SHRI. SANTHAKUMAR DAMODARAN NADAR,TRIVANDRUM vs. THE ITO, WARD -1(3), TRIVANDRUM

This Appeal by the Assessee is directed against the Order under section 263 of the Income-tax Act, 1961 (the Act), dated 26.03.2022, by the Principal Commissioner of Income-tax, Thiruvananthapuram (Pr. CIT), in respect of the assessee’s assessment u/s.143(3) of the Act dated 15.12.2019 for assessment year (AY) 2017-2018.

The first issue confronting us is the condonation or otherwise of the 163-day delay attending the filing of the instant appeal. The condonation petition dated 31.10.2022, supported by a sworn affidavit dated 17.11.2023, attributes the delay to the advice of the previous counsel (not named) inasmuch as the assessment subject to revision had been appealed against. It was only on contacting a senior Chartered Accountant (again, not named) that filing an appeal against the impugned order was advised, explaining the delay. This is, clearly, grossly inadequate and short of the ‘sufficient cause’ that must suffuse the delay for it to merit condonation. True, an (AY 2017-18) Santhakumar Damodaran Nadar v. ITO assessee is bound by the advice of his counsel, but errors of judgment, i.e., assuming so, on the part of the earlier counsel, would hardly qualify as a sufficient cause. The assessee, where unsure, ought to have sought second opinion at the relevant time, rather than much later, which could in that case extend to months or even years. Rather, what one wonders, occasioned the same, months later. On being queried thus, including the names of the counsels, and the date of the ensuing assessment order, it was explained by Sri. Krishnan, the learned counsel before us, that he is the Senior Chartered Accountant (CA) referred to in the condonation petition, advising the assessee for the instant appeal on being approached for appeal against the order u/s. 143(3) r/w s. 263, filed on 26.10.2022, followed by the instant appeal on 04.11.2022. This explanation, which we have no doubt of being true, sure alters the assessee’s – who is in no position to evaluate the merits of the advise offered, case, giving it a touch of reality, evident from the fact that the appeal was not filed earlier, but only later, i.e., soon after the appeal against the ensuing assessment. This, again, does not though bolster the assessee’s case to enable us issue a finding as to ‘sufficient cause’, as second opinion, as afore-stated, could always be, and is to be, exercising diligence, sought, even if by way of abundant caution, at the relevant time; it being common knowledge that statutory remedies come with a time limitation. So, however, the ‘advice’ of non-appeal goes against the basic understanding of the scheme of the Act, which should not, therefore, prejudice the assessee. We say so as an appeal against an assessment is qua the assessee’s grievance with reference thereto, while the subject matter of a sec. 263 order is the prejudice caused to the Revenue thereby. That is, the two have little, if any, interface, and toward which one may refer to Explanation 1 (c) to s.

However, it is yet a subjective matter, and one counsel’s advice could always differ from that by another. It, i.e., the merit of the advice – and which would necessarily involve forming an opinion thereon by a third person, as by us, by itself should not be allowed to, at least ordinarily, factor into the equation of a reasonable cause, i.e., in principle. We, therefore, exercising circumspection, proceeded to hear 2 | P a g e

As regards the merits of the case, the assessee’s return of income for the relevant year, filed on 12.3.2018 at an income of Rs.5.18 lakh (sourced from the business of poultry products and feeds), was selected for being subject to the verification procedure under the Act, i.e., as a limited scrutiny case, to verify the cash deposits during the year, at Rs.1004.41 lakhs. The same were found to be an undisclosed receipt of his business, i.e., to the extent of Rs.76.70 lakh, the balance being already included in the sales, duly credited to the operating income statement for the year. In view of the ld. Pr. CIT, the Assessing Officer (AO) had, in making the assessment, failed to consider the non-cash deposits, found by him at Rs.31.07 lakhs. The same, as argued by Sri Krishnan, amounted to enhancing the scope of the assessment, impermissible where the jurisdiction for assessment stands assumed for a limited, defined purpose only. True, but at the same time, this comes with a liberty to the AO, whose powers in the matter of assessment are plenary, to, subject to observing a procedure, cause the scope of the assessment to be enhanced. This is provided per the same Board Instruction/Circular that confines the AO’s jurisdiction, with a view to ensure the quality of the inquiry/investigation process and, thus, the assessment, by targeting it to the areas specified in the s. 143(2) notice. In the facts of the instant case, the AO, though observed non-cash deposits during the assessment proceedings, which were found to be ‘income’, yet excluded the same in view of the limited scope of the verification in terms of the Board Circular. Non-invocation of the said liberty, being in breach of the terms of a Board Circular, would therefore attract revision under Explanation 2(c), which reads as under:- 263. Revision of orders prejudicial to revenue.—(1) The Principal Commissioner or 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 3 | P a g e (AY 2017-18) Santhakumar Damodaran Nadar v. ITO 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 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

A perusal of the Board Circular (F.No.225/402/2018/ITA.II, dated 28.11.2018), called for from the parties, and placed on record by Sri Das, the ld. CIT- DR, places an embargo on the AO to travel beyond the issue/s for which the case was selected, with a view to enforce a check and balance upon the power of the assessing authority to do fishing and roving inquiry in limited scrutiny cases. The extension in scope of assessment would only be on the basis of inputs as to tax evasion for the relevant year provided by the law enforcement/intelligence/regulatory authority /agency. The same, thus, in departure from the earlier such Circulars, providing for inclusion of other areas for verification on the same coming to the notice of the AO during assessment proceedings, is severely restricted, i.e., to specific information or credible material that comes to the Revenue from the stated sources. The non-cash credits, excluded by the AO in the instant case, certainly do not fall under the said exception, which could, adopting the procedure specified, be included in the scope of the assessment, as would otherwise be incumbent on him to. The ld. Pr. CIT is thus wholly incorrect in finding the assessment erroneous on that count, i.e., the AO not including the non-cash deposits in computing income. 4 | P a g e

We have also expressed our clear, unequivocal opinion on the merits of the instant appeal. The ld. Pr. CIT directing the AO to consider non-cash credits, is, in view of the Board Circular dated 28.11.2018, cited supra, misconceived inasmuch as it would be an excess of jurisdiction by the AO. He has thus rightly refrained from, despite finding it to be an undisclosed income, making an addition qua the said deposits in the assessee’s bank account; his action being, much less in conflict, in conformity with the said Board Circular.

The reference by the ld. Pr. CIT to the decision in CIT v. Amitabh Bachchan [2016] 384 ITR 200 (SC) for seeking said extension, is misplaced. The Apex Court in that case reiterated the law explained by it in Gita Devi Agarwal v. CIT [1970] 76 ITR 496 (SC) and CIT v. Electro House [1971] 82 ITR 824 (SC), that the notice u/s.263 is not a jurisdictional notice and, therefore, the scope of revision, subject to grant of opportunity, is not limited to the said notice. The question here is not of the subject matter of the said notice, but whether the impugned assessment could be, 5 | P a g e

Though Sri. Das would draw our attention to the possibility of the addition of Rs.76.04 lakh being under-valued, i.e., given the manner of its working, which cannot be denied, and seek directions in its respect from us, we are not impressed. The question of undisclosed cash deposit, surely an incident for revision under Explanation 2(a) to s. 263, is not the subject matter of the impugned order. Any such error, as Sri Krishnan would explain, could be, exercising his power of enhancement, addressed by the first appellate authority, which aspect though, to our mind, is incidental to, and not determinative of the matter. The objection by Sri Das is misplaced, even as his concern may not be. No direction is accordingly warranted.

Finally, we may, before parting, address an aspect not raised and, therefore, not taken into account in our adjudication. That is, the power of CBDT to place limitation on the power of assessment of the AO, an independent authority for assessment under the Act. The same is the subject matter of settled law by the Apex Court per a series of decisions rendered in the context of general and special powers of the Board u/s.119 of the Act. The question for considering the same would though arise only where the AO ‘violates’ the Board Circular, and not, where he, as in the instant case, submits thereto. In any case, no argument on these lines stood advanced before us, nor in fact could be, as the impugned order is de hors the said Circular, nor indeed the Circulars for the preceding years, i.e., qua CASS cycles 2015 and 2016, departed from by the Board on the pretext of preventing fishing and roving inquiry by the AO.

In view of the foregoing, we find no merit in the impugned revision and, therefore, direct its cancellation. We decide accordingly, and the assessee succeeds.