice of the ld. Counsel for the assessee and there was no malafide intention in filing the appeal belated. In our opinion, the explanation given by the assessee is plausible, therefore, the delay is condoned and the appeal is admitted.

Following grounds have been raised in this appeal: “1. That under the facts and circumstances, Ld. CIT exceeded his jurisdiction in invoking provisions of Sec. 263 of the I.T. Act as the order of Ld. AO is neither erroneous nor prejudicial to the interest of revenue apart from that there exist no such circumstance which may justify invoking of Sec. 263 of I.T. Act.

The main grievance of the assessee in this appeal relates to the action of the ld. CIT u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the Act) considering the assessment order passed by the AO u/s 143(3) of the Act as erroneous and prejudicial to the interest of the revenue.

Facts of the case in brief are that the assessee filed the return of income electronically declaring an income of Rs.6,04,363/- on 25.09.2011 which was processed u/s 143(1) of the Act. Later on, the case was selected for scrutiny. The AO noticed that as per AIR information, the assessee had made cash deposits/transactions of Rs.46,10,000/- with Bank of Baroda and Oriental Bank of Commerce. The AO observed that the assessee vide letter dated 07.03.2014 submitted that total cash deposits of Rs.65,00,000/- were made in the banks on various dates and that there were some other cash business and the total cash receipts of business came to Rs.1,08,65,550/-. The assessee revised the computation of income and declared net profit @ 8% on the total receipts of Rs.1,08,65,550/-. However, the AO estimated the income of the assessee by applying net profit rate of 10% and made the addition of Rs.10,86,555/-.

The ld. Pr. CIT observed that the assessee had shown computation of income filed alongwith the return of income, only the income from salary and income from other sources and that as per the resolution Dissolution Deed of M/s Kundu Construction Co. dated 31.03.2010. The assessee was working as a partner of the said firm which was taken over by KCC Buildcon Pvt. Ltd. having its Registered Office at Outer Ring Road, Pitampura, Delhi and the assessee became the Director of the said company w.e.f. 01.04.2010. The ld. Pr. CIT observed that the following facts emerged from the order of the AO: “3.2.1 The AO did not record the statement on oath of the assessee to reach to the conclusion that the assessee has submitted factually correct details regarding his business and other activities or simply cooked up story to explain the huge cash deposits in the respective three savings bank accounts, as referred to above. 3.2.2 The AO did not collect documentary evidence regarding the business of the assessee from other departments such as VAT/Sales Tax/Commercial Tax etc. and the facts as to whether the assessee was registered there and had shown receipts in its VAT/Sales Tax/ Commercial Tax returns and assessments thereof by the respective departments.”

Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the issue was decided by the AO while framing the assessment u/s 143(3) of the Act and the addition was made by rejecting the books of accounts. It was further submitted that the cash deposits of Rs. 65,00,000/- in the bank accounts were examined by the AO thread where in assessment order passed u/s 143(3) of the Act. It was further stated that the AO during the course of assessment 10 Vijay Kundu proceedings noted that as per AIR information Rs. 46,10,000/- were deposited in cash. However, the assessee explained to the AO that the deposit was of Rs.65,00,000/- and not of Rs.46,10,000/- . The AO vide questionnaire dated 06.02.2014 required the assessee to explain the deposit of Rs.1,08,65,550/- which also included Rs.65,00,000/- and the assessee explained the source of Rs.1,08,65,550/- (including Rs.65,00,000/-) as business receipts from purchase and sale of building material vide his letters dated 07.03.2014 and 14.03.2014, a reference was made to paras 2 to 4 of the assessment order. It was further stated that the assessee also produced the cash memos and sale bills etc. for carrying out the said business, which the AO examined and found to be correct. It was further stated that since the activity was not disclosed in the original return, the assessee filed the revised computation and declared the business income @ 8% from receipts of Rs.1,08,65,550/-. However, the AO estimated the business profit @ 10% of the receipts of Rs.1,08,65,550/- which included cash deposits of Rs.65,00,000/-. Therefore, the issue was thoroughly examined during the assessment proceedings and the addition was also made. It was contended that the AO had a right conscious decision by analyzing the nature of receipts of Rs.65,00,000/- and also made the addition by considering the said deposits as a part of the assessee’s turnover and the assessment order was passed after making proper enquiries and verification. However, the ld. CIT invoked the provisions of Section 263 of the Act and felt that more enquiries should have been done by the AO. It was stated that the provisions of Section 263 of the Act cannot be invoked if the AO had taken one of the possible views after applying his mind on the issue under consideration and there is no material in possession of ld. CIT to justify his findings that the decision taken by the AO was not legally or factually sustainable. It was contended that the directions of the ld. CIT were self contradictory which is clear from para 3.1 wherein he has held as under:

It was submitted that on the one hand, the ld. CIT directed the AO to make the addition and on the other hand, he directed him to decide the issue afresh on the basis of correct factual and legal position. It was accordingly submitted that the assessment order passed by the AO was neither erroneous nor prejudicial to the interest of the revenue. The reliance was placed on the following case laws: � DCIT Vs Jyoti Foundation 357 ITR 388 (Del.) � Jagjit Industries Ltd. Vs ACIT 60 ITD 295 (Del.) � Y. V. Ramana Vs CIT (2017) 183 TTJ (Vishaka) 337 � CIT Vs Hindustan Marketing and Advertising Co. Ltd. 341 ITR 180 (Del.) � CIT Vs Sunbeam Auto Ltd. 332 ITR 167 (Del.) � CIT Vs Anil Kumar Sharma 38 DTR 305 (Del.) � Malabar Industrial Co. Ltd. 243 ITR 83 (SC) � CIT Vs Kelvinator of India Ltd. 332 ITR 332 (Del.) � DIT Vs Jyoti Foundation 357 ITR 388 (Del.) � CIT Vs Gabrial India Ltd. 203 ITR 108 (Bom.) 18. In his rival submissions, the ld. CIT DR strongly supported the order of the ld. CIT and submitted that the AO had not made proper enquiries relating to the deposit of Rs.65,00,000/- in the bank account and earlier the assessee had shown the income from salary and other sources but no business income was shown. Therefore, the assessment order passed by the AO without making the proper enquiries and verification was erroneous and prejudicial to the interest of the revenue. As such, the ld. CIT was fully justified in directing the AO to pass a fresh 12 Vijay Kundu assessment order by making the proper enquiries. The reliance was placed on the following case laws: � Mewat Grit Udyog Vs PCIT [2017-TOIL-607-ITAT-Del] � M/s Kolte Patil Developers Ltd. Vs DCIT [2016-TIOL-3158-HC- MUM-IT] � Shri Subodh Parkash Vs JCIT [2017-TOIL-2249-HC-P&H-IT] � Nandkishor Education Society Vs CIT [2017-TOIL-451-ITAT-Pune] 19. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that the ld. CIT considered the order passed by the AO as erroneous and prejudicial to the interest of the revenue for the reasons that the AO has not enquired and verified properly a sum of Rs.65,00,000/- which was deposited in the bank account. He directed the AO to make the addition of the said amount. On the contrary, it is noticed that the AO during the course of assessment proceedings asked the assessee to furnish the details relating to the source of deposit of Rs.46,10,000/- for which he got the AIR information. In response, the assessee vide letter dated 07.03.2014 submitted that total cash deposits of Rs.65,00,000/- were made in the bank on the various dates. It was also stated that there were some other cash business and total cash deposits from the business was at Rs.1,08,65,550/-. The assessee also offered net profit @ 8% on the said deposits/receipts. The AO after considering the submissions of the assessee made the addition of Rs.10,86,550/- by observing as under: I have considered the assessee’s explanation as well as the documents furnished therewith. The assessee has stated that he was engaged in the same business as partner of M/s Kundu Construction Co. which was dissolved on 01.04,2010. it has also been stated that the trucks of the farm some of which had become more than 15 years old were not allowed to travel out of Haryana. Evidence in the form of insurance and registration paper of the vehicle were also submitted. A perusal of last balance sheet of M/s Kundu Construction Co. i.e. as on 31.03.2010 and the dissolution deed of the firm also supports the 13 Vijay Kundu version of the assessee. The assessee has also furnished bill in support of purchase and supply of building material in the form of Rodi, stone etc. cash memos /bills of sale etc as evidence of carrying out such business. Upon examination of the above evidence, it is held that the assessee had been carrying on business of supplying construction material. However, the rate of profit offered by the assessee @ 8% applicable to contractual income u/s 44AD of I.T. Act. Cannot be accepted as it applies to business profit earned on turnover less than the limit of Rs.60,00,000/- for the year under consideration. In the instant case the assessee had admitted to a turnover of Rs.1,08,65,550/- and in the absence of any books or records of expenses, having regard to the nature of business receipts, profit of the assessee are estimated @ 10% of gross receipts i.e. Rs.10,86,555/. Since the assessee has concealed the particulars of his income and furnished in accurate particulars of his income, penalty proceedings u/s 271(1)(c) of I.T. Act. shall be initiated separately.”

From the aforesaid observations of the AO, it cannot be said that he did not make the proper enquiries or had not applied his mind while framing the assessment u/s 143(3) of the Act. In our opinion, the AO has taken one of the possible view after making the proper enquiries and the ld. CIT in his order passed u/s 263 of the Act directed the AO to make more enquiries.

On a similar issue, the Hon’ble Delhi High Court in the case of CIT Vs Kelvinator of India Ltd. (2011) 332 ITR 231 (supra) held as under: “that if the Assessing Officer had adopted one of the courses permissible in law, which resulted in loss of revenue or where two views were possible the Assessing Officer had taken one view with which the Commissioner did not agree, it could not be treated as an erroneous order prejudicial to the interest of the Revenue unless the view taken by the Assessing Officer was unsustainable in law. The view which was prevalent at the appropriate point in time was that the income of the assessee, shown in its balance-sheet under the head "Other income" had not to be excluded for purposes of determining the permissible deduction under section 32AB of the Act. The notice was issued by the Commissioner under section 263 of the Act at a time when the legal position admittedly enured for the benefit of the 14 Vijay Kundu assessee. Therefore, on the date the Commissioner issued the show notice, the legal position which obtained supported the view taken by the Commissioner (Appeals). Therefore the issuance of show-cause notice to the assessee was uncalled for.”

On a similar issue, the Hon’ble Apex Court in the case of Malabar Industries Co. Ltd. Vs CIT 243 ITR 83 held as under: “A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but us prejudicial to the Revenue-recourse cannot be had to section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law wilt satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase “prejudicial to the interests of the Revenue" is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income- tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly k prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer 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 Commissioner does not agree, it cannot be 15 Vijay Kundu treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.”

In the present case also, the AO after making proper enquiries and applying his mind has taken one of the possible view while framing the assessment u/s 143(3) of the Act. Therefore, the assessment order passed by the AO cannot be considered as erroneous or prejudicial to the interest of the revenue. In the present case, the ld. CIT directed the AO to make further enquiries, therefore, the assessment order passed by the AO after proper enquiries /investigation on the question/issue under consideration cannot be treated as erroneous and prejudicial to the interest of the revenue for the reason that the revisionary authority only opined that the further inquiry/investigation were required.

On a similar issue, the Hon’ble Delhi High Court in the case of CIT Vs Hindustan Marketing and Advertising Co. Ltd. 341 ITR 180 (supra) held as under: “When it has come on record that the Income-tax Officer had made reasonably detailed enquiries, collected relevant material and discussed various facets of the case with the assessee, the order of the Commissioner to direct fresh assessment by going deeper into the matter would not form a valid or legal basis to exercise jurisdiction under section 263 of the Income-tax Act, 1961.” It has further been held as under: “that the view of the Commissioner regarding agreements entered into between the wholesale dealers and the assessee was based on the surmise that the Income-tax Officer did not look into them and did not call for the names of the parties. Records revealed that the assessee's books of account, including the general ledgers were seized and complete details of parties, their addresses and the amounts received were recorded in this general ledger on the basis of which the Income- tax Officer had made further enquiries. It was not clear what kind of further enquiry the Commissioner wanted the Assessing Officer to make, keeping in view the nature of the assessee's business, especially when no error was pointed out in the assessment orders and it was 16 Vijay Kundu also not pointed out as to how these assessment orders had caused prejudice to the Revenue. The Tribunal was right in law in cancelling the order passed by the Commissioner under section 263.”

In the present case also, the ld. CIT revised the assessment order on the ground that the enquiry should have been more detailed. Therefore, the ld. CIT was not justified in exercising his revisionary power when the AO passed the assessment order after proper enquiry and the assessee explained in detail. We, therefore, considering the totality of the facts are of the view that the assessment order passed by the AO was neither erroneous nor prejudicial to the interest of the revenue and the ld. CIT was not justified in exercising his power u/s 263 of the Act. Accordingly, the impugned order passed by the ld. CIT is set aside and the assessment order passed by the AO is restored.

In the result, the appeal of the assessee is allowed. (Order Pronounced in the Court on 12/07/2018)