THE COMMI.OF INCOME TAX,HYD. vs. VAIBHAV

[ 32es ] IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY, THE FOURTEENTH DAY OF SEPTEMBER TWO THOUSAND AND TWENTY TWO PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HONOURABLE SRI JUSTICE C.V. BHASKAR REDDY I.T.T.A. NOS: 58 0F 2002 AND 134 0F 2003 ITTA NO.5 oF 2002: lncomeTaxTribunalAppealunderSection260(A)ofthelncomeTaxAct, 1961 ' against the order of the lncome Tax Appellate Tribunal, Hyderabad Bench .4, Hyderabad in ITA No.246lHydl2oo1 for assessment year 1997-98 dated 2810112002 preferredagainsttheorderoftheCommissioneroflncomeTax(Appeals)-V (Central)Hyderabad'lTANo.2093/SR.3/clT(A)(Cent)/2000-2001dated2710212001 preferred against the order of the Joint commissioner of lncome Tax (Assts) Spl' Range-3, Hyderabad PAN/ GIR No.V-301/SR.3 dated 30/03/2000' Between: M/sVaibhav,apartnershipfirmrep.byitsManagingPartnerSriD.VenugopalRao, 51-847, Koti, Hyderabad. ...A''ELLANT AND The Joint Commissioner of lncome Tax (Assessments), Special Range-3' Hyderabad ...RES'.NDENT For the Appellant : SRI A.V.KRISHNA KOUNDINYA, SENIOR COUNSEL For the Respondent : SRI J.V'PRASAD, SC FOR l'T DEPARTMENT ITTA NO.134 0F 2003: lncome Tax Tribunal Appeal under Section 260 (A) of the lncome Tax Act' lg6l,againsttheorderofthelncomeTaxAppellateTribunal,HyderabadBench,A' HyderabadinlTANo.246lHl2OOlforassessmentyearlggT-9Bdated2Bl0112002 preferredagainsttheorderoftheCommissioneroflncomeTax(Appeals)-V (Central)Hyderabad,lTANo.2OS3/SR-3/CIT(A)(Cent)/2OOO-2001dated2710212001 \

preferred agaifist the Order of the Joint Commissioner of lncome Tax (Assts) Spl. Range-3, Hyderabad dated 30/03/2000 PAN/ GIR No.V-301/SR.3, Between: The Commissioner of lncome Tax-lV Hyderabad. ...APPELLANT AND M/s Vaibhav, 5-1-847, Kothi, Hyderabad. ...RESPONDENT For the Appellant : SRI J.V.PRASAD, SC FOR I.T.DEPARTMENT For the Respondent : SRI A.V.KRISHNA KOUNDINYA, SENIOR COUNSEL FOR SRI CHALLA GUNARANJAN The Court delivered the following : COMMON JUDGIVENT

THE HON'BLE THE CHIEFJUSTICE UJE.L BHUYAN AND THE HON'BLE SRIJUSTICE C.V.BHASKAR REDDY I.T.T.A,Nos.58 of 2002 & 134 of 2003 COMMON JUDGMENT : @cr tc llon'bh te Chil Jtttriu tJjial Bttayan) This order will dispose of I.T.TANo.58 of 20A2 and I.T.T.A.No.13 4 of 2aa3. 2. I.T.T.ANo.5S of 20A2 is fiied by the assessee whereas I.T.T.A.No.13 4 oi 2aa3 is filed bv the revenue. 3. We have heard Mr. A.V.Knshna I(oundinya, leamed Senior Counsel for the assessee and Mr. J.V.Prasad, Ieamed Standing C-ounsel for the Income Tax Department appearing for the revenue. 4. Leamed counsel for the revenue submits that both the appeals filed under Section 250-,4. of the Income Act,1967 (briefly 'the Act'hereinafter) arise out of the order dated28.0l.2002 passed by the Income Tax Appellate Tribunal, Hyderabad Bench 'A', Hyderabad (briefly 'Tribunal' herehafter) in I.T.A No.2a6/H'yd/ 2OO1 for the assessmenr year 1997-98. I I I i I

2 5. Appellant in i.T.T.ANo.58 of 2002 is an assessee under the Act having the status of Pannership Firm. For the assessment year 7997-98, assessee filed return of income on 28.La.1997 declaring NIL income after setting off the brought forward losses. In the course of assessment proceedings, assessing officer took the view that there was conceaiment of income by the assessee and elaborated upon the alleged nodu operurdi of the assessee. Foliowing a factual analpis, excess of Rs.2,73,A7)93.00 over the amolrnt declared by the assessee to its banker while availing financial credit facilities was treated as investment of the assessee officer funher observed that there were a good number of sundry crediton from whom the assessee had shown to have availed was found to be not satisfactory. Accordingly, a sum of Rs.43,01,985.00 was added to the income of the assessee again as "Income from other sources". fusessing officer funher noticed cenain discrepancies in the closing cash balance and found that a and brought to tax as "Income from other sources". Assessing credit. \When explanation was sought for and obtained, the same

-t difference of Rs. 1,87,718.00 could not be explained satisfactorily by the assessee. Accordingly, the same was added to the income of the assessee under Section 68 of the Act as "Income from other sources". Thus, by the assessment order dated 30.03.2000 passed under Section 1a3(3) of the Act, the aforesaid addidons were made to the total income of the assessee. 6. Aggrieved by the above order of the assessment, assessee preferred first appeal before the Commissioner of Income Tax (Appeals)-V (C-entral), Hvderabad, (briefly'CIT($' hereinafter). In the course of appellate proceedings, CIT(A) agreed with the assessing oificer that the difference in stocls declared by the assessee to the bank and to the assessing officer represents undisclosed investment in stock It was noticed that there was substantial difference between the two disclosures and that the stock position declared to the bank was only to satisfy the debit ratio, current ratio, capital base required bythe bank 7. As a matter of fact, CIT($ put the assessee on notice as to why the sum of Rs. 2,74,,36,502.00 should not be added to the

4 income of the assessee as unexplained investment as against Rs.2,13,,A7393.C0 added by the assessing officer. Explanation fumished by the assessee was found to be not satisfactory. Accordingly, qT(A) uide the order dated 27.02.2CC1 directed the assessing officer to treat Rs.2,74,36,5A2.A0 as u.rexplained investment and to add the same to the income of the assessee. 8. Insofar the other two additions of Rs. 43,01,985.00 and Rs. 1,87,218.00 are concemed, CXT(A) did not found any infirmity in the decision taken by the assessing officer and therefore, confirmed the above two conditions by the appellate order dated 27.02.2001.. 9. Assessee preferred funher appeal before the Tribunal assailing the order of CT(A) dated 27.02.2001. Tribunal, by the order dated 28.01,.20A2, deleted the additions made by the assessing officer as enhanced/affirmed by AT(4. But, at the same time, exercising power under Section 145 of the Act, determined net profit of the assessee at Rs.63,i3,326.00. Funher making allowance for business loss and depreciation of earlier )tars, the income of

5 us the assessee was quantified at Rs. 22,61,520.00. It is this order of the Tribunal, nhich is under impugnment in the two appeals before 10. In the appeal filed by the assessee 2.e., I.T.T.ANo .58 o{ 20a2, the substantial question of law raised is whether Tribunal could have quantified the profit of the assessee after setting aside the additions made by the assessing officer and CIT($ under Section 25a(1) of the Act as well as under Section 145 of the Act ? 11. In the appeal filed by the revenue 2.e., I.T.T.ANo.134 of 2003, the basic question urged is whether the order of the Tribunal suffers from pervenity while deleting the additions made by the assessing officer, which were enhanced and confirmed by or(A)? 12. Learned Senior Counsel for the assessee submits that vrhile he is in agreement with the view expressed by the Tribunal while setting aside the additions made by the lower revenue authority, Tribunal had however, committed manifest error by exceeding its --/

6 jurisdiction in going beycnd the grounds of appeal urged by the assessee before it. Tribunal had exceeded its jurisdiction by quantifying afresh the income of the assessee. According to the leamed Senior C-ounsei, Tribunal ought to have stopped adjudication after setting aside the additions made. Tribunai does not have the power to make anyenhancement to the income of the assessee. That apan, Tribunal was not justified in invoking the provisions of Section 145 ol the Act as the said provision is available onlyto the assessing officer and not to the Tribunai. 13. Leamed Senior Counsel has drawn the attention of the C-oun to the expression 'thereon' as appearing in sub-section (1) of Section 254 of the Act to suppoll his contention that Tribunai cannot traverse beyond the order appealed against belore it. Learned Senior C-ounsel has also referred to the distinction in the language employed bythe statute in Section 257 and Section 254 of the Acl Vhile under Section 251(t)(a) of the Act, CIT(A) has been conferred the power to either confirn or reduce or enhance or annul the assessment in an appeal before it, under Section 254 (1)

7 of the Act, Tribunal can only pass such orden arising out of the order in appeal. 14. Explaining the significance of the expression'thereon' appearing in sub-section (1) oI Section 254, the leamed Senior Cor-rnsel has submitted a compilation of case laws wherefrom he submits that the word 'thereon' appearing in sub-section (1) of Section 254 restricts the jurisdiction of the Tnbunal to the subject matter of the appeal. Therefore, Tribunal has no power to enhance the assessment, In this connection, he has placed reliance on a decision of the Sr-rpreme C,oun in Mcorp Global (P) Ltd. v/s CIT1. 15. Leamed Senior C..ounsel for the assessee has also referred to Rule 11 of the Income Tax (Appellate Tribunal) Rules, 1963 (briefly 'the Rules' hereinafter) to contended that i{ the Tribunal desires to decide on any ground other than the ground urged before it, it would have to give sufficient opponunity of being heard to the panies before it, as the decision of the Tribunal would ' lzooo; :oo rtn r:r 1sc;

8 followed. 76. He, therefore, submits that the second portion of rhe order of the Tribunal whereby on its own Tribunal quantified the income of the assessee should be set aside. 17. On the other hand, leamed counsel for the rcvenue has strenuouly argued that the reasons given by the Tribunal are absurd and on such reasoning, additions rnade by the assessing officer as conlirmed by the CT(A) could not have been dislodged by the Tribunal. If the additions were not deleted, question of Tribunal quantifying income of the assessee on its own would not have arisen. That being the position, he submits that order of the Tribunal should be set aside in its entiretyand consequently, order passed by CIT(A) should be restored. 18. We have heard the leamed counsel for the parties and perused the nuterials on record. adversely affect the panies. In the instant case, this Rule was not

..q.' 79. Insofar the order passed by the Tribunal is concemed, we find that the approach adopted bythe Tribunal does not appear to be sound. It is the admitted position that the assessee had submitted two statements as to the stock position- one before the bank and the other before the revenue. According to the assessee, it was because of financial compulsion and the need for meeting the bank norms that it had given a higher figure in the statement before the banlr In this connection, assessee relied upon a letter dated 28.03.2000 received from his Chanered Accountant ]vlls. Vasireddy and Company, but the said company alleged forgeryof the signature. 19.1. In Paragraph 19.4, Tnbunal observed that it was possible that onlysignature on the statements for the year ending 31.03.1998 was forged and not the signature on the shtements for the year ending 3L.03.1997 with which the Tribunal was concemed, futher observing that this was a matter which could be decided only by a hand writing expen. Strangely enough, instead of discarding the letter, Tribunal found fault with the assessing officer in not -

: : 10:: referring the letter to the hand writing expen. Thereafter, Tribunal proceeded ahead and concluded that the accounts submitted to the bank were anificial and no additions could be made on the basis of such accounts. 20. Tribunal funher heid that revenue could not counter the averments of the assessee that the accounts were corrupted after regular audit; that this was possible and probable; and x'hen the accounts were allegedly comrpted and the assessee was not able to produce the boola of accounts for verification by the assessing officer, the assessing officer ought to have rejected the books of accounts and estimation of profits. On the abor.e basis, all the three additions were deleted bythe Tribunal. 21. On thorough consideration of all aspects of the matter, we are of the unhesitant view that the procedure adopted by the Tribunal is wholly inconsistent with the settled principles of law and procedure bordering on absurdity.

::ll:: 22. Not content with the setting aside of the additions made, Tribunal observed that the assessee should not go scot-free and thereafter adopted its own procedure whereafter net profit of the assessee for the assessment year under consideration was quandfied at Ik.63,13,326.00/-. This was arrived at by the Tribunal by adopting a procedure unknown to or contemplated under Secrion 25aQ) of the Act. 23. That being the position, we set aside the order dated 28.OL2AA2 passed by the Tribunal in I.T.T.A.No.246/Hyd/2aC1 for the assessment year 1997-98 in irs entirety and remand the matter back to the Tribunal for a fresh decision on the appeal within the bounds of law and procedure in terms of the Act and the Rules. 24. Since the assessment year under consideration s t997-98 and appeal before the Tribunal is of the year2OOl', we are of the view that the appeal should be decided expeditiously and at any rate within a period of six months from the date of receipt of a copy of this order. 0 , -

i:12ti 25. Both these appeals are accordingly allowed ro rhe exrenr indicated above. No costs. fu a sequel, miscellaneor-s peririons, pending if any, stand dismissed. Sd/.K,SRINIVASA o JOINT REGI RAR //TRUE COPY' SECTION OFFICER $'{v To 1 3 4 5 6 7 The lncome Tax Appellate Tribunal, at Hyderabad Bench'A' Hyderabad. The Commissioner of lncome Tax (Appeals)-V, (Central), Hyderabad. The Joint Commissioner of lncome Tax, (Assessments) Special Range-3, Hyderabad. One CC to Sri J.V.Prasad, Advocate [OPUC] One CC to Sri A.V.Krishna Koundinya, Advocate [OPUC] Two CD Copies One Spare Copy Kj

HIGH COURT DATED:1410912022 COMMON JUDGMENT ITTA.No.58 of 2002 and 134 of 2003 ALLOWING THE BOTH APPEALS WITHOUT COSTS. ?H 1W1 q1\ \DX{A