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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S. PANNU & SHRI RAM LAL NEGI
The captioned appeal by the assessee is directed against the order passed by the Commissioner of Income Tax-26, Mumbai (in short ‘the Commissioner’) u/s 263 of the Income Tax Act, 1961 (in short ‘the Act’) dated 29.03.2014 pertaining to Assessment Year 2009-10 whereby the assessment order passed by the Assessing Officer u/s 143(3) of the Act dated 08.06.2011 has been held to be erroneous insofar as it is prejudicial to the interests of the Revenue within the meaning of Sec. 263 of the Act.
In this appeal, assessee has raised the following Grounds of appeal :-
“On the facts and circumstances of the case, and in law, the Learned Commissioner of Income Tax 26, Mumbai, erred in passing his order under section 263 dated 29.3.2014 setting aside the assessment order holding that the assessment framed by the Assessing Officer ("AO") was erroneous and prejudicial to the interests of revenue, was made without making necessary inquiries, and in directing the AO to quantify the amount of undisclosed cash deposited by the assessee in his bank accounts by examining the assessee in respect of all the bank transactions, i. Ignoring that the learned AO had made full enquiries by issuing notice u/s 142(1) and calling for details and copies of all bank statements, full details of investments with source of these investments, details of income from other sources, copies of balance sheet and statement of affairs and, most important, details of investments made as per AIR details that were enclosed with the notice issued u/s 142(1), ii. Ignoring that the above-stated issues were discussed by the learned AO with the assessee over at least three hearings, iii. By simply ordering fresh investigation without indicating how the assessment order was erroneous, i.e. contrary to law, and prejudicial to the interests of revenue, iv. By simply remanding the matter to the learned AO without giving any finding on merits, v. By his complete failure to understand the bank statements and arriving thereby at a completely erroneous conclusion that the assessee did not have cash in hand as on 31.3.2008 to account for the deposit of Rs. 30,70,000/- in HDFC Bank during the year, vi. By generalizing at para 23 of his order that "only one bank account has been analyzed here but the cash summary prepared by the assessee in almost all the bank accounts have similar manipulation/omissions", without even attempting to point out what these manipulations/omissions are.”
In brief, the relevant facts are that for Assessment Year 2009-10, assessee filed a return of income on 27.07.2009 declaring a total income of Rs.5,04,98,760/-, which was subject to a scrutiny assessment u/s 143(3) of the Act vide order dated 08.06.2011. In the return of income, assessee had declared income from salaries and income from other sources. While completing the assessment, the Assessing Officer made two-fold additions; firstly, on account of the rateable value of the property for which no income had been declared by the assessee; and, secondly, deduction u/s 80G of the Act was restricted to Rs.26,64,938/- instead of Rs.28,00,000/- claimed by the assessee. In this manner, the total income was assessed at Rs.5,06,96,820/- as against the returned income of Rs.5,04,98,760/-.
Subsequently, the Commissioner has invoked his revisionary jurisdiction u/s 263 of the Act and set-aside the assessment order dated 08.06.2011 (supra) and directed the Assessing Officer to make an assessment afresh after allowing proper opportunity of hearing to the assessee. This action of the Commissioner is sought to be assailed by the assessee before us on the basis of the aforestated Grounds of appeal.
5. Before we proceed to address the issues raised by the appellant- assessee, a brief description of the manner in which the assessment order dated 08.06.2011 (supra) has been held to be erroneous insofar as it is prejudicial to the interests of the Revenue within the meaning of Sec. 263 of the Act by the Commissioner is summarised as follows. As per the discussion in the order of the Commissioner, it transpires that a report dated 03.01.2013 was received by the Commissioner from ACIT-26(1) through Addl. CIT-26(1), Mumbai with the recommendation that remedial action u/s 263 of the Act be initiated in this case. It is further noted by the Commissioner that the said report mentioned that the then Assessing Officer passing the assessment order, i.e., DCIT-26(1), did not make any enquiry about the AIR information received regarding cash deposits amounting to Rs.30,70,000/- made in the bank account of the assessee during the previous year relevant to the assessment year under consideration while concluding the assessment u/s 143(3) dated 08.06.2011 (supra). The Commissioner thereafter issued a show cause notice u/s 263 of the Act dated 14.02.2013. While initiating the show cause notice u/s 263 of the Act, the Commissioner observed that in the assessment proceedings, the Assessing Officer had accepted the submissions and explanations furnished by the assessee regarding the cash deposits of Rs.30,70,000/- without making “necessary inquiries” as were called for in the facts and circumstances of the case. Notably, the Commissioner noted that the explanation of the assessee was that the deposits of Rs.30,70,000/- made in the bank account maintained with the HDFC Bank had come out of the cash in hand available of Rs.37,50,000/- as on 01.04.2008. The point made by the Commissioner was that the Assessing Officer did not make any effort to go into the “veracity of the claim put forward by the assessee”, and the same has been accepted by the Assessing Officer. The Commissioner further noted that the claim of the assessee was based on the Balance-sheets and cash summary statements for the year ended 31.03.2006, 31.03.2007, 31.03.2008 and 31.03.2009 prepared by the assessee and that such statements were accepted by the Assessing Officer without examining their correctness since they were not on the record of the Department before the assessment proceedings were carried out by the Assessing Officer. On these lines, the Commissioner show-caused the assessee as to why the assessment order dated 08.06.2011 (supra) may not be considered as erroneous and prejudicial to the interests of the Revenue within the meaning of Sec. 263 of the Act. In the show-cause notice, operative part of which has been reproduced by the Commissioner in the order itself, the case made out by the Commissioner is that the purpose of making cash withdrawals and keeping the cash in hand and then re-depositing the same in the bank accounts for the year under consideration was not properly examined by the Assessing Officer.
6. In reply, assessee resisted the action of the Commissioner and reiterated that the entire explanation and material submitted by the assessee was properly considered by the Assessing Officer and the order passed u/s 143(3) of the Act on 08.06.2011 (supra) could not be considered as erroneous and prejudicial to the interests of the Revenue. The assessee also reiterated his explanation that over the years he had withdrawn substantial funds in cash and kept them ready for use for the treatment of his old parents and that after his father expired on 18.06.2008, such necessity reduced and, therefore, part of the amount was re-deposited in the bank account during the year under consideration. In order to justify the cash in hand position as on 31.03.2006, 31.03.2007 and 31.03.2008, assessee also pointed out that he had filed Wealth Tax returns for Assessment Years 2007-08 to 2009-10 wherein the cash in hand at the end of each financial year was duly reflected. The Commissioner examined the cash statements prepared by the assessee for various preceding years and also examined the various bank statements. The Commissioner notes that his examination of the various bank statements revealed that the cash in hand claimed by the assessee at the end of various assessment years was at variance with the actual cash in hand available with the assessee as per the cash statement/cash flow prepared on the basis of the bank statements of various bank accounts. In the course of proceedings, the Commissioner noted that as against claimed opening cash balance as on 01.04.2008 of Rs.37,54,000/-, the tabulation prepared by him showed only an amount of Rs.9,18,800/-. In response, the assessee pointed out various mistakes, and the Commissioner records in para 19 of his order that after rectification, the available opening cash balance would be to the tune of Rs.14,76,900/-. Accordingly, he inferred that there was a difference of Rs.23,46,948/- which remained unexplained/unaccounted on account of the cash deposited by the assessee in his bank account during the year and this has prevailed with him to set-aside the assessment order dated 08.06.2011 (supra). Another aspect which has been noted by the Commissioner is that the assessee has been depositing cash as and when required inasmuch as the cash has been deposited to facilitate clearance of cheques issued by the assessee. In this context, the Commissioner notes that the reason advanced by the assessee for maintaining cash in hand, i.e. possible use for the illness of his parents, was not justified. With regard to assessee’s claim of having filed the Wealth Tax returns, the Commissioner notes that they were filed on 11.06.2012, which is after the completion of assessment and according to him, this would not justify the availability of opening cash balance of Rs.37,54,000/- as on 01.04.2008. Further, the Commissioner has noted that his examination was confined to one of the bank accounts maintained with HDFC Bank and that if all the bank accounts were to be examined, it would show that the claimed opening cash balance with the assessee was incorrect. In this background, the Commissioner concluded as under :-
“36. In view of the above, therefore, the assessment framed by the A.O has been done by him without making necessary inquiries so much so that he did not even bother to verify the mathematical accuracy of the cash summary/bank statements available to him and accepted the claim of the assessee which, as illustrated herein above was totally false and manipulated by resorting to backward calculations to justify the claim made and leaving certain transactions of cash deposits while including certain transactions of payment by cheques as cash withdrawals. Therefore the order of the A.O is conclusively found to be erroneous as well as prejudicial to the interest of revenue. The assessment order of the A.O is therefore, set aside to made afresh after giving proper opportunity to the assessee.
Before quantifying the amount of undisclosed cash deposited by the assessee in his bank account/accounts the A.O should examine the assessee in respect of all the bank transactions in all the bank accounts particularly the transaction involving cash deposits and bank transfers and necessary enquiries with the banks concerned should be made in order to ascertain the true nature of the transactions.”
Before us, the learned representative for the assessee has assailed the order of the Commissioner on varied points of law and facts. Insofar as the factual aspects are concerned, the learned representative pointed out that the statements prepared by the assessee showing the availability of cash in hand as on 01.04.2008 of Rs.37,54,000/- was comprehensive and correct, based on all the entries in the bank accounts, and for that matter, referred to the Paper Book in this regard. The learned representative pointed out that so far as the statement prepared by the Commissioner is concerned, it contains discrepancies inasmuch as the entire entries of cash deposits and withdrawals from the bank account have not been considered. Pointing out the basic incorrectness in the approach of the Commissioner, the learned representative referred to page 209 of the Paper Book, which is the cash summary from 01.04.2001 to 31.03.2008, and pointed out that opening cash in hand was not considered. On the contrary, the learned representative pointed out that the cash statements submitted by the assessee before the Assessing Officer were from 01.04.2001 to 31.03.2009 and were based on each and every entry appearing in the bank account, whereas the Commissioner had picked-up only few entries from the bank statement and not the entire ones. On this basis, it is sought to be pointed out that the basis formulated by the Commissioner to reject the explanation furnished by the assessee at the stage of assessment, and which has been duly verified and accepted by the Assessing Officer, is not justified. At the time of hearing, our attention has also been invited to the relevant material placed in the Paper Book which, according to the appellant, showed that in the course of assessment proceedings, the Assessing Officer had called for and examined all the bank accounts, full details of investments with the source of investments and, therefore, the deposits of Rs.30,70,000/- made in the HDFC Bank during the year were appropriately explained.
Another aspect which has been agitated by the learned representative is that the Commissioner has sought to justify invoking of Sec. 263 of the Act based on the material which pertains to other years whereas Sec. 263 of the Act requires that the Commissioner is to confine himself to the “record of the proceedings before him”, which does not justify his examination of the record of other assessment years. In this context, the learned representative referred to the material placed at pages 1 to 135 of the Paper Book, which has been considered by the Assessing Officer, such material being the notices issued u/s 142(1) of the Act, replies of the assessee thereto as also the copies of the bank statements of the three banks for the period 01.04.2005 to 31.03.2009, etc.
On the other hand, the ld. DR has supported the order of the Commissioner by placing reliance thereon. The emphasis of the ld. DR is that the discussion by the Commissioner brings out that the assessment order was passed by the Assessing Officer without appropriate application of mind. According to him, the order of the Commissioner setting-aside the assessment is quite proper inasmuch as the claim of availability of cash in hand was not properly verified by the Assessing Officer, which led to unjustified acceptance of the source of cash deposits in the bank account. According to the ld. DR, the instant assessment has been justifiably set-aside by the Commissioner and referred to the judgment of the Hon'ble Supreme Court in the case of M/s. The Malabar Industrial Co. vs CIT, 243 ITR 83 (SC) in support of his stand.
We have carefully considered the rival submissions. Sec. 263 of the Act empowers the Commissioner to call for and examine the record of any proceedings under the Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify including, an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. In the instant case, the Commissioner has invoked his revisionary power in the context of assessment order dated 08.06.2011 (supra) and the same has been set-aside with direction to make assessment afresh after giving opportunity to the assessee. Notably, invoking of Sec. 263 of the Act rests on the fulfilment of two conditions prescribed therein, namely, that the order passed by the Assessing Officer is erroneous and that it is prejudicial to the interests of the Revenue. The Hon'ble Supreme Court in the case of M/s. The Malabar Industrial Co. (supra) has categorically laid down that both the conditions have to be cumulatively fulfilled before recourse to Sec. 263 of the Act can be justified. It may be noted that the power to invoke his revisionary jurisdiction qua the assessment order has to be based on the examination of “the record of any proceedings” which are before him. Thus, if the record of proceedings do not contain any material on the basis of which the two conditions prescribed in the section cannot be fulfilled, invoking of Sec. 263 of the Act in such a case would be untenable. In other words, and has been judicially noticed, invoking of Sec. 263 of the Act cannot be with a view to starting any fishing and roving inquiries, especially in matters or orders which otherwise have attained finality. In the instant case, though the Commissioner has made a lengthy order in coming to conclude that the assessment order dated 08.06.2011 (supra) is erroneous insofar as it is prejudicial to the interests of the Revenue, but in sum and substance, the basis of his decision is that the Assessing Officer finalised the assessment “without making necessary inquiries” in the context of the cash summary/bank statements relied upon by the assessee to explain the availability of cash in hand for justifying the cash deposits made in the bank account. At this point, we may to touch upon the meaning of the expression ‘record’ which is contained in Clause (b) of Explanation-1 to Sec. 263(1) of the Act. In terms thereof, the expression ‘record’ is meant to include all records relating to any proceedings under this Act available at the time of examination by the Commissioner. We are referring to this for the reason that an argument has been set-up before us by the appellant that in the course of assessment proceedings, sufficient material and evidence was placed before the Assessing Officer in the context of availability of cash to justify the bank deposits, and in this context, reference was invited to pages 1 to 135 of the Paper Book. On this basis, it is sought to be canvassed that the Commissioner ought to have confined himself to examining only the material on which the assessment was based and not travel to any other material.
In our view, the said argument of the learned representative cannot be accepted in absolute terms because the Commissioner is empowered to examine such record which is available at the time of his examination, and his examination cannot be restricted to only such material which was considered by the Assessing Officer. In this case, the Commissioner has sought to dislodge the explanation of the assessee that adequate cash was available out of past withdrawals. For this, the Commissioner refers to the bank statements obtained by him from the banks. Notably, such statements were not available with him when he initially examined the record of proceedings for initiating the proceedings u/s 263 of the Act. Curiously, the Commissioner in para 2 of his order gives an insight as to how the proceedings u/s 263 of the Act have been initiated. In para 2 of his order, the Commissioner refers to a report from ACIT-26(1), Mumbai dated 03.01.2013 proposing initiation of remedial action u/s 263 of the Act because the deposit of cash “has not been properly investigated”. A copy of such communication of ACIT-26(1), Mumbai has been placed in the Paper Book filed before us. Before we proceed to examine as to whether a report of the Assessing Officer can be a good basis to initiate the proceedings, we may touch upon certain other material which has been placed in the Paper Book and has been referred to at the time of hearing. Our attention was drawn to a communication dated 26.06.2012 of DCIT-26(1), Mumbai addressed to the Commissioner of Income-tax-26, Mumbai on the ‘subject – Review of Shri Adishwar Jain A.Y 2009-10’. In this communication, the then incumbent Assessing Officer refers to the issue relating to cash deposit of Rs.30,70,000/- in the bank account of the assessee during the year. After narrating the reference to the copies of Balance-sheets, copies of bank statements, etc. of various years, in the concluding para, the Assessing Officer avers that “source of deposits of Rs.30,70,000/- are fully verified with documentary evidence during the course of assessment proceedings. It is requested that no remedial action is required in view of the above explanation”. Similarly, the Addl. Commissioner of Income-tax, Range-26 vide his communication dated 05.07.2012 to the Commissioner of Income- tax-26, Mumbai based on the report of the Assessing Officer dated 26.06.2012 opined that assessee’s claim that the cash deposits were out of earlier cash withdrawals can be accepted on the basis of the statements furnished. We are only pointing out the aforesaid to bring out the contrary perceptions by the Assessing Officer (post finalisation of assessment) while communicating with the Commissioner with respect to the issue of cash deposits in the bank account. While the communication dated 03.01.2013 is based on the premise that “no explanation/enquiry had been made by the A.O regarding AIR information that the assessee had cash deposits aggregating to Rs.30,70,000 during the previous year, into his saving bank account”, the earlier communication of the Assessing Officer brings out that the source of deposits were fully verified with documentary evidence during the course of assessment proceedings.
Notably, one report brings out that the source of deposits was verifiable with documentary evidence and the other report purportedly said that no explanation or inquiry was made by the Assessing Officer. In this context, we may mention that the requirement of Sec. 263(1) of the Act clearly shows that it is for the Commissioner and Commissioner alone to call for and examine the record of any proceedings in order to establish that invoking of his revisionary power is justified. We find that in para 3 of his order, what the Commissioner formulates is that “necessary inquiries” as were required in the facts and circumstances of the case were not made by the Assessing Officer. According to him, the Assessing Officer did not make any effort to go into the veracity of the claim put forth by the assessee that most of the cash deposit in his bank account came out of cash available out of past withdrawals. At this stage, it is pertinent to mention that the infirmity found by him, namely, “lack of necessary inquiry” is not based on the examination of record of proceedings before him, but on the basis of the information and inquires which were called for by him after the proceedings u/s 263 of the Act were initiated by him. We may hasten to add here that it is not our case that the Commissioner is without power to make or cause to make such inquiries as he may deem necessary; but such a course is open to him to pass a final order but in order to justify the initiation of Sec. 263 of the Act, the twin conditions have to be established on the basis of his examination of the record of proceedings available at the time of initiation. On this aspect, the learned representative had relied on the ratio of the decision of the Hon'ble Delhi High Court in the case of CIT vs New Delhi Television Ltd., 360 ITR 44 (Delhi) and also the judgment of the Hon'ble Bombay High Court in the case of Commissioner of Income Tax vs Gabriel India Ltd., 203 ITR 108 (Bom.). Notably, in the instant case, the error of ‘lack of necessary inquiry’ made out by the Commissioner is based on the cash summary/statements prepared by him after procuring the copies of the bank statements, etc., a material which was not available on record of the proceedings at the time of initiation of proceedings u/s 263 of the Act. At the relevant time of initiation of Sec. 263 of the Act, what was available on record were the communication of the Assessing Officer dated 03.01.2013 seeking remedial action u/s 263 of the Act and this too was contradictory to the earlier communication of the Assessing Officer dated 26.06.2012, which we have referred in the earlier part of this order. Such examination of the record, in our view, even prima facie, would not establish the fulfilment of the twin conditions contained in Sec. 263(1) of the Act. Therefore, in our view, the initiation of proceedings by the Commissioner u/s 263(1) of the Act is legally infirm and beyond jurisdiction.
At this stage, we may also refer to a plea set-up by the assessee based on the decision of our co-ordinate Bench in the case of Ashok Kumar Shivpuri, dated 07.11.2014. In this case, the Tribunal found that the Commissioner invoked Sec. 263 of the Act based on a proposal received from the Assessing Officer. The Tribunal found it inconsistent with the requirement of Sec. 263(1) of the Act and held that the initiation of proceedings u/s 263 of the Act was bad-in-law. The aforesaid proposition also supports the infirmity in the action of the Commissioner inasmuch as para 2 of the impugned order brings out that the initiation of proceedings u/s 263(1) of the Act is based on the proposal of the Assessing Officer dated 03.01.2013.
The learned representative at the time of hearing has referred to the communications and material which were before the Assessing Officer during the course of assessment proceedings. Factually speaking, it is not a case where no inquiry was made and, in fact, the Commissioner also does not dispute the same as according to him, it is a case of not making necessary inquiries. Certainly, a failure on the part of the Assessing Officer to conduct an inquiry would constitute an error within the meaning of Sec. 263 of the Act, so, however, in a case where an inquiry has been carried out, which may otherwise be viewed as inadequate by the Commissioner, would not ipso facto justify invoking of Sec. 263 of the Act. The Hon'ble Delhi High Court in the case of New Delhi Television Ltd. (supra) by referring to its earlier decision in the case of CIT vs Sunbeam Auto Ltd., 332 ITR 167 (Delhi) noted the distinction between purported ‘no verification’ by the Assessing Officer and ‘incomplete or inadequate verification’. The Hon'ble High Court emphasised the distinction between lack of inquiry and inadequate inquiry. According to it, if there was an inquiry, even inadequate, that would by itself not give an occasion for the Commissioner to invoke Sec. 263 of the Act merely because he has a difference of opinion in the matter. A similar proposition is also found adumbrated in the judgment of the Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra). Insofar as the present case is concerned, in our considered opinion, even the charge of inadequate inquiry by the Commissioner is not based on his examination of the record of proceedings, but on his subjective analysis of the records called for by him subsequent to initiation of the proceedings u/s 263(1) of the Act.
Considering the entirety of circumstances, we find that initiation of proceedings u/s 263 of the Act in the present case is inconsistent with the requirement of Sec. 263(1) of the Act and, therefore, required to be set- aside. We hold so.
Before concluding, we may also refer to the order of Commissioner wherein he has admittedly culled out the cash in hand available with the assessee so as to show that the same is inadequate qua the deposits made in the bank in the instant year. Though the appellant has joined issues with the Commissioner on this aspect on various grounds, but one aspect which clearly emerges is that the Commissioner has not finally concluded on the inadequacy of cash in hand, but has required the Assessing Officer to do so. Be that as it may, these are factual aspects which, in our view, were required to be concluded by the Commissioner one way or the other before he could determine the assessment order as erroneous and unsustainable in law. Thus, on this reason also we find no reason to uphold the initiation of proceedings u/s 263 of the Act in the present case.
In the result, appeal of the assessee is allowed, as above.
Order pronounced in the open court on 12th March, 2018.