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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri J.Sudhakar Reddy & Shri S.S.Godara
Shri Soumitra Choudhury, Advocate अपीलाथ� क� ओर से/By Appellant Shri A.K. Singh, CIT-DR ��यथ� क� ओर से/By Respondent 19-12-2018 सुनवाई क� तार�ख/Date of Hearing 23-01-2019 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER S.S.Godara, Judicial Member:- This assessee’s appeal for assessment year 2010-11 arises against the Commissioner of Income Tax-17, Kolkata’s order dated 31.10.2017 passed in case on Memo No.PCIT-17, U/s 273A/2015-16/3115-3117, involving proceedings 263 of the Income Tax Act, 1961; in short ‘the Act’. Heard both the parties. Case file(s) perused.
We start with the basic relevant facts. This assessee is assessed an individual as proprietress of M/s Panther Security Services. She filed her return on 12.10.2010 stating income of ₹21,19,030/-. The Assessing Officer completed regular assessment on 16.04.2014 assessing her total taxable income as ₹22,43,333/-. The CIT thereafter Assessment Year 2010-11 Smt. Sefali Sarkar Vs Pr. CIT-17 Kol. Page 2 exercised his 263 revisional jurisdiction vide order dated 16.09.2014 by directing the Assessing Officer to frame afresh assessment as follows:- “ I have perused the documents available in the assessment records and the details furnished by the A/R of the assessee. The AR had explained and produced the copies of the expenses that were incurred by an employee of the assessee which amounted to Rs23,323/- on behalf of the assessee for business. However, the AO needs to examine this and also the ledger copy of various bank loan to arrive at a proper conclusion from evidences I, therefore, set aside the assessment with the direction to examine the genuineness of the evidences filed by the AR of the assessee and accordingly complete the am. He may also examine any concomitant that arises in the process and take necessary action.”
The Assessing Officer framed consequential assessment again assessing assessee’s taxable income as ₹22,43,333/- This time the PCIT issued his sec. 263 revision show-cause notice dated 10.08.2017 terming the latte consequential assessment also to be erroneous causing prejudice to interest of the Revenue as under:- “3. On perusal of the assessment record, it is observed from the P&L account that the assessee had claimed various expenses which seems to be excessive as the assessee had shown gross profit of Rs.2,33,00,496/- which was 19.32% of gross receipt of charges. The assessee had shown net profit of Rs.20,17,193/- which is only 1.6% of the total gross receipt after incurring expenses under various heads amounting to Rs.1,13,09,047/-. The assessee submitted monthly break up of expenditure of car insurance of Rs. business promotion expenses of Rs.2,08,034/-, site expenses of Rs.11,12,750/- only. No ledger copy of these expenses as well as the remaining expenses or party-wise details of these expenses were submitted. In the original assessment, the AO has not verified these expenses as per provision of Sec. 37(1) of the I.T. Act, 1961.
It is also found that a sum of R.78,52,021/- debited in the P&L Account under the head “Employee contribution to P.F. & Pension”. It is found that two amounts of Rs.8,00,000/- each totaling Rs.16,00,000/- had paid on 29.09.2010 towards pension fund but there is corresponding payment of employer and employee contribution to P.F.”
4. The assessee filed her reply dated 16.10.2017 contesting the PCIT’s above revision proposal on various legal and factual aspects. The PCIT’s order under challenge on 31.10.2017 has directed the Assessing Officer to frame afresh assessment once more as follows:-
Assessment Year 2010-11 Smt. Sefali Sarkar Vs Pr. CIT-17 Kol. Page 3 “6. I have carefully considered the facts and circumstances of the case. The impugned assessment order u/s. 263/144 dated 30.06.2015 has been passed without making relevant enquiry or verification as was required of the AO. The assessee has raise objections to the proceedings again initiated u/s 263, inter-alia, stating that the present proceedings sought to revise the impugned on different issues not taken during the course of the assessment. And that consequently, the exercise of jurisdiction stood barred as the limitation is to be reckoned from the date of passing of the original assessment order of 16.4.2012. It was also contended that revisionary proceedings did not lie where two views on an issue were possible, while also stressing that all the material facts were placed before the AO who had examined the issues. Various decisions were quoted in support. It is seen from the order u/s 263 dated 16.9.2017, that the then PCIT had categorically observed that the AO had collected various details of expenses but those were not verified. On the issue of loans, the AO did not ask for any details or made any enquiry and evidences w.r.t. contravention of sec.40A(3). Importantly, the then PCIT while setting aside the original assessment order had also directed that he (AO) may also examine any concomitant that arises in the process and take necessary action. (emphasis supplied). Thus, the PCIT had directed the AO to dispose the assessment afresh by examining all issues relevant to ensuring the taxing of the correct total income of the assessee. In other words, the net profit declared by the assessee automatically became subjected to scrutiny for which the associated expenditures having a bearing required to be verified. Net profit declared was Rs.20,17,193/- i.e. only 1.6% of the total gross receipt and expenses claimed under various heads were to the tune of Rs.l,13,09,047/-, as under.- Advertisement expenses 2,34,606/- Business promotion expenses 2,08,034/- Car hire charges 5,48,759/- Car maintenance 25,34,740/- Employer cont. to ESI 17,26,089/- Messing Exp. 14,35,550/- Rent 2,48,000/- Salary & bonus 16,13,172/- Site expenses 11,12,750/- Theft & damages 5,67,000/- Tea & Tiffin 2,03,532/- Telephone charges. 1,08,557/- Travelling & conveyance 7,68,258/- Total 1,13,09,047/- For the above expenses, the assessee as per record, had submitted details of monthly break up of expenditure incurred under the head "car maintenance expenses", "car hire charges", "car insurance", "business promotion expenses", and "site expenses". However no ledger account of these expenses or party-wise details of these expenses were submitted. Only few bills/vouchers of these expenses were collected and put on record. Similarly, the debit in the P&L Account under the head "Employees contribution to PF & Pension" amounting to Rs. 78,52,021/-, also becomes subject to examination as per sec 43B. All these expenses naturally will be required to be verified as to the correctness and genuineness. Thus, I am not able to appreciate the argument of the assessee that different grounds have been taken for the proceedings Assessment Year 2010-11 Smt. Sefali Sarkar Vs Pr. CIT-17 Kol. Page 4 at hand. What is germane to the issue is the 'Expenses' and it encompasses all disbursements which affect the profits. Hence it cannot be said that the grounds taken are dissimilar. Also there is no question of any possibility of two views on the issues at hand. Either the debits are genuine or they are not. Either there is violation of sec 37(1) and sec 43B or not. There is no ambiguity in sec 37 and sec 43B. Thus, there is clear non-application of mind on the part of the AO. He did not examine/verify the expenses as was directed by the then PCIT in her order u/s 263. No enquiry by AO is good enough reason for further revision of the impugned order. Consequently, the limitation will have to be reckoned from the date of passing of the impugned assessment order dated 30.6.2015 and hence the present proceedings are not barred.
Hon'ble Karnataka High Court in the case of Thalibai F Jain Vs. ITO 101 ITR 1.6 (Kam) has held that where no enquiries made by the Assessing Officer on the relevant issue, assessment must be held to be prejudicial to the interest of the revenue and what is prejudicial to the interest of revenue must be held to be erroneous though the converse may not always be true.
Hon'ble Supreme Court in the case of Malabar Industrial Co. Pvt. Ltd. Vs. CIT reported in (2000) 243 ITR 83,87-88 (SC) affirming the Hon'ble Kerala High Court decision (198 ITR 611) has held that the phrase "prejudicial to the interest of the revenue" is of wide import and is not confined to only loss of taxes. If the A.O. has accepted the claim of the assessee without any enquiries then such assessment order passed by the A.O. was held to be erroneous.
In this regard, it is mentioned that mere non-enquiry would also render a particular order passed by lower authority as erroneous and prejudicial to the interests of Revenue. This position has been clearly confirmed by Hon'ble Supreme Court in the case of Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 & Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). The reasoning for this proposition has been explained by Hon'ble Delhi High Court in the case of Gee Vee Enterprise v. AddI.CIT[1975] 99 ITR 375.386 in the following paras:- "It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of civil court. The statements made in the pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which come before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not be made and Assessment Year 2010-11 Smt. Sefali Sarkar Vs Pr. CIT-17 Kol. Page 5 not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. " Thus, the CIT may consider the order of the Assessing Officer to be erroneous not only if it contain some apparent error of reasoning or of law or of fact on the face of it but also because the Assessing Officer has failed to make enquiries which are called for in the circumstances of the case and it is an order which simply accepted what the assessee has stated in his return of income on the said issue. It is not necessary for the CIT to make further enquiries before cancelling the assessment order. The Commissioner can regard the order erroneous on the ground that the Assessing Officer should have made further enquiries.
Further to this, it is noticed that there is no appeal right available to the Revenue from the order of assessment passed by Assessing Officer and i.e. why revisionary powers have been given to the Commissioner and such power were held to be of wide amplitude by the Hon'ble Supreme Court in the case of CIT v. Shree Manjunathesware Packing Products & Camphor Works [1998] 231 ITR 53/96 Taxman. Therefore, normally when Assessing Officer has not made any enquiry on a particular issue, then such order in view of the above detailed discussion has to be construed as erroneous and prejudicial to the interest of Revenue and therefore, the impugned assessment order is erroneous and prejudicial to the interest of Revenue as Assessing Officer has failed to make any enquiry to that effect.
It may be further noticed, that in order to provide clarity on the issue of "Erroneous in so far as it is prejudicial to the interest of the revenue", a new Explanation has been inserted w.e.f 01.06.2015 to clarify that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) The order is passed without making inquiries or verification which, should have been made; (b) The order is passed allowing any relief without inquiring into the claim (c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) The order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
Thus, having regard to the facts and circumstances of the case and in the light of the aforesaid decisions of Hon'ble Supreme Court and Hon'ble High Court and in accordance with the amendment made in Section 263 of the Act with effect from 01.06.2015, I hold that the impugned assessment order dated 30.06.2015 passed by the A.O. u/s.263/144 of the IT Act, 1961 is erroneous in so far as it is prejudicial to the interests of revenue .
Consequently, in exercise of the jurisdiction conferred by section 263 of the Act, the said order of assessment passed u/s.263/144 of the Income Tax Act, 1961 on 30.06.2015 for the A.Y.2013-14 is set aside. The Assessing Officer is directed to pass Assessment Year 2010-11 Smt. Sefali Sarkar Vs Pr. CIT-17 Kol. Page 6 a fresh assessment order and recomputed the assessee's income as per provisions of the Income Tax Act 1961 by taking into account the facts and the legal position discussed above, and after affording a reasonable opportunity of being heard to the assessee.”
We have given our thoughtful consideration to rival pleadings. Case record comprising of both original as well as consequential assessment, both rounds of Sec. 263 proceedings document and assessee’s reply(ies) stands perused. There can hardly be any dispute about the settled legal proposition as per hon'ble apex court’s landmark decision in Malabar Industrial Co. Pvt. Ltd. vs. CIT (2000) 243 ITR 83, 87-88 (SC) that the legislative expression “prejudicial to the interest of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their lordships made it clear that every loss of revenue as a consequence of the Assessing Officer’s order cannot be treated as prejudicial to the interest of revenue; for example, when an Income Tax Officer adopts one of the course permissible in law and it has resulted in loss of revenue and where two views are possible and the Income Tax Officer has taken one of such view with which the Commissioner does not agree it cannot be treated as an erroneous order prejudicial to the interest of revenue unless the Income Tax Officer’s view adopted is unsustainable in law. This legal proposition holds the field now as well as reiterated in various decisions. We keep in mind the same to revert back to the relevant facts in the instant case. The CIT’s former remand direction (supra) as related to an expenditure head of ₹23,32/- and ledger copy of various loans to be re-verified whereas the PCIT second show cause notice in issue raised two more issues of various other heads of expenditure i.e. car maintenance, car insurance, the business promotion, site expenses employee’s contribution to PF and pension etc., His case is that the same had not been examined during original assessment framed on 16.04.2012 which stood revised as per former CIT’s order dated 16.09.2014 (supra). The PCIT clearly sought to exercises his revision jurisdiction on different issues which had nowhere been raised in first round revision order.
Case file suggests that the first round regular assessment had been framed on 16.04.2012 in financial year ending on 31.03.2013 Sec. 263(2) of the Act prescribes limitation in such a case to be “after expiry of two years from the end of the financial Assessment Year 2010-11 Smt. Sefali Sarkar Vs Pr. CIT-17 Kol. Page 7 year in which the order sought to be revised was passed.” The Revenue failed to dispute that the said clause states with a negative covenant. The limitation period of two years as per this statutory provision comes to be 31.03.2015 as outer limit i.e. much earlier than earlier to the PCIT’s second show cause notices on 10.08.2017. The same is held to be hit by statutory period of limitation therefore.
7. Learned CIT-DR vehemently contends at this stage that CIT’s former revision directions (supra) had made it clear to the Assessing Officer. He may also examine any “concomitant that arises in process and take necessary action”. We find no merit in Revenue’s instant argument as well. We notice that Collins English dictionary defines “concomitant” to be an expression used to describe “something that happens of at the same time as another thing and is connected with it”. We do not see such a connection or timely relation amongst the twin reasons each contained in the CIT’s sec. 263 show cause notice on first round remand directions with the ones raised in latter round (supra). Hon'ble Bombay high court’s decision in Abdulgafar A Nadiadwala vs. ACIT (2004) 267 ITR 488/137 Taxman 112 (Bom) holds that it is very much permissible to adopt ordinary discretionary meaning in absence of any statutory guideline as follows:- “With the aforesaid strongly canvassed rival views, one has to find the answer to the question raised under the provisions of the Income-tax Act. The provisions of the said Act do not define the word ‘goods’ or ‘merchandise’. In the absence of any statutory guidelines under the Act, the dictionaries can be consulted to find out the meaning of the particular word of phrase. It is well settled that in the absence of there being anything contrary to the context, the language of a statute should be interpreted according to the plain dictionary meaning of the term used therein. Though the dictionaries are not to be taken as authoritative exponents of the meaning of the statutory language, it is permissible to seek instruction from these books to understand the ordinary sense of the words in an enactment. At this juncture we are reminded of what Samuel Johnson, a great English Poet, critic, essayist and dictionary maker, has stated:- ‘Dictionaries are like watches, the worst is better than none, and the best cannot be expected to go quite true. Every honest lexicogapher agrees knowing that no matter how keenly he strives to make his book ‘go true’ he would inevitably lose the battle with what might be called linguistic indeterminacy. Since indeterminacy will be the prima facie of his professional life, he will often be tempted to deny and resent, like the grammarians of the 17th & 18th centuries, the radical instability of languages.”