MR. MOHIT GUPTA,FARIDABAD vs. CIT, FARIDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘F’, NEW DELHI)

BEFORE SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. No.2460/Del/2015 (Assessment Year 2010-11) Mohit Gupta, Vs. CIT, Faridabad House No.834, Sector 28, Faridabad GIR / PAN :ABZPG7696Q

(Appellant) (Respondent)

Appellant by : Shri Ved Jain, Adv., Shri Ashish Chadha, Adv. Respondent by : Shri R L Meena, CIT DR

Date of hearing : 04.10.2016 Date of Pronouncement : 30.11.2016

ORDER PER BEENA A. PILLAI, JM: The present appeal has been filed by the assessee against the order dated31.03.2015 passed by Ld. CIT, Faridabad u/s 263(1) of the Act, for the Assessment Year 2010-11 on the following grounds of appeal: “1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax CIT under Section 263 of the Act is bad, both in the eye of law and on facts.

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the absence of order of the AO. being erroneous as well as prejudicial to the interest of the Revenue.

3 (i) On the facts and circumstances of the case, the learned CIT has erred both on facts and in law in rejecting the contention of the appellant that the income as per revised return was before the AO. in proceedings under Section 143(3) of the Act and was considered after application of mind by him as such the same cannot be the matter for reassessment under Section 263 of the Act.

(ii) On the facts and circumstances of the case, the AO. having taken one of the possible views the learned CIT was not justified in holding the assessment order as erroneous and prejudicial to the interest of the Revenue.

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29.08.2011. The assessee then revised return of income on 09.09.2011, declaring an income of Rs.14,88,380/-. Assessment was complete by Ld. A.O. at an income of Rs.1,82,41,869/- vide order dated 04.03.2013 by making various additions. 2.2 Aggrieved by the order of Ld. A.O., assessee preferred an appeal before Ld. CIT(A). Ld. CIT(A) vide order dated 03.07.2014, decided the appeal by deleting certain additions. He sustained additions amounting to Rs.6,57,527/- made by the Ld. A.O. Subsequently, Ld. CIT issued show cause notice invoking the provisions of Section 263 on 01st October, 2014, on the following grounds:- “INCUME TAX DEPARTMENT OFFICE OF THE COMMISSIONER OF INCOME TAX, NEW C.G.O. COMPLEX. B-BLOCK, NH-IV, FARIDABAD 0129-2420710. (F) 0129-2412418

F. 0, CIT/FBD/JudI/2014-15/ 5117 Dt: 01.10.2014

To Sh. Mohit Gupta, H. o. 634, Sector- 28, Faridabad. PAN No.-ABZPG7696Q) Sir,

Sub: Show cause notice u/s 263 of the I.T. Act, 1961 for the A. Y. 2010-11 -regarding-

Please refer to the assessment order dated 04.03.2013 passed under section; 43(3) for the above mentioned assessment year in your case.

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3.1. Original return of income in your case was filed u/s 139(1) on 28.07.2010 declaring income from salary at Rs.15,39,0001- and income from other sources at Rs.64,177/- which constituted gross total income of Rs.16,03,177/-. After claiming (current year) loss of Rs.l,50,000/- under the head income from house property and deduction under chapter VI- A at Rs.1,00,000/- total income has been declared at Rs. I 3,53,177/-.

3.2 Thereafter, the case was selected under scrutiny through CASS. The reason for selection under scrutiny was that the interest income on which TDS was deducted and reflected on the computer system of the department as per Form 26AS. However, the said interest income was not shown -in the Return of Income filed on 28.07.2010. Notice u/s 143(2) was issued on 29.08.2011 fixing the case far hearing on 13.09.2011.

3.3 After receipt of the notice u/s 143(2) dated 29.08.2011, you revised you!' Return of Income on 09.09.2011, declaring income from other sources at Rs.5,76,236/- against the figure of Rs.64, 177/- shown in the original Return of Income. It is clear that additional income under the head, 'income from other sources' amounting to Rs.5, 12,059/- was declared after receipt of notice u/s 143(2) which tantamounts to the concealed income within the meaning of section 274 r.w.s. 271(1)(c) of the I.T Act. The Assessing Officer ought to have initiated penalty proceedings

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u/s 271 (1)(c), in the facts and circumstances of the case. However, the AO failed to do so.

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issuing bank whereas narration in respect of other entries mentioned these details. No corresponding entry is locatable in the statement of your bank account available on record. In the facts and circumstances of the case, the AO ought to have enquired the issue further by obtaining and examining details and source of the said investment. However, The AO failed to do so.

7.1 From the above facts and in the circumstances of the case, it appears to me that the above Acts of omission and commission by the AO, prima facie, not only render the assessment order passed u/s 143(3) on 04.03.2013 as erroneous but also pre-judicial to the interest of the revenue within the meaning of section 263 of the LT Act, 1961. You are, therefore, afforded an opportunity of being heard to show cause as to why an appropriate order u/s 263 of the Act, suitably modifying/enhancing/cancelling the order under reference to be made afresh, -be not made for the said assessment year.

7.2 For this purpose, your case is fixed for hearing at 11.00 A.M. on 15.10.2014 in my office at 2nd Floor, 'B'- Block, New C.G.O Complex, Faridabad.

7.3 You may attend either in person or though the authorized representative. Please note in case you do not wish to avail of this opportunity in person or through the authorized representative, you may furnish written arguments on or before the aforesaid

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time and date, which may also be considered appropriately before considering to make order u/s 263 of the Act. In case of failure on your part to avail of this opportunity I shall be constrained to pass the order u/s 263 of the Act on merits of the case. Yours faithfully,

(Ashok Kumar Saroha Commissioner of Income Tax, Faridabad.”

2.3 Against which the assessee filed reply dated 17.10.2014. It was submitted before the Ld. CIT that as the first appellate authority passed the order and held the assessment order stood merged with it and hence, there is no jurisdiction to invoke the provisions of Section 263 of the Act. It was also submitted that Section 263 has been initiated against the additions that have been deleted by Ld. CIT (A). 2.4 Ld. CIT passed the order u/s 263 setting aside the assessment order and held as under: “6. In view of all the above mentioned facts and legal position, it is held that the impugned assessment order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of revenue. There has been non-application of mind on part of the AO. The ITO has taken a view which is unsustainable by accepting the revised return, which was not acceptable u/s 139(5) as the same was filed after detection of concealment by the Department. The assessment order passed u/s 143(3) vide order dated 04.03.2013 for the assessment year 2010-11, is hereby cancelled/set aside u/s 263(1) of the Income Tax Act, 1961 and is restored to the file of AO for

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making a fresh assessment without giving the benefit of revised return filed by the assessee. The AO is directed to make a judicious and speaking order as per law after providing due opportunity of being heard to the assessee. Any adverse inference made would require re-computation of income and tax thereon.”

2.5 Aggrieved by the order of Ld. CIT, the assessee is in appeal before us now. 3. Ld. A.R. submitted that the assessee is a merchandise exporter and derive income from salary from M/s. Demco Solutions Pvt. Ltd. Other than salary, assessee has declared income of Rs.5,71,597/- under the head ‘income from other sources’ and income of Rs.4,639/- by way of clubbing of minor income. Ld. A.R. submitted that by way of raised income, assessee has declared agricultural income and additional income of Rs.1,39,207/-, was also added. He submitted that the revised return of income was filed within the period of limitation u/s 139(5) of the Act i.e. within the period of one year from the end of relevant Assessment Year. He submitted that Ld. A.O. completed the assessment on the income declared in the revised return and made huge addition against which appeal was filed before the 1st Appellate Authority. He submitted that the A.O. at the time of assessment proceedings, made detailed inquiry on each issue. Ld. A.R. submitted that the issue under consideration is squarely covered by the decision of Hon'ble Punjab & Haryana High Court in the case of CIT

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Central, Ludhiana Vs Rakesh Narain Trivedi reported in 290/2014 dated 29th October 2015, wherein Ld. A.R. relied upon the decision held by Hon’ble Court as under: “The order passed by CIT is untenable. The CIT in its power u/s 263 cannot set aside the order for initiating penalty proceedings u/s 271(1)(c). This issue is squarely covered by the jurisdiction of Punjab & Haryana High Court in the case of CIT(Central) Ludhiana vs. Rakesh Nain Trivedi ITA No. 290/2014 dated 29.10.2015, wherein Hon'ble High Court held as under;

"Initiation of proceedings under Section 263 of the Act was not justified and we uphold the order of the Tribunal cancelling the revisional order passed by the CIT as where the CIT finds that the Assessing Officer had not initiated penalty proceedings under Section 271(1)(c) of the Act in the assessment order, he cannot direct the Assessing Officer to initiate penalty proceedings under Section 271 (1 )(c) of the Act in exercise of revision power under Section 263 of the Act. "

3.1 Ld. A.R. further submitted that Ld A.O. took a view on the basis of revised return and made additions thereon. He further relied upon the decision of Hon'ble High Court in the case of CITVs Gabriel India Ltd. reported in 203 ITR 108 wherein Hon'ble Bombay High Court has held that in a case, where ITO has made inquiries in regard to the nature of his income by the assessee and the assessee has given detailed explanation in that regard by way of written submissions, which were placed on record, then the decision of ITO cannot be held

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to be erroneous, as recorded in his order, he did not make elaborate discussion in this regard. 3.2 Ld. A.R. further emphasized that Ld. CIT has erred in cancelling and setting aside the assessment order when it stood merged with the order of Ld. CIT (A). He submitted that Ld. CIT do not have jurisdiction to set aside the assessment order after the first Appellate Authority has considered the addition in its order. Further, the Ld. A.R. placed reliance upon the following judgements: i) Sheena Exports, C/o M/s. RRA Taxindia Vs CIT (I.T.A.No. 6001-2/Del/2-013 dated 15/10/2014) ii) Ranka Jewellers Vs ACIT (2010) 328 ITR 148 (Bom). iii) Slum Rehabilitation Authority Vs DIT (I.T.A.No. 2435/Mum/2014 dated 30.10.2015 ITAT Mumbai)

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263 (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, or cancelling the assessment" and directing a fresh assessment.

'Explanation.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-

(a) an order passed [on or before or after the 1st day of June, 1988] by the Assessing Officer shall include-

(i) an order of assessment made by the Assistant Commissioner [or Deputy Commissioner] or the Income- tax Officer on the basis of the directions issued by the "[Joint] Commissioner under section 144A;

(ii) an order made by the 4[Joint] Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;

(b) "record" [shall include and shall be deemed always to have included] all records relating to any proceeding under this Act available at the time of examination by the Commissioner;

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(c) where any order referred to in this sub-section and passed Assessing Officer had been the subject matter of any appeal on or before or after the 1st day of June, 1988], the powers Commissioner under this sub-section shall extend [and shall be deemed always to have extended] to such matters as had no considered and decided in such appeal.]”

5.3 On co-joint reading of revised return of income along with revised balance sheet as on 31/03/2010 vis-à-vis the original return of income and the balance sheet as on 31/03/2009 reveals that, most of the additions made by the Ld.AO are based on account of discrepancies noticed in the two different versions of balance sheet filed by the assessee. The additions made by Ld. AO related to both liabilities as well as asset side of the balance sheet. As regards the liability side, additions were made for the reason that source of certain items could not be adequately explained, and in some cases the genuineness of the transactions could not be established by the assessee, which led Ld.AO hold it as undisclosed income in the hands of assessee. Similarly on the asset side of the balance sheet Ld. AO on similar reasons made additions for undisclosed investment in the hands of the assessee. Before Ld. CIT (A) assessee expressed his inability to explain the genuineness and source of various entries in the revised balance sheet and submitted additional evidence during the appellate proceedings. It was submitted by the assessee that the assessee had never

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maintained proper books of accounts and suddenly was required to compile all the details during the course of assessment proceedings. It was submitted by the assessee that as the exercise was very difficult within the limited period allowed by the Ld. AO, the assessee was prevented by sufficient cause to file the details before the Ld. AO as most of the details were to be collected from 3rd parties and procurement of the same took some time. The Ld. CIT (A) remanded the additional evidence filed by the assessee to the Ld. AO for his examination both with regard to its admissibility and the merits of the addition in light of the additional evidence submitted. The Ld.AO did not offer any comments on this issue and thus Ld.CIT (A) admitted additional evidence on the basis of the provisions contained under rule 46A in the light of explanation given by assessee. While admitting the additional evidence the Ld. CIT(A) considered the reasonable cause which precluded the assessee from filing additional details before the assessment proceedings.

Ld.CIT (A) in his order at para 3.3 to 3.11 dealt with each and every difference in the balance sheet/computation of income filed alongwith original return of income vis-à-vis revised balance sheet/computation filed along with the revised return of income on 9/09/2011, except for the income declared under the head income from other sources in the revised computation of income being interest received from RPS Infrastructure Ltd.

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With these factual background, let us analyse the grounds on which the notice under section 263 has been issued post the order passed by the 1st appellate authority. On perusal of the notice under section 263 dated 1/10/2014 which is placed at page 153 of the paper book, it is observed that the Ld.CIT initiated such proceedings on the following counts as under: • it is after the receipt of notice under section 143(2) dated 29/08/2011 that the assessee has revised the income on 9/09/2011 declaring income from other sources at Rs.5,76, 236/- against the figure of Rs.64,177 shown in the original return of income. The ld.CIT is of the opinion that as additional income under the head income from other sources amounting to Rs.5,12,059/-was declared after the receipt of notice under section 143(2), tantamount to concealed income within the meaning of section 274 read with section 271 (1) (c) of the Act, for which the assessing officer has not initiated penalty proceedings. • On going through the computation of income filed during the assessment proceedings it may be seen that …… Reproduce para 4 at page 154 of paper book

(4. On going through the computation of income filed during assessment proceedings it may be

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seen that) as per revised computation, interest of Rs.5,20,767/- has been declared as interest received from RPS infrastructure Ltd. However, as per final balance sheet filed by you for the period ending on 31.03.2010, it has been noticed that no investment in the name of M/s RPS Infrastructure Ltd. is reflected. On going through the assessment records it has been noticed that no details show that the investment made with M/s RPS Infrastructure Ltd. was liquidated during the previous year relevant to assessment year under consideration. In the facts and circumstances of the case, the AO ought to have enquired the issue further to obtain details of the said investment account. However, The AO failed to do so.

• reproduce paragraph 5 at page 154 of paper book

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• para 6

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of the Act, suitably modifying/enhancing/cancelling the order under reference to be made afresh, be not made for the said assessment year. 7.2 For this purpose, your case is fixed for hearing at 11.00 A.M. on 15.10.2014 in my office at 2nd Floor, 'B'- Block. New C.G.O Complex, Faridabad.

7.3 You may attend either in person or though the authorized representative. Please note in case you do not wish to avail of this opportunity in person or through the authorized representative, you may furnish written arguments on or before the aforesaid time and date, which may also be considered appropriately before considering to make order u/s 263 of the Act. In case of failure on your part to avail of this opportunity I shall be constrained to pass the order u/s 263 of the Act on merits of the case. 6. On a careful reading of the order passed by Ld. CIT (A) it can be discerned that the Ld.CIT(A) has no doubt considered in detail various discrepancies in two different versions of balance sheet, which has been raised by the Ld.CIT in point No. 4 and 5 above.

However neither Ld.AO nor Ld.CIT (A), has dealt with the issue relating to interest from RPS Infrastructure Ltd., declared by the assessee in the revised return, which was admittedly not shown in the revised balance sheet as on 31/03/2010. Further, whether the return filed on 9/09/2011 could be considered as a revised return under section 139 (5) of the Act has also not been considered by authorities below. On careful perusal of the computation placed at page 2 and original computation placed at page

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5 it can further be discerned that the assessee in the revised computation has set off the loss from income from house property in the gross total income whereas the same has been carry forward in the revised return. It is observed on perusal of the orders that the neither Ld. AO nor Ld. CIT (A) verified all these issues on merits. In fact these issues were not at all raised/considered by Ld.CIT (A). There is nothing in the order of the assessing officer all Ld. CIT (A) to indicate that they would have applied their mind on these issues. Thus in respect of these issues the order of Ld. AO has attained finality and has not merged with the order of Ld. CIT (A). In our considered opinion unless the appellate authority has applied his mind to the original assessment order on any issue arising in appeal while passing the appellate order one should be careful in applying the doctrine of merger to the appellate order. It is pertinent to note that there cannot be much a merger of a question/issue which was not even a part of the order which is said to have merged. Merger can be of something, which existed at the time when the subsequent order was passed. But what did not exist when the order of the higher authority was passed, cannot be considered to have been merged in that order. This view was taken by Hon’ble Bombay High Court in the case of Warner-Lambert Co vs. CIT reported in (1994)205 ITR 395.

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Adverting to the facts of the present case, the Ld. AO has not dealt with the interest declared by the assessee in the revised computation amounting to Rs.5,20,767/-, as received from RPS Infrastructure Ltd., which did not reflect in the revised balance sheet. Further the Ld. AO did not deal with the issue whether the return filed by the assessee on 09/09/2011 amounted to a revised return under section 139(5) of the act. These two issues has neither dealt by Ld.CIT(A) suo moto nor has been called upon by the assessee to decide in the order passed by him. Under such circumstances there is no question of that part of the assessment order having been merged or being superseded by the order passed by Ld. CIT (A).

Thus in our considered opinion one of the conditions preceded and for invoking the jurisdiction under section 263(1) exists, in respect of disclosure of interest received from M/s.RPS Infrastructure Ltd. and verification of period of limitation within which the assessee is supposed to which is assessee can file a revised return under section 139 (5) of the Act.

In respect of the balance issue being item No. 3.1, 3.3, 6, 7 of notice dated 01/10/2014 issued by Ld. CIT, it is observed from the order passed by the Ld. CIT (A) that they have been dealt by Ld. CIT (A) in detail on merits and therefore the principle of merger applies. However in respect of item No. 3.2, 4 and 5 mentioned in the notice dated 01/10/2014 issued by Ld. CIT the principle of

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merger cannot be applied and the order passed by Ld. CIT in respect of these issues are upheld.

Accordingly the appeal filed by the assessee stands partly allowed.

Order pronounced in open court on 30.11.2016.

Sd/- Sd/- (N. K. SAINI) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Date: 30.11.2016 Sp. Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi. 5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy. By Order (ITAT, New Delhi)