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Income Tax Appellate Tribunal, KOLKATA BENCH “B” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
O R D E R
PER Waseem Ahmed, Accountant Member:
- This appeal has been filed by the assessee relating to assessment year 2011- 12. The appeal is against the order u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) Principal Commissioner of Income Tax, Central-2, Kolkata dated 14.10.2016. Assessment was framed by DCIT, Central Circle-4(3), Kolkata u/s 153A/143(3) of the Act vide his order dated 31.03.2015. Grounds raised by assessee per its appeal as under:- “1 For that the order of the Ld. Pr. CIT is arbitrary, illegal, excessive, and bad in law.
2. For that the Ld. Pr. CIT erred in setting aside the order when the Assessing Officer applied his mind and correctly assessed the total income in accordance with the documents and evidences seized in the course of search and therefore the order was neither erroneous nor prejudicial to the interest of revenue. A.Y. 2011-12 M/sAmalgamated Transpsort & Co. vs. Pr.cit, Cen-2, Kol. Page 2
3. For that the Ld. Pr. CIT erred in considering the order as erroneous and prejudicial to the interest of revenue for the reasons that the AO should have assessed the income on estimate on the basis of the income found nor the seized papers for one quarter which was not recorded in the books of accounts when law do not permit such an estimate, no incriminating papers were found nor the AO was entitled to estimate such income.
4. For that the Ld AO completed the assessment alter due application of mind and in accordance with the judicially accepted principles and the Ld Pr. CIT even if thought otherwise or was having a different view, the assessment cannot be said to be erroneous and prejudicial to the interest of revenue.
5. For that he Ld Pr. CIT erred in setting aside the entire assessment when in the show cause notice as well in the order u/ s. 263 he considered the order as erroneous and prejudicial to the interest of revenue only with regard to the commission income which according to him should have been estimated for all the 4 quarters in place of one quarter for which the incriminating documents were found.
6. For that order of the Ld. Pr CIT is not in accordance with law since he directed the AO to make enquiry to determine the income for the whole year and at the same time himself has given the finding that the income for the whole year should be estimated and for the remaining 3 quarters addition of Rs. 25,09,188/ - should be made.
7. For that the order of the CIT is not in accordance with law, the same may be set aside and the assessee be given relief prayed for.” Shri S.M. Surana, Ld. Advocate appeared on behalf of assessee and Md. Usman, Ld. Departmental Representative represented on behalf of Revenue.
Grounds No.1 to 6 are inter-related and therefore being taken up together. The issue raised in this appeal is that Ld. CIT u/s 263 of the Act erred in holding the order of Assessing Officer as erroneous in so far as prejudicial to the interest of Revenue.
Briefly stated facts are that assessee is a partnership firm and engaged in the activity of money transfer and courier business. A search and seizure operation was conducted at the business premises of assessee on 14.01.2013. As a result of search, various documents were seized and impounded from the premises of assessee. On the basis of seized materials, it was found that assessee has earned commission income for ₹8,36,396/- A.Y. 2011-12 M/sAmalgamated Transpsort & Co. vs. Pr.cit, Cen-2, Kol. Page 3 during the period beginning from 01.04.2010 to 30.06.2010. The AO on the basis of seized documents, accordingly, determined undisclosed commission income of assessee for Rs. 8,36,396/- in his order which was framed u/s 153A/143(3) of the Act.
Subsequently, Ld. CIT u/s. 263 of the Act observed that the undisclosed income of the assessee has been unearthed for the first quarter of the financial year 2010-11 on the basis of seized material which needs to be extrapolated for the remaining three quarters i.e. Rs. 25,09,188 (836396 x 3). Accordingly, the Ld. CIT u/s 263 of the Act was of the view that there is an error in the assessment order which is causing prejudice to the interest of Revenue as the income for three quarters of the FY 2010-11 has escaped assessment. Accordingly, he called upon the assessee by issuing notice u/s 263 of the Act.
In compliance thereto, the assessee submitted that the assessment was framed u/s 153A/143(3) of the Act on the basis of seized materials for the 1st quarter of the FY 2010-11. The Revenue during search proceedings could not find any documentary evidence suggesting that assessee has earned commission income in remaining three quarters beginning from 01.07.2010 and ending on 31.03.2011. The assessee further submitted that the income u/s. 153A of the Act can be determined only on the basis of incriminating material found during the course of search. The assessee in support of its claim relied on the order of Hon’ble ITAT Hyderabad Benches in the case of ACIT vs. B. Srinivasa Rao reported in 159 TTJ 483 wherein it was held as under : “Further, unless there is evidence or material indicating any suppression of collection of fees towards management quota seats for A.Y. 2003-2004 having been found during search, and no admission from assessee, AO was not justified in estimating same on materials seized relating to subsequent assessment years indicating suppression of collection of fees for management seats, in assuming suppressed/unaccounted receipts of fees for year under consideration. Calculation of unaccounted income from collection of fees from management seats should be based on materials relevant to A.Y. under consideration and it should be on scientific basis and cannot be merely on assumptions. Order of CIT(A) upheld. Extrapolation of A.Y. 2011-12 M/sAmalgamated Transpsort & Co. vs. Pr.cit, Cen-2, Kol. Page 4 income cannot be made for A.Y. in question on basis of seized material relating to some other assessment years.” The Ld. CIT, however passed order u/s.263 of the Act directing the AO to enquire about the addition to be made for the previous year over and above the period for which seized document indicated undisclosed transactions. Aggrieved by the order of the Ld. CIT, the assessee is in appeal before the Tribunal.
We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. In the instant case, the AO determined the income under section 153A/143(3) of the Act on the basis of incriminating material. It is undisputed fact that the incriminating material was found during search & seizure operation for the 1st quarter of the financial year under consideration. However the Ld. CIT u/s 263 of the Act is desirous of extrapolating the income of assessee for the remaining three quarters i.e. ₹25,09,188 (836396 x 3) on the basis of search documents pertaining to the 1st quarter of the financial year. As such there was no incriminating document found during search for the remaining three of the financial year under consideration. Therefore, the income was determined by the AO u/s. 153A/143(3) only on the basis of incriminating materials.
It is a well settled law that the addition during the search proceedings can be made only on the basis of incriminating materials found during the course of search. As there was found no incriminating materials pertaining to the period beginning from 01.07.2010 to 31.03.2011 i.e. remaining three quarters of the FY 2010-11, therefore no addition can be made in the hands of assessee. In holding so, we find support and guidance from the order B. Srinivasa Rao (supra).
Besides the above, we find that a bare reading of sec. 263 of the Act makes it clear that the prerequisite for the exercise of jurisdiction by the A.Y. 2011-12 M/sAmalgamated Transpsort & Co. vs. Pr.cit, Cen-2, Kol. Page 5 Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied with twin conditions, namely, (i) the order of the Assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent e.g. if the order of the Income-tax Officer is erroneous but is not prejudicial to the interest of the Revenue or if it is not erroneous but is prejudicial to the interests of the Revenue - recourse cannot be taken to sec. 263(1) of the I.T. Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when the order is erroneous and prejudicial to the Revenue, the provisions of section will be attracted. The phrase "prejudicial to the interests of the revenue" is not an expression of art and is not defined in the Act. It is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue.
In holding so, we find support and guidance from the order Malabar Industrial co. limited vs. CIT 243 ITR 83 wherein it was held as under: “where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law.”
In view of the above, we find that the AO has consciously added the undisclosed income based on the incriminating material. Now the view taken by the AO cannot be substituted by the CIT under section 263 of the Act. It is because the AO has taken a possible view as established by various courts as A.Y. 2011-12 M/sAmalgamated Transpsort & Co. vs. Pr.cit, Cen-2, Kol. Page 6 discussed above. Thus, we hold that the impugned order passed u/s 153A/143(3) by the AO cannot be revised u/s 263 of the Act. Hence, this ground of assessee is allowed.