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Income Tax Appellate Tribunal, “A”, BENCH KOLKATA
Before: SHRI A.T.VARKEY, JM & DR. A.L. SAINI, AM
IN THE INCOME TAX APPELLATE TRIBUNAL “A”, BENCH KOLKATA BEFORE SHRI A.T.VARKEY, JM & DR. A.L. SAINI, AM ITA No.787/Kol/2018 (A.Y: 2009-10) Vs. Principal Commissioner of M/s Indian Roadways Corporation Ltd. Income Tax, Central-I, IRC House, 1, Sunyat Sen Street, Kolkata, Aayakar Bhawan Kolkata-700012. Poorva, 110, Shantipally, Kolkata-700107. �थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACI 7333 K (अपीलाथ� /Appellant) (��यथ� / Respondent) ..
Appellant by : Shri S.K.Tulsiyan, Advocate Respondent by : Shri P.K.Srihari, CIT(DR) सुनवाई क� तार�ख / Date of Hearing : 17/07/2018 घोषणा क� तार�ख/Date of Pronouncement : 12/09/2018 आदेश / O R D E R Per Dr. Arjun Lal Saini, AM: The captioned appeal filed by the assessee, pertaining to assessment year 2009-10, is directed against the order passed by the ld. Principal Commissioner of Income Tax- Central-I, Kolkata, under section 263 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act ‘) dated 26.03.2018.
By way of this appeal, the assessee has challenged correctness of the order dated 26.03.2018, passed by the learned Pr.CIT, exercising the jurisdiction under section 263 of the Act, in the matter of assessment under section 153A read with section 143(3) of the Income Tax Act 1961. Grievances raised by the assessee, which are interconnected and will be taken up together, are as follows:-
“1. That, on the facts and in the circumstances of the case, the Ld. Principal CIT, Central-l , Kolkata erred in assuming jurisdiction u/s. 263 of the Act in order to impose his own views on the Ld. A.O. when the A.O. had taken a possible view. 2. That, there being no incriminating material discovered pursuant to search in this case and as per proviso 2 to sec.153A the assessment in this case was not pending, the Ld. Pr. CIT erred in alleging that the A.O. failed to carry
2 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 out necessary enquiry and investigation, more so when the impugned assessment pertains to unabated assessment of the assessee. 3. That, the impugned order passed by the A.O. originally being neither erroneous nor prejudicial to the interest of the revenue, the Ld. Pr. CIT wrongly invoked jurisdiction by making allegation which is not supported by any contra evidence or by law. 4. That, the Ld. Pr. CIT erred on facts as also in law in having exercised revisionary power u/s.263 on the issues which were beyond the jurisdiction of A.O. while framing original assessment u/s.153A/143(3), as interpreted by various Courts and hence the order passed u/s. 263 is totally unjustified on facts as also in law and liable to be quashed. 5. That, even on merits of the case, the Ld. Pr. CIT erred in directing the A.O. to determine the amount of disallowances of Rs.58,63,145/- & Rs.1,31 ,233/- u/s.36( 1)(vii) as 'loans & advances written off as per his guidelines/ analysis of the issue in place of 'sundry debtors written off claimed by the assessee in spite of the fact that as per details and ledgers the irrecoverable dues were on account of transportation charges. 6. That, the Ld. Pr. C.LT. has wrongly assumed jurisdiction u/s.263 of the Act for rectifying the A.O.'s inadvertent mistake of not repeating the disallowance of operating expenses of Rs.10 lacs made in 143(3) assessment in the assessment u/s.153A/143(3) inasmuch as such error apparent from record is a subject matter of rectification u/s.154 of the Act. 7. That, therefore, as the assessment order passed by the A.O. u/s.153A/143(3) of the Act is neither erroneous nor prejudicial to the interest of the revenue as there is no loss of revenue, the impugned order u/s.263 of the Act of the Ld. Pr. CIT directing to reframe the assessment as per his guidelines on the same set of facts and evidence on record being devoid of any merit and bad in law is liable to be quashed and the assessee be given such relief(s) as prayed for. 8. That, the assessee craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any, or all of the above grounds.”
The brief facts qua the issue are that the assessee is a company, which incorporated as per the provisions the Companies Act, 1956 and derived income from business in the financial year 2008-09. The assessee company filed its original return of income for the A.Y.2009-10, on 25.09.2009 declaring a total income to the tune of Rs.2,73,217/-. Later on, the assessee company revised its return of income on 10.06.2010, declaring total income of Rs.36,23,652/-.
3 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 Thereafter, an assessment order under section 143(3) had been passed by the assessing officer on dated 27.12.2011 determining total income of assessee company to the tune of Rs.49,59,590/-.
Subsequently, a search and seizure operation under section 132 of the Income Tax Act, 1961 was conducted in the case of the assessee on 13.03.2014, at the residence & office premises of the IRC Group and at the lockers maintained in the name of individual assessees with various banks. The Search operation was also conducted at the office premises of M/s. Indian Roadways Corporation Ltd. at IRC House; 1, Sunyat Sen Street, Kolkata- 700001.
Thereafter, the notice u/s.153A of the Income Tax Act,1961 was issued by the Department on 07.04.2015, asking the assessee to file correct return of its total income in respect of which the assessee was assessable for the assessment year 2009-10. In response to the notice u/s 153A, the assessee filed its return of income for the assessment year 2009-10 on 30.05.2015, declaring a total income to the tune of Rs.36,23,652/-, as shown in the revised return of income filed by the assessee subsequent to original return of income. Assessment under section 153A/143(3) was completed on 31.03.2016 assessing the total income to the tune of Rs.52,63,710/- 6. Subsequently, the Pr. CIT-Central-I, Kolkata exercised his jurisdiction u/s 263 of the Act. The ld. Pr. CIT, on examination of the assessment record, noted that assessee company had debited an amount of Rs.83,14,966/- (Rs.83,76,394 - Rs.61,428) on account of "Sundry Balance Written off” in the Profit & Loss account. This amount had been derived by the assessee company after netting off of "debit balance write off” to the tune of Rs.83,76,394/- and "credit balance write off" of Rs.61,428/-. The details of “debit balance write off” found from the record are as under:-
4 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10
It was noted by the Ld Pr.CIT that debit balance write off, prima facie were written off capital balances, not taken into account in computation of assessee's income in earlier years. As per section 36(vii) read with its Sub- section (2) of the Act, no debt can be written off unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or earlier previous year or representing money lent in ordinary course of business of banking or money lending, which is carried on by the assessee. Considering this provision,
5 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 the following balances written off by assessee in the Profit & Loss account had been examined by the Pr.CIT from the details available in assessment record :-
The ld Pr.CIT noted that from the assessment record it is proved that assessee company is in the business of transportation and hence, assessee company is not in the business of money lending and above mentioned balances are not considered in computation of income of earlier years or this year, therefore, such write off of balances cannot be allowed to the assessee company. Moreover, in the case of following write off, there is no specification apparently available in the assessment record. Sl.No. Nature Amount (in Rs.) 1. Non recoverable parts of sundry balance 4,200 written off (nature not specified) 2. Non recoverable parts of sundry balance 1,27,033.95 written off (nature not clear) Total 1,31,233.95
6 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10
The ld Pr.CIT noted that against the above amount disallowable to assessee company, the AO in the assessment order, had only disallowed Rs.13,68,447/- mentioning them as belonging to fixed assets written off which is included in the total amount of Rs. 72,13,592/- found by him as disallowable. Therefore, additional amount of Rs.58,63,145/- (Rs.72,31,592 - Rs.13,68,447) should also be disallowed as being the balances not used in computation of assessee`s income. Therefore, the income assessed in assessment order passed u/s.153A read with section 143(3) dated 31/03/2016 is short by an amount of Rs.58,63,145/- and hence, the tax to be levied on this sum has escaped, which is to be levied on the assessee. Similarly, due to nature of write off in respect of Rs.1,31,233/- had not been clear, the AO had wrongly allowed deduction for the write off of Rs.1,31,233/- without examining its nature.
The ld Pr.CIT also observed that an amount of Rs.10 lakh being part of operating expenses was disallowed in the preceding assessment order u/s.143(3) dated 27/12/2011 but the same disallowance had not been made in the order passed u/s.153A read with section 143(3) dated 31/03/2016 despite starting the computation from the total income shown in revised original return i.e., Rs.36,23,652/-. Therefore, the income assessed u/s.,153A read with section 143(3) dated 31/03/2016 is short by an amount of Rs.l0 lakh.
In view of the above findings, the ld Pr.CIT noted that the order passed u/s.153A/143(3) for A.Y.2009-10 dated 31.03.2.016 is erroneous as well as prejudicial to the interest of revenue and is required to be revised as per the provision of section 263. In order to correct the above error in the assessment order u/s 153A/143(3) dated 31.03.2016, a notice U/S 263 of the Act dated 13.03.2018 has been issued asking the assessee to explain as to why the above mentioned assessment order should not be revised as per the provision of section 263 of the Act.
7 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 10. In response, the assessee company, during the revision proceedings under section 263 of the Act, submitted that the assessment order proposed to be revised u/s 263, of the Act, had been passed by the AO u/s 153A of the Act, after a search seizure operation conducted in case of the assessee and the provisions of section 153A of the Act is limited to the assessment of income based on the income unearthed during search and cannot include items which are disclosed in the original assessment proceedings. Items of regular assessment under section 143(3), cannot be added back in the proceedings under section 153A, when no incriminating documents were found in respect of the disallowed amounts in the search proceedings. Therefore, the assessee company submitted before the ld Pr.CIT that the assessment order passed by the A.O u/s 153A/143(3) of the Income Tax Act, 1961, is neither erroneous nor prejudicial to the interest of revenue and hence the proceedings under section 263 of the Act should not be initiated.
11 However, totally disregarding the submissions of the assessee, based on the said show cause notice, the Ld. Pr. CIT, passed the order u/s 263 of the Act on 26.03.2018, holding the assessment order u/s 153A/143(3) of the Act dated 31.03.2016 (for unabated assessment year 2009-10) is erroneous and prejudicial to the interests of the revenue and setting aside the same for de novo assessment as per directions/guidelines enumerated in his order. The ld Pr. CIT rejected the contention of the assessee and held that the issue relating to “incriminating material found during search”, is still not settled and pending in the Hon’ble Supreme Court for decision against the decisions of various High Courts, and therefore the issue relating to scope of order to be passed u/s 153A, (whether it should be based only on incriminating material or item shown in return can also be considered), is still not settled due to pendency of SLP with Hon`ble Supreme Court on this matter. Therefore, the legal objection raised by the assessee company against notice u/s 263 was rejected by the Pr.CIT. The ld Pr.CIT also noted
8 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 that even on merits, the assessee failed to explain that in the ledger account filed before him, showing write off of ‘sundry debtors’, narration given is as “being non revocable of various old sundry debtors write off’. No details of such ‘sundry debtors’ had been furnished by the assessee during the proceedings under section 263 of the Act. It is not clear as to these ‘sundry debtors’ are on account of what type of balances and whether these balances were taken into account while computing the income of the assessee during the year or in earlier years or not. Therefore, on the basis of details of “sundry debtors balances write off” furnished before Pr.CIT, it was not possible to decide whether such ‘sundry debtors written off’, can be allowed as per the provision of section 36(1)(vii)(i) read with sub section (2) or not. In view of the above fact and circumstances of the case, the Pr CIT set aside the assessment order passed by the A.O u/s 153A/143(3) dated 31.03.2016 and restored it to the file of assessing officer to examine all the “debit balances write off’ for which narrations are given as “loan and advances written off” as contained in a table given in para No 7 of this order. Out of the entire amount of Rs. 72,31,592/- identified by ld Pr.CIT as “debit balances” being in the nature of “loan and advances written off” and “fixed assets written off”, the assessing officer had already disallowed the debt balances of to the tune of Rs. 13,68,447/- as being fixed assets written off. Therefore, the A.O should examine the nature of balances amount of Rs. 58,63,145/- ( Rs.72,31,592 - Rs.13,68,447) as written off during the year under consideration. For other two balances of Rs.1,31,233/- (Rs.1,27,033 + Rs.4,200), nature of ‘sundry balances written off’, were not specified by the assessee, therefore, these ‘sundry balances written off’ should also be examined. While examining the nature of the “debit balances written off” by the assessee for which narrations are given as “loan and advances
9 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 written off” as mention above, the A.O should determine whether these balances written off are in the nature of balances used in computation of income of the assessee in earlier years or they have arisen out of loan and advances given by the assessee. If these debit balances written off are taken into account in computing the income of the assessee of the current previous year in which the amount of such debt or part thereof is written off or of an earlier previous year this writing off of such balances should be allowed by the AO, otherwise if these ‘debt balances written off’, are found to be on account of loan or advances given by the assessee, write off of such loan and advances should not be allowed as the assessee is not in the business of banking. After examination of all the details pertaining to debt balances written off with narration ‘loan and advances written off’ in the manner as directed by the Pr. CIT, the AO should determine the correct amount of disallowances to be made, keeping in view the provision of section 36(1)(vii) read with sub-section (2) and then, a fresh assessment order shall be passed by making the addition of the amount as determined by the AO on account of disallowance of ‘loan and advances written off’, following by above directions and other additions made in the original assessment order should, remain intact.
The second grievance of the ld Pr.CIT, was that the assessee did not add the amount of Rs.10 lakh in the assessment order passed u/s 153 r.w.s. 143(3) of the Act whereas the said amount was disallowed in the assessment proceedings u/s 143(3) of the Act, dated 27.12.2011. The ld Pr.CIT noted that because of this error or mistake that is, not adding the amount of Rs.10 lakh in the assessment order passed u/s 153 r.w.s. 143(3) of the Act, renders the assessment order passed by the assessing officer as erroneous and prejudicial to the interest of revenue and therefore order passed by the AO u/s 153 r.w.s. 143(3) of the Act, should be revised under
10 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 section 263 of the Act and accordingly he directed the ld assessing officer to add the amount of Rs. 10 lakh in the fresh assessment order being passed by him as per the direction given by him.
Aggrieved by the order passed by the ld Pr. CIT under section 263 of the Act, the assessee is in appeal before this Tribunal.
Learned Senior Counsel, Shri S.K. Tulsiyan, begins by pointing out that the a search & seizure operation u/s 132(1) of the Act was conducted on IRC Group on 13.03.2014 and the assessee company is part of the IRC Group. It is to be noted here that on the date of search, no assessment proceeding was pending before the AO for the relevant A.Y. 2009-10. Pursuant to said search, a notice u/s 153A of the Act was issued on 07.04.2014, against which the assessee-company filed its return of income on 30.05.2015 declaring a total income of Rs. 36,23,652/-. The assessment was completed u/s 153A/143(3) of the Act on 31.03.2016 assessing the total income at Rs. 52,63,710/- by making addition of Rs. 4,483/- u/s 14A of the Act and further addition of Rs. 13,68,447/- u/s 37(1) of the Act and addition of Rs. 2,67,132/- on account of loss on sale of investment. Thereafter show cause notice u/s 263 of the Act dated 09.03.2016, was issued by the Ld. Principal CIT, Central-1, Kolkata, on the following grounds: (1) That the assessee’s claim of debit write off to the tune of Rs. 58,63,145/- is not allowable as the balances were not offered to tax in earlier years. In this regard, the Ld. Principal CIT observed that out of an amount of Rs. 83,14,966/- debited on account of sundry balance written off (net) an amount of Rs.72,31,592/- represents capital balances written off, out of which an amount of Rs.13,68,447/- was already disallowed by the AO in the assessment order passed u/s 153A/143(3) of the Act dated 31.03.2016. Therefore, the balance claim of ‘debit write off’ amounting to Rs. 58,63,145/- (i.e. Rs. 72,31,592 - Rs. 13,68,447) being allowed by the
11 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 Ld. AO while passing the assessment order u/s 153A/143(3) of the Income Tax Act, 1961 on 31.03.2016, has resulted the said assessment order being erroneous in so far as it is prejudicial to the interests of the revenue.
(2) That the nature of the assessee’s claim of ‘sundry debtors written off’ to the tune of Rs.1,31,233/- not being clear, the Ld. AO wrongly allowed the deduction for the amount of Rs. 1,31,233/- without examining its nature. In this regard, similar to above, the Ld. Principal CIT alleged that in view of the fact the nature of write off in respect of Rs.1,31,233/- has not been clear, the Assessment Order passed by the AO u/s 153A/143(3) of the Income Tax Act, 1961, without examining the above claim, has resulted in the said assessment order being erroneous in so far as it is prejudicial to the interests of the revenue.
(3) Apart from the above, the assessee’s claim of operating expenses amounting to Rs. 10 lakhs which was disallowed in the original assessment order passed in the assessee’s case u/s 143(3) of the Income Tax Act, 1961 dated 31.03.2016, despite the computation of income beginning from the total income of Rs.36,23,652/- as per the revised original return. In response to the above notice, the assessee company filed a written submission on 22.03.2018 (enclosed at pages 14-62 of the p/b), explaining in detail as to why the impugned order passed u/s 153A/143(3) of the Act, dated 31.03.2016, is not erroneous and prejudicial to the interests of the revenue. It was submitted by the assessee company, during the proceedings under section 263 of the Act that the same may be rectified by the AO in section 154 of the Act as it is an error apparent from the facts of the record and revision of the order passed u/s 153A/143(3) of the Act as per section 263 should not be resorted for rectifying the above apparent mistake.
Before us, Learned Senior Counsel, Shri S.K. Tulsiyan, as regards the first and second grounds (vide para 14 of this order) raised by the ld Pr.CIT treating the assessment order passed by the A.O u/s 153A/143(3) of the Income Tax Act, 1961, as erroneous or prejudicial to the interest of revenue, submitted that the order passed by the A.O u/s 153(A)/143(3) of the Income Tax Act, 1961 in
12 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 assessee`s case under consideration, should have been restricted to incriminating documents or details unearthed during search conducted in assessee`s case. Since, assessee`s original assessment order was completed u/s143(3) of the Income Tax Act, 1961 on 27.12.2011, much prior to search and seizure action on 13.03.2014. The ld Counsel pointed out that the order passed by the A.O. u/s 153A/143(3) of the Act should be based only on incriminating materials or documents. In the assessee`s case under consideration no any incriminating materials or documents were unearthed by the search and seizure team. Therefore, in the case of unabated assessment the addition cannot be made unless there is any incriminating materials or documents which were unearthed during search and for that ld Counsel relied on the judgment of the Hon`ble Jurisdictional Calcutta High Court in the case of CIT vs. Veerparabhu Marketing Ltd. (2016) 388 ITR 574 (Cal), wherein it was held that “The existence of incriminating material in the seized material is a pre-requisite before exercising power u/s 153C r.w.s 153A of the Income Tax Act, 1961.”
The ld Counsel also relied on the judgment of the Hon`ble Delhi High Court in the case of CIT vs. Kabul Chawla (2015) 380 ITR 573 (Del), wherein it was held that “Completed assessments can be interfered with by the Assessing Officer while making the assessment under section 153A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”
On the basis of above arguments, so far ground number first and second are concerned, ld Counsel prayed the Bench that assessment order passed by the A.O u/s 153A/143(3) of the Income Tax Act, 1961 is neither erroneous nor prejudicial to the interest of revenue.
Regarding third ground, Learned Senior Counsel, Shri S.K. Tulsiyan, submitted that the Ld. Pr. CIT has ignored the fact that the operating expenses to the tune of Rs. 10 lakhs, was disallowed in the original Assessment Order passed u/s 143(3) of the Act dated 27/12/2011, the said disallowance was not considered by the Ld. AO in the order passed u/s
13 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 153A/143(3) of the Act, dated 31/03/2016. The ld counsel submitted that the same may be rectified by the Ld. AO as per section 154 of the Income Tax Act, 1961, as it is an error apparent from the face of the record, hence there was no necessity to invoke the jurisdiction under section 263 of the Act.
On the other hand, ld DR for the Revenue, as regards the first and second grounds (vide para 14 of this order) raised by the ld Pr.CIT treating the assessment order passed by the A.O u/s 153A/143(3) of the Income Tax Act, 1961, as erroneous or prejudicial to the interest of revenue, submitted that out of the entire amount of Rs. 72,31,592/- as “debit balances” being in the nature of “loan and advances written off” and “fixed assets written off”, the A.O has already disallowed the debt balances of Rs.13,68,447/- as being fixed assets written off. Therefore, the A.O should examine the nature of balance amount of Rs.58,63,145/- (Rs. 72,31,592- Rs.13,68,447) as written off during the year under consideration. For other two balances of Rs. 1,27,033/- and Rs. 4,200/-, nature of ‘sundry balances written off’, are not specified, the details of these ‘sundry balances written off’, therefore, should also be examined. The A.O should determine whether these balances written off are in the nature of balances used in computation of income of the assessee in earlier years or they have arisen out of loan and advances given by the assessee. The assessing officer, while making the original assessment under section 143(3) dated 27.12.2011, had not examined the aspect that whether these balances used in computation of income of the assessee in earlier years or they have arisen out of loan and advances given by the assessee, hence ld AO had not applied his mind therefore, assessment order passed by the A.O u/s 153A/143(3) of the Income Tax Act, 1961, is erroneous and prejudicial to the interest of revenue.
As regard, third ground, the ld DR for the Revenue, submitted that the amount of Rs. 10 lakh, was disallowed in the original assessment order u/s
14 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 143(3) dated 27.12.2011. However, the said amount of Rs.10 lakh, had not been disallowed by the assessing officer while making assessment order under section 153A/143(3), dated 31.03.2016. Therefore, there is a loss to the revenue and hence the order passed by the assessing officer under section 153A/143(3), dated 31.03.2016, is erroneous and prejudicial to the interest of revenue. The ld DR further pointed out that it is immaterial whether for mistake apparent from the record, rectification is done u/s 154 or the order is revised u/s 263. The main purpose of these provisions is to safeguard the interest of revenue by making necessary correction in the assessment passed by the AO. As this mistake is admittedly correct, therefore, the AO was rightly directed by the Pr.CIT, to add the amount of Rs. 10 lakh in the fresh assessment order being passed by him, under section 153A/143(3), dated 31.03.2016. Based on the above submissions, ld DR submitted to the Bench that twin conditions, that is, order must be erroneous and as well as prejudicial to the interest of the revenue are being fulfilled in the assessee`s case under consideration, therefore, the ld Pr. CIT had rightly exercised his jurisdiction under section 263 of the Act to revise the order passed by the assessing officer under section 153A/143(3), dated 31.03.2016.
We have given a careful consideration to the rival submissions and perused the material available on record, we note that the law with regard to exercise of jurisdiction u/s.263 of the Act on the ground that the AO failed to make enquiries which he ought to have made in the given circumstances of a case is well settled. 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 and he should examine the disallowance made in the original assessment passed under section 143(3) of the Act. 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
15 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 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 been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. We derive support for the proposition as stated above from the decision of the Hon’ble Delhi High Court in the case of Gee Vee Enterprises 99 ITR 375 (Del). We note that in the assessee`s case under consideration the present appeal pertains to assessee`s objection against the order dated 26.03.2018 passed by the Ld. Principal CIT, Central-1, Kolkata, u/s 263 of the Act holding the assessment order passed u/s 153A/143(3) of the Act on 31.03.2016 for A.Y. 2009-10 erroneous and prejudicial to the interests of revenue. We note that assessee company filed its original return of income on 25/09/2009, declaring a total income of Rs.2,73,270/-. Subsequently, the return was revised by the assessee on 10/06/2010 declaring a total income of Rs.36,23.652/-. Thereafter, assessment order u/s. 143(3) of the Act was passed vide order dated 27/12/2011 showing assessee company income to the tune of Rs.49,59,590/-. Subsequently, a search & seizure operation was conducted at different locations of the assessee company on 13/03/2014. Subsequent to search and seizure operation, assessee company filed its return of income on 30/05/2015 declaring the total income of Rs.36,23,652/- as shown in the revised return filed subsequent to original return of income. Assessment u/s.143(3)/153A was completed on 31/03/2016 by the AO assessing the total income at Rs.52,63,710/-. The ld Pr.CIT exercised his jurisdiction under section 263 of the Act to revise the assessment order passed by the assessing officer, u/s.143(3)/153A of the Act, which was passed by the AO after search and seizure action on dated 13.03.2014.
We note that in the assessee`s case under consideration, the ld Pr.CIT exercised his jurisdiction under section 263 of the Act in respect of the
16 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 assessment year 2009-10. The original assessment order u/s. 143(3) of the Act, in relation to assessment year 2009-10, was passed by ld AO on 27/12/2011. Subsequently, a search & seizure operation was conducted at different locations of the assessee company on 13/03/2014. Therefore, admittedly the assessment year 2009-10 is an unabated assessment, as the original assessment order u/s. 143(3) of the Act, in relation to assessment year 2009-10, was passed by ld AO on 27/12/2011 which is much prior to the search & seizure operation conducted on the assessee company on 13/03/2014. It is a settled position of law that addition in case of unabated assessment can be made only based on the incriminating material/documents unearthed during the search and seizure.
Based on the facts narrated above, let us analyze whether the requisite jurisdiction necessary to assume revisional jurisdiction u/s 263 of the Act is existing before the Ld. Pr. CIT to exercise his power, in the assessee`s case under consideration. First of all, it is worthwhile to go through the provisions of section 263 of the Income Tax Act, 1961 which reads as follows:
“263. Revision of orders prejudicial to revenue-(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the 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, the assessment or cancelling the assessment and directing a fresh assessment”
A bare reading of the foregoing provision makes it clear that the power of suo moto revision can be exercised by the Principal Commissioner only if, on examination of records of any proceedings under the Income Tax Act, 1961, he holds the opinion that any order passed by the Assessing Officer is ‘erroneous in so far as it is prejudicial to the interests of the revenue’. Thus, as per the provision of section 263, the Pr. CIT has to be satisfied of the following twin conditions, in order to exercise his powers of revision:
(i) the order of the Assessing Officer sought to be revised is erroneous; and
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(ii) the order of the Assessing Officer sought to be revised is prejudicial to the interests of the Revenue.
Therefore, it stands clear that recourse to Section 263(1) of the Income Tax Act, 1961 cannot be taken by the Principal Commissioner if either of the above conditions are not satisfied, i.e. if the impugned assessment order is erroneous but not prejudicial to the interest of the revenue, or if the impugned assessment order is prejudicial to the interest of the revenue but not erroneous. For that, let us take the guidance of judicial precedence laid down by the Hon’ble Apex Court in the case of Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order.
Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is to be examined, one has to understand that what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to the interest of the revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to
18 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 the revenue, or where two views are possible and the Assessing Officer has taken one view with which the 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 Assessing Officer is unsustainable in law”.
Taking note of the aforesaid dictum of law laid down by the Hon’ble Apex Court, in the case of Malabar Industries (supra), let us examine whether the order passed by the Assessing Officer u/s 153A/143(3) dated 31.03.2016, in the assessee`s case under consideration, is erroneous as well as prejudicial to the interest of the revenue. It is an admitted fact that in the assessee`s case under consideration the original assessment u/s 143 (3) was completed on 27.12.2011 and search and seizure action was conducted on 13.03.2014. Therefore, undisputedly, the assessment year under question i.e. Assessment Year 2009-10 which was not pending before the Assessing Officer on the date of search on 13.03.2014 , therefore, the assessment which is not pending before the Assessing Officer is an unabated proceeding and the Assessing Officer is empowered to make any addition only based on incriminating materials found/unearthed during search. This is a settled position of law and is no longer res integra. The following judgments are given in support of the above proposition of law:- The Hon’ble Delhi High Court in Kabul Chawla (supra) has laid down the law which spells out the power of the AO while exercising power u/s 153A after search u/s 132 of the Act was conducted by the Revenue. The same is reproduced as under: “Summary of legal position 37.On a conspectus of Section 153A(1) of the Act, read with provisions thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under: i.Once a search takes place under Section 132 of the Act, notice under Section 153 A(1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place. ii.Assessments and re-assessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise. iii.The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the
19 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 power to assess and reassess the `total income’ of the aforementioned six years in separate will be only one assessment order in respect of each of the six `AYs “ in which both the disclosed and the undisclosed income would be brought to tax”. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with AO which can be related to the evidence found, it does not mean that the assessment “can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material.” v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word `assess’ in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word `reassess’ to completed assessment proceedings. vi.Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record the AO. vii.Completed assessment can be interfered with by the AO while making the assessment under Section 153A only on the basis of some incriminating material unearthed during the course of property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.”
The Hon’ble Jurisdictional Calcutta High Court in Veerprabhu Marketing Ltd though in the context of section 153 of the Act has held as under: “We agree with the view expressed by the Delhi High Court that incriminating material is pre-requisite before power could have been exercise u/s 153(C) R.W. Section 153(A). In the case before us, the AO has made a disallowance of the expenditure, which was held disclosed, for one reason or the order, but such disallowances made by the AO were upheld by the L.D.CIT (A) but the Ld. Tribunal deleted these disallowance. We find no infirmity in the aforesaid Act of the Ld. Tribunal. The appeal is therefore, dismissed.
In view of the aforesaid ratio decidendi of the Hon’ble High Court as well as Hon’ble Supreme Court’s decisions cited above, since assessment for Assessment Year 2009-10 was not pending before the Assessing Officer on the date of search i.e. on 13.03.2014, no addition can be made by the Assessing Officer without the aid of incriminating material unearthed during the search conducted on 13.03.2014. Therefore, we have to examine whether there was any incriminating materials unearthed by the Department during search conducted on
20 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 13.03.2014. We have gone through the assessment order of Assessing Officer in all the counts before us and we find that the Assessing Officer has not made a whisper of any incriminating material which has been unearthed/seized during the search on 13.03.2014. The Assessing Officer having no incriminating materials unearthed during the search on 13.03.2014 against the assessee company, did not make any additions (with the aid of any incriminating material) against the assesses, before us, for Assessment Year 2009-10.
We note that in the assessee`s case under consideration the information and documentary evidence about the amount of Rs. 72,31,592/- as “debit balances” being in the nature of “loan and advances written off” and “fixed assets written off”, of Rs.13,68,447/- and for other two balances of Rs. 1,27,033/- and Rs. 4,200/-, nature of ‘sundry balances written off’, were available before the assessing officer when he was making assessment under section 143 (3) of the Act on 27.12.2011. Therefore, during the search and seizure on dated 13.03.2014, the search team did not find any incrementing material or new documents. The ld Pr.CIT exercised his jurisdiction based on the information/documents already available on record during the assessment under section 143(3) of the Act, dated 27.12.2011.
Moreover, the amount of Rs. 10 lakh, was disallowed in the original assessment order u/s 143(3) dated 27.12.2011. However, the said amount of Rs.10 lakh, had not been disallowed by the assessing officer while making assessment order under section 153A/143(3), dated 31.03.2016. Therefore, the information/documentary evidence about the amount of Rs. 10 lakh was available during the original assessment U/s 143(3) of the Act on 27.12.2011. During the search and seizure, the search team did not find any incrementing material or new documents about the impugned amount of Rs.10 lakh, as this amount was already on record of the assessing officer during original assessment U/s 143 (3) of the Act, dated 27.12.2011.
21 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 Therefore, without incrementing material, no addition could have been made by the Assessing Officer in the light of the order of the Hon’ble High Court in the case of Kabul Chawla (supra) and the Assessing Officer could have only reiterated the regular assessment made u/s 143(3) of the Act. In case, if Assessing Officer made any mistake while reiterating the assessment as per section 143(3) of the Act, then it can be rectified by the Assessing Officer himself u/s 154 and cannot give rise to revisional jurisdictional to ld. Pr. CIT u/s 263 of the Act.
We are aware of the fact that the Assessing Officer’s role while framing an assessment is not only an adjudicator. The AO has a dual role to dispense with i.e. he is an investigator as well as an adjudicator; therefore, if he fails in any one of the role as afore-stated, his order will be termed as erroneous. We note that in this case since there was no incriminating material unearthed during the search, the Assessing Officer has not made any additions in his assessment order dated 31.03.2016, based on incriminating material since there was none unearthed. We take note that it is not the case of ld. Principal CIT that AO failed to made any additions/disallowances based on incriminating material seized/unearthed during search. On this finding of fact by us, we cannot term the assessment order passed by the AO u/s 153A/143(3) dated 31.03.2016 as erroneous. It is important here to note that revision u/s 263 of the Income Tax Act, 1961 has to be made within well-defined limits subject to satisfaction of pre- conditions, as explained by us above, and therefore, similar limitation may have to be read in the instant provision. In relation to the years whose assessment is completed, it is laid down by law that in such situations of completed assessment, assessment u/s 153A of the Income Tax Act, 1961 however shall be to the extent of undisclosed income which is found during the course of search with reference to the valuable articles or things found or documents seized during the search which are not disclosed in the
22 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 original assessment. The power given by the 1st proviso of section 153A of the Income Tax Act, 1961 to ‘assess’ income for six assessment years has to be confined to the undisclosed income unearthed during search and cannot include items which are disclosed in the original assessment proceedings. Items of regular assessment cannot be added back in the proceedings u/s 153A when no incriminating documents were found in respect of the disallowed amounts in the search proceedings. A search assessment under section 153A should be evidence based. Therefore, we are of the view that assessment order passed by the AO u/s 153A/143(3) dated 31.03.2016 is neither erroneous nor prejudicial to the interest of the Revenue and therefore, ld. Pr. CIT erred in exercising his revisional jurisdiction u/s 263 of the Act and therefore, we quash the impugned order of ld. Pr. CIT passed under section 263 of the Act.
In the result, the appeal filed by the assessee, is allowed.
Order pronounced in the open court on this 12/09/2018. Sd/- Sd/- (A. T. Varkey) (A. L. Saini) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; Dated: 12/09/2018 RG, SPS
23 M/s Indian Roadways Corporation Ltd. ITA No.787/Kol/2018 A.Y: 2009-10 आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : अपीलाथ� / The Appellant- M/s India Roadways Corporation Ltd. 1. ��यथ� / The Respondent.- Pr. C.I.T., Central-I, Kolkata 2. आयकर आयु�त(अपील) / The CIT(A)- 3. आयकर आयु�त / CIT 4. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, 5. ITAT, Kolkata गाड� फाईल / Guard file. 6.
//True Copy// By Order
Senior Private Secretary, Head of Office/D.D.O, I.T.A.T, Kolkata Benches, Kolkata.