ACIT, CIR-47, KOLKATA, KOLKATA vs. SMT SHARMILA KUMAR, HOWRAH

Ground no. 1 is against the action of the Ld. CIT (A) in deleting the addition of Rs.44,81,738/- on account of undisclosed investment in FD by accepting the revised Balance Sheet which according to revenue, was an additional evidence and so it violated Rule 46A of the Income Tax Rules, 1962 (hereinafter referred to as the “Rules”).

Brief facts of the case are that assessee is an individual and her source of income is interest income derived from fixed deposits inherited from her late father Dr. Shital Ghosh. For the relevant assessment year, the assessee had filed her return of income on 22.03.2012 disclosing total income of Rs.65,79,920/-. Later the case was selected for scrutiny. During the course of assessment, the AO noted from the Balance Sheet that the assessee had FD at Bank of India which is shown at Rs.3,31,83,887/-, which according to AO, did not tally with the figures available in ITS details of the assessee downloaded by him. According to AO, the said ITS details were handed over to the assessee through her AR for verification and reconciliation. Since no explanation came from the assessee’s side and the FD details obtained from the bank authority showed the same as Rs.3,76,65,625/- instead of Rs.3,31,83,887/- as stated by the assessee, the differential amount of Rs.44,81,738/- was added as undisclosed investment representing her undisclosed income and was added to the total income. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A), who was pleased to delete the same. Aggrieved, the revenue is before us.

We have heard rival submissions and gone through the facts and circumstances of the case. We note that when the AO pointed out to the assessee that there was a difference in the Balance Sheet in respect of the FD at Bank of India vis a vis the ITS details downloaded by him, the assessee had in fact brought to the notice of the AO that her accountant had inadvertently wrongly reported the figure of FD with the Bank of India in her Balance Sheet at Rs.3,31,83,887/- instead of actual figure of Rs.3,76,65,625/-. Taking note of this mistake the assessee immediately filed a revised Balance Sheet before the AO reflecting the correct figure of her FD with the Bank of India which we note has been placed before us at page 1 of the paper book. The AO had simply taken note of the mistake crept into the Balance Sheet in respect of the FD at BOI and the difference shown by the ITS details has made the addition of Rs.44,81,738/- (i.e. Rs.3,76,65,025 – Rs.3,31,83,887).

Before us, the Ld. AR in order to show the source of the figures in assessee’s balance of FD with Bank of India submitted that the balance of FD with Bank of India had increased from Rs.1,77,55,419.13/- from AY 2010-11 to Rs.3,76,65,625.26/- during the relevant AY 2011-12 i.e. by an amount of Rs.1,99,10,206.13/- and the source of the same was her balance of Rs.2,74,74,703.28/- in savings bank account during the previous assessment year i.e. 2010-11 which was sufficient to cover the increase in FD with Bank of India. These facts are corroborated from a perusal of page 43 of the paper book which is the Balance Sheet as on 31.03.2010 relevant for AY 2010-11 (previous year). These facts are revealed from the perusal of the assessee’s revised Balance Sheet for AY 2011-12 which is placed at page 1 of the paper book wherein the balance at savings bank stands reduced to an amount of Rs.10,63,878.05/- from Rs.2,74,74,703.28/- in AY 2010-11 because the same was transferred and invested in the FD with Bank of India this year. A tabular representation of the aforesaid facts is as under:

Coming to the ground raised by the revenue in respect of violation of Rule 46A, we note from the impugned order of the Ld. CIT (A) that the Ld. CIT (A) has called for a remand report from the AO. Our attention was drawn to page nos. 22 and 23 of the paper book which is the remand report forwarded by the AO dated 02.12.2015 wherein the AO has given his remand report, therefore, there is no violation of Rule 46A of the Rules. Thus, this ground of appeal of revenue is dismissed.

Coming to the next ground of appeal of revenue is against the action of the Ld. CIT (A) in allowing the claim of exemption of Rs.21,88,300/- regarding principal sum of investment in mutual fund without appreciating the fact that the assessee had voluntarily offered the said sum in her return of income. The revenue has also challenged the issue that assessment cannot be completed below the returned income and that admitted tax cannot be refunded as there is no revised return of income.

Brief facts of the case are that the assessee had inherited UTI Mutual Fund amounting to Rs.21,88,300/- (Rs.16,88,300/- and Rs. 5 lacs) from her father late Dr. Shital Ghosh being the only nominee. From AY 2008-09 onwards the assessee’s late father held the said investment in monthly income scheme since long and after the debacle of UTI, the Government converted the monthly income plan into 6.60% tax free ARS Bonds which during the relevant assessment year were held by the assessee by virtue of inheritance. The assessee’s UTI Mutual fund which tax free ARS Bonds stood reflected in the assessee’s Balance Sheet since AY 2008-09 and was accepted as in earlier years by the department during assessment completed u/s. 143(3) for AY 2009-10, a copy of which is enclosed at pages 29 to 38 of the paper book. It was brought to our notice that the mutual funds of Rs.21,88,300/- were encashed by the assessee on 25.10.2010 during the relevant assessment year at Rs.22,63,639/- (copies of the account statement enclosed at pages 47 to 50 of the paper book) thus earning a profit of only Rs.2,63,639/-. However, since the assessee’s accountant had inadvertently offered the entire redemption value of the UTI Mutual fund/tax free ARS Bonds to tax i.e. Rs.22,63,639/- instead of the profit of only Rs.2,63,639/- resulted in a higher sum being offered to tax by the assessee in her return of income for the relevant assessment year. When this error was noticed by the assessee during assessment proceedings, a revised computation of income along with revised P&L Account were filed by the assessee before the AO which is enclosed at pages 1 to 5 of the paper book. We note that the Ld. CIT (A) after taking note of these facts have decided as under:

We note that the Ld. CIT(A) has decided the issue raised by the assessee and has directed the AO to go through the details of the mutual fund investment and tax only the amount which is taxable after excluding the principal sum of investment which was mistakenly shown as income in the facts as narrated above is fair and reasonable order. Taking into consideration the facts discussed above, we note that the legal issue that has been raised by the assessee that only the right income has to be taxed has been rightly decided by the Ld. CIT(A) which does not call for any interference.

Coming to the question as to whether the assessment can be completed below the returned income, we note that Ld. AR drew our attention to the decision of the Hon’ble Gujarat High Court in the case of CIT Vs Milton Laminates Ltd (218 Taxman 108). We find that this question has been answered in affirmative by the Hon’ble Gujarat High Court in the case of CIT Vs Milton Laminates Ltd (supra) wherein it was held as under:

Further the Ld. AR also explained the legislative history of the provisions of sub- section (3) to Section 143 of the Income-tax Act, 1961 to buttress his contention that the income finally assessable under Section 143(3) can be at a sum lower than the income returned. We note that the provisions of Section 143(3) as amended by the Taxation Laws (Amendment) Act, 1970 read as follows:

On perusal of the above, we note that the A.O. was authorized by the Legislature to make assessment of the total income or loss and determine the sum which was ‘payable’ or ‘refundable’ on the basis of the assessment. Meaning thereby, the A.O. was legally empowered in law to make assessment of the total income of the assessee at a lower sum than the returned income, which would result in ‘sum refundable’ to the assessee.

The provision sub-section (3) was substituted by the following provision by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1st April 1989, which read as follows

On perusal of the above provision, it is noted the Legislature specifically excluded the A.O.’s power to determine sum ‘refundable’ to the assessee on completion of assessment under sub-section (3) of Section 143 of the Act. The intention of the Legislature in introducing amended Section 143(3) was explained by the CBDT in Circular No. 549 dated 31.10.1989 wherein the Board stated that under the amended provisions, the Assessing Officer in an assessment order passed under section 143(3) cannot assess income at a figure lower than the returned income, nor can loss be assessed at a figure higher than the returned, and therefore no tax paid with reference to the returned income can now be refunded to the assessee on completion of regular assessment.

The above provision was later on substituted by the Finance (No.2) Act of 1998 and the power to determine ‘sum refundable’ to the assessee by the Assessing Officers in the proceedings u/s 143(3) was re-instated by the Legislature. The relevant provision, as it stands now reads as under:

The CBDT in it’s Circular No. 772 dated 23.12.1998 explaining the above substituted provision of Section 143(3) explicitly stated that under the erstwhile provisions, there was no provision to issue refund and the Assessing Officer was only empowered to determine the sum payable by the assessee, but under the amended provisions the A.O. is empowered to provide for determination of sum payable by the assessee as well as the refund of any amount due to him.

On conjoint & harmonious reading of these provisions & after giving due consideration of the legislative history of Section 143(3) and the judgment of the Hon’ble Calcutta High Court in the case of CIT Vs Britannia Industries Ltd (supra) and Hon’ble Gujarat High Court in the case of Milton Laminates Ltd (supra), we are of the considered view that the Ld. CIT(A)’s direction even if it results in an assessment below the returned income and consequently refund arises, it is valid as per law. Further, as per the CBDT Circular No. 14(XL-35 dated 11.04.1955) wherein the CBDT has observed as under:

Moreover we note that the relief sought cannot be refused merely because the assessee has omitted to claim the relief as held by the Hon’ble Supreme Court in Anchor Pressings P. ltd. Vs. CIT 161 ITR 159. Therefore, for the aforesaid reasons given above, the revenue’s ground of appeal is dismissed.

In the result, appeal of revenue is dismissed.