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Income Tax Appellate Tribunal, Kolkata Bench, KOLKATA
Before: SRI ABY T.VARKEYAND DR. A L SAINI
Per AbyT.Varkey, JM
This is an appeal preferred by the assessee against the order of the CIT- IX, Kolkata, passed u/s 263 dt.15.03.2016, for assessment year 2012-13.
At the outset itself the Ld. Counsel for the assessee, Mr. D. S. Damle, pointed out that though they have raised 7 grounds of appeal, the assessee is inclined to press only Ground No. 5 which is reproduced as under: 5) For that on the facts and in the circumstances of the case, the CIT having issued show cause notice u/s 263 with regard to only two specific issues the order passed u/s 263 setting aside the entire assessment and directing the AO to pass de-novo order be held to be bad in law and be therefore cancelled.
Brief facts of the case is that the assessee filed return of income for the instant assessment year 2011-12 showing total income of Rs. 23,46,550/-. The AO notes that a survey was conducted on 21.01.2013, on the assessee’s premises and taking note of various aspects made an addition u/s 68 of Rs. 2,50,21,568/- and the scrutiny assessment was completed by an order dt. 28.03.2014. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) against the addition made by the AO vide order dt.28.03.2014. When the appeal was pending before the Ld. CIT(A) against the order of the AO dt. 28.03.2014, the PR. CIT initiated revisional jurisdiction u/s 263 of the Act and issued notice dt. 15.01.2016, raking up two issues which according to the PR. CITwas not enquired properly by the AO. After receiving the reply of the assessee in respect to the two issues raked up in the show-cause notice dt. 15.01.2006 i.e. regarding introduction of capital by partners and in respect of certain purchase and sale transactions which according to the CIT was with related parties, within the meaning of Section 40(A)(2)(b) of the Act. After perusal of the reply of the assessee the Ld. PCIT passed an order u/s 263 of the Act held as under:
“I have carefully gone through the submissions of the assessee. However, the replies given by him on both the issues are vague and general in nature. The assessee admitted that purchase and sales are made with related concerns, but no details have been filed in support of the claim that the transactions are all bona-fide and at prevailing market rates. Source of introduction of capital has also not been satisfactorily explained by establishing identity, credit worthiness and genuineness of the transactions. Under the circumstances I am of the considered opinion that it is a fit case for invoking provisions u/s 263 of the I.T. Act. Thus the assessment orderdt. 28-03-2014 is set aside u/s 263 with the direction to the AO to frame the assessment de novo. While framing the assessment the AO shall consider above mentioned issues and conduct the necessary enquiries in this regard. The AO shall provide a reasonable opportunity of hearing to the assessee before finalizing the assessment. Aggrieved by the aforesaid order of the PR. CIT, the assessee has preferred the instant appeal before the Tribunal.
As cited earlier, though there are 7 grounds of appeal, the assessee has pressed only ground no. 5 which has been reproduced above. The main grievance of the assessee is that once the PR. CIT has issued show cause notice in respect to two issues specifically, i.e. regarding capital introduction by partners and purchase and sale transaction by the assessee with related parties, and after considering the explanation of the assessee to the show-cause notice in respect to the said issues, ought not to have ordered de-novo assessment as it clearly exposes the arbitrary exercise of power and without application of mind and thus vitiating the impugned order. The Ld. AR stressed the aspect that when the show cause notice raised only two issues, the CIT should not have ordered de-novo assessment which is against the principle of natural justice by which the Pandora box has been thrown opened, with the assessee not knowing the reason which triggered the CIT to order the de-novo assessment. The Ld. AR also pointed out that the AO while giving effect to the order of the Ld. CIT has not disturbed the addition made u/s 68 of the Act in the original assessment dt. 28.03.2014 and has already made only extra addition on the two issues that have been raised by the Ld. CIT, in his order dt.15.03.2016.So, therefore, according to ld AR, the order of the Ld. CIT is erroneous being hit for violation of natural justice. On the other hand the Ld. DR relied upon the order of the Ld. CIT and does not want us to interfere in the order of the Ld. CIT.
We have heard both the parties and perused the records. We take note that the AO in the original assessment passed on 28.03.2014 has made an addition of Rs.2,50,21,568/-, u/s 68 of the Act. Thereafter, when the assessee’s appeal was pending before the Ld. CIT(A) against the said order of the AO dt. 28.03.2014, the PR. CIT while exercising his revisional jurisdiction u/s 263 has issued show cause notice to the assessee pointing out two issues i.e. one in respect of capital introduction by partners and in respect of related party 3 transactions. We take note that after perusal of the reply of the assessee, the Ld. CIT was not convinced and so, he has stated that the two issues need necessary enquiries to be conducted by the AO. Thereafter, he while passing the impugned order has stated that the AO to frame the assessment de-novo. It is an admitted fact that the Pr.CIT, while issuing the notice u/s 263 on 23.11.2015 has raised only two issues i.e. in respect of capital introduction by partners as well as the related party transactions of the assessee. After perusal of the reply of the assessee the Ld. Pr.CIT has not accepted the reply of the assessee and wanted the AO to conduct necessary enquiries in this regard and while passing the impugned order has used the expression “the AO to frame assessment de-novo”. We take note also that after passing the direction to the AO to frame the assessment de-novo, the Ld. Pr.CIT expressly stated “ while framing the assessment the AO shall consider the above mentioned issues and conduct necessary enquiries in this regard”. So, from a plain reading of the above direction it transpires that the order of the Ld. CIT was only confined to the two issues that he pointed out in the impugned order u/s 263 of the Act.
We also take note that the AO while giving effect to the order u/s 263 of the Act has not disturbed his original assessment order in respect to addition u/s 168 of the Act and as such on that issue no further addition has been made. The only other addition which has been made by the AO is in respect to the two issues which has been raised by the Ld. CIT in his 263 order. So in substance, the order of the Ld. CIT can be said to have been taken effect only in respect to the two issues that have been raised by the Ld. CIT in his show cause dt. 23.11.2015 and we take note that no other issues were taken up by the Pr. CIT before passing the impugned order. When the Pr. CIT did not confront the assessee in respect to any other issues barring the two issued he racked up, he ought not to have ordered assessment to be framed de-novo which is per-se arbitrary, whimsical and shows non-application of mind and 4 violates the principles of natural justice. Therefore, we find force in the contention of the assessee that the direction to the extent given by the Pr. CIT to the AO u/s 263 in the peculiar facts and circumstances of this case is only in respect to the issues that have been raised in his show cause notice dt. 23.11.2015 and which have been specifically addressed by the Ld. Pr.CIT in his impugned order u/s 263 of the Act and it cannot be in respect of other issues which has not been discussed in the said order and with this observation we dispose of the appeal preferred by assessee. Secondly, we would like to clarify that the order of the Pr. CIT giving direction to the AO to conduct enquiries in respect to the introduction of capital by partners and in respect to related party transactions is not disturbed by us and we learn that the AO, has given effect to the said order and has made addition on these two issues only and the addition made u/s 68 in the original assessment has not been disturbed. Therefore, we partly allow ground no. 5 raised by the assessee.
In the result the appeal of the assessee is partly allowed. Order pronounced in the Court on 31 .01.2017.