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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: Shri Joginder Singh & Shri Rajendra
आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 11/06/2013 of the ld. Commissioner of Income Tax, Mumbai, exercising revisional jurisdiction u/s 263 of the Income Tax Act, 1961 (hereinafter the Act), when the original assessment order was neither erroneous or prejudicial to the interest of the Revenue.
During hearing, the ld. counsel for the assessee, Shri M.C. Nanidwadekar, claimed that impugned issue is covered by the order of the brother of the assessee Shri Surendra Bhimshi Gangar (ITA No.5552/Mum/2013), order dated 16/10/2015, by explaining that though invoking jurisdiction u/s 263 of the Act is correct but the assessee is aggrieved only by the direction contained in the order. The ld. CIT-DR, Shri M. Dayasagar, defended the order.
2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the aforesaid order of the Tribunal dated 16/10/2015 for ready reference:-
“ The present appeal filed by the assessee is against the order dated, 11.06.2013 passed by the CIT u/s. 263 of the Income Tax Act 1961 (hereinafter to be referred as 'the Act') for the A.Y. 2009-10.
2. The assessee has raised the following grounds of appeal:-
"1. On the facts and circumstances of the case and in taw. the learned CIT erred in exercising jurisdiction u/s. 263 of the Income Tax Act;. when the original Assessment was neither erroneous nor prejudicial to the interests of the revenue.
2. The learned CIT erred in directing Assessing Officer to bring to tax the sum of Rs.143/000/- (being advance towards transfer of rights in tenanted shops) The learned CIT erred in treating the amount as rental income/ when the true character of the amount was an advance receipt for transfer of rights.
3. The Learned CIT erred in directing the Assessing Officer to bring an amount of Rs.1,20,000/- (on account of alleged low drawings) to tax u/s. 69C as unexplained expenditure/ purely on the basis of unfounded guesswork. Learned CIT failed to appreciate that section 69C is wholly inapplicable when the incurring of unexplained expenditures itself is unproved. This is particularly the case when exercising jurisdiction u/s. 263: the Assessing Officers order cannot be termed as erroneous merely on surmises and guesswork.
4. The learned CIT erred in directing the Assessing Officer to bring an amount of Rs.1,40,000/- ( on account of alleged foreign travel expenses) to section 69C when there was no material whatsoever to conclude that there was any unexplained expenditure at all. This is particularly the case when exercising jurisdiction u/s. 263: the Assessing Officers order cannot be termed as erroneous merely on surmises and guess work.
5. The learned CIT erred in directing the Assessing Officer to bring to tax medical allowance of Rs15,000/- without appreciating that the same as a reimbursement and was not of income nature.
6. The learned CIT erred in directing the Assessing Officer to verify the disallowance of Rs.2,07,773/- (on account of alleged excess claim of interest). The CIT failed to appreciate that the assessee’s calculation of interest deduction was justified and the claim was in this regard.
7. The learned CIT erred in directing the Assessing Officer to tax rateable value in respect of two properties, without at all pointing out any error in assessee’s computation of income in this regard.
8. The order of the CIT is erroneous, and wholly without jurisdiction. In particular CIT did not appreciate that ‘error’ envisaged by section 263 is an actual, proven error and not one which depends
on possibilities.
Brief facts of the case are that the return of income filed by the assessee on 30.06.2010, for the Assessment Year 2009-10 declaring total income of Rs.1,10,04,670/- was accepted by the Assessing Officer vide order dated 16.11.2011. However, on 24th of August 2013, the CIT-17 issued notice u/s. 263 to the assessee, the contents of which are as under:
"The assessment for A. Y. 2009-10 in your case was completed u/s. 143(3) of the Income tax Act an 16/11/20.!.1 by the Assessing Officer, DOT 17(2), Mumbai accepting income of Rs. 1,10,04,670/- returned by You. On verification of records, it is noticed that before accepting the returned income, the Assess/rig Officer failed to examine various Issues and conduct appropriate investigations and en quit/es On various issues. relevant to determination of assessable income for the above Assessment Year as detailed below: 1. The bank statement available on record reflects Rs. 93,000/- received. against shop no. D-16 at Dadar and Rs.000/- against Shop no. C-12 at Dadar, however, the same has not been offered for taxation in computation of income. In the preceding assessment year rental income of Rs.1,35,0001- was offered to tax. It Is apparent that, the amount received this year is not offered to tax but /5 shown as advance against premises in the llability side of the balance sheet. This was not scrut/nLed and appropriate rental income from above property was not brought to tax by the Assessing Officer before completing the assessment
2. You have shown withdrawals of only Rs. 60,,349/- in the capital account Considering the day-to-day household expenditure commensurate with your status, the drawings shown by you are apparently inadequate The Assessing Officer has not enquired about 'reasonableness of the drawings vis-a-vis your lifestyle and household expenses. The Assessing Officer ought to have considered strength of you family, travelling and other personal events organized by you, education of children, expenses of maintenance of telephones, Mobiles by various family members and maintenance of vehicle. for personal use etc and other day to day expenses.
3. In the capital account you have shown Aurora Travels Tours expenditure of Rs. 97,,2581- and Thomas Cook Pvt Ltd expenditure of Rs. 83,500/- apparently indicating local as well as foreign tour. It is, however seen that the relevant travelling and other expenses are not indicated in the capital account, the same ought to have been examined by the Assessing Officer with reference to various trips, indicating foreign travel, if any Indicated iii the passport.
4. The Assessing officer has not ascertained particulars of various bank accounts maintained by you (inclusive of account with central bank of India which appears to have been dosed during the year) and your family members, summary of these bank accounts, credits and debits in these bank accounts for bringing to tax all taxable credits. The Assessing Officer also did not enquired about your other activities during the relevant previous year Such as membership of various clubs, various credit cards held by you and your family members and transactions through them. The Assessing Officer also did not examine Demat A/c. maintained by you to examine share transactions during the year, if any.
5. You have debited only Ps. 4483O/- in the capital account on account of credit card which appears to be very low. The Assessing Officer has not called for and scrutinized statement of various credit cards held by you and members of your family before accepting your claim in this regard.
6. You have shown Rs. 15,000/- as reimbursement of medical expenses and apparently claimed as exempt but the whole of this amount capitalized in the capital account as receipt of medical allowance which was taxable as no corresponding medical expenditure is shown in the capital account. It is also seen that in the preceding year you showed directors remuneration of Rs. 50,000/ in the current year the director's Remuneration is reflected at Rs.5,85,000/- Change in terms of employment ought to have been examined by the Assessing Officer. It is seen that, against gross interest income of Rs. 28,53,598/- you have claimed deduction of Rs. 14,02,209/- being interest paid on 1uborrowed funds. The Assessing Officer neither called for details nor did you furnish any details establishing direct nexus of interest bearing borrowed funds with advances on which the interest has been received by you. It is seen that as against interest bearing advance of Rs. 1,75,25,000/- in the preceding year, the interest bearing advance during this assessment year have increased to Rs.2,47,50,000/-: The increase in advance is apparently originating from increase in assessee's Capital by an amount of Rs. 88.78 lacs. It is also seen that, in the preceding year assessee claimed deduction of interest payment of only Rs.6,85,758/- The claim is increased by the assessee in this assessment year to Rs, 14,04209/-, whereas interest bearing borrowings of the assessee have remained stagnant at Rs. 2.5 Crores as in the preceding year. The claim of deduction of Ps.14,02,209/- ought to have been therefore, scrutinized by the Assessing officer by examining direct nexus of interest bearing borrowed funds with interest bearing advances and application of funds towards personal expenses and assets generating exempt income. The excess claim ought to have been disallowed It is, therefore, apparent that the Assessing Officer did not examine the issue with proper application of mind.
8. In the preceding year you were partner in Gangar opticians and Gangar optician (Vashi) but it is apparent from balance sheet and capital account that the you retired from these firms in this year, The Assessing Officer ought to have examined your copy of account in these firms and terms of retirement 9. In the capital account, you have shown Penalty for improper stamp duty (Poonawadi flat) of Ps. 1,000/- and fiat maintenance- ViMal . r.nruti of Rs.2,14,289/- whereas in the balance sheet, you have shown Old Flat valued at Rs.11,60,018/- and Flat at Santacruz valued at Rs,28,58,644/- This apparently indicates ownership of three flats. The assessing officer ought to have examined the same with regard to taxability of income from the same as per the provisions of law.
10. Thus, it was clear that the assessment order passed by the Assessing Officer was without conducting proper investigations and without proper application of mind and was an erroneous order which was prejudicial to the interest of Revenue. It has been held by the Hon 77/e Allahabad High Court in the case of CIT vs. Shagavandas (272 ITR 267) and P T Laskar Ram vs. C1T 272 FIR 309 that action u/s. 263 is valid where theassessment order is passed without application Of mind by the Assessing Officer and without conducting proper enquiry. The same view has been confirmed by Madras High Court in the case of Ashok Leyland ltd. vs. CIR 260 ITR 599.
In .view of the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue. Therefore, you are given an opportunity to explain d5 to why the assessment order should not be set aside u/s. 263 of the IT.Act For the purpose, you may appear either personally or through your Authorized Representative to represent in the matter before the undersigned on 31st August at 11.00 Hrs. In the alternative, you may represent through written submissions in the matter and same shall be considered before finalizing the proceedings.
The Ld. CIT after receiving written reply to the notice issued u/s 263 of the Act, heard the assessee and decided the issues in question as under:-
In view of the submissions of the assessee, that he had decided to transfer the rights in shop Nos. D-16 and C-12 at Dadar, he received an amount of Rs.93,000/- and Rs.50,000/- on 12.01.2009 as advanced towards his share in tenanted shop nos. D-16 and C-12 aforesaid and that since the shops were in the process of getting transferred, he did not receive any rent during the year but had received rental income of Rs.1,35,000/- in AY 2008-09, the Ld. CIT. issued directions to the AO to bring to tax an amount of Rs.1,43,000/- holding the same as the revenue receipt.
4.1 On the issue of withdrawal of Rs.60,349/- after taking into consideration, the submissions of the assessee that he and his wife had withdrawn Rs.1,20,000 for household expenditure, the Ld. CIT applying the ratio laid down by the Nora)le Madras High Court in CIT vs P.S. Chelladurai 145 ITR 139 and Ramaswami Naidu vs CIT 93 ITR 341, that the household expenses of the assessee can be estimated at Rs. 2,40.000/-@ Rs.20,000/- per month, held that the difference of Rs. 1,20,000/-is deemed to be income for incurring unexplained expenditure and issued direction to the AO to bring to tax the said amount as deemed income u/s 69C of the Act.
4.2 In view of the reply of the assessee that he had travelled to Turkey and Greece along with his wife through Arora Travels—Tours Pvt Ltd. and had paid Rs.87,258/- towards tickets visa and taxes" the Ld. CIT after examining the concerned agent on the basis of the related documents, issued directions to the AO to bring to tax the unexplained expenditure of Rs. 1,40,000/- asdeemed income u/s 69C of the Act.
4.3. As regards exemption of medical claim, the Ld.
CIT has observed that as per the first proviso to section 17(2) of the Act, the reimbursement ofmedical expenses is exempt to the extent of Rs. 15.000/-, provided the expenditure is actually incurred by the employee duly supported by requisite vouchers. The Ld. CIT issued direction to the AO to bring to tax the medical allowance of Rs.15,000/-received by the assessee from the employer on the ground that the assessee has failed to produce the requisite vouchers. 4.4 During the year the assessee had paid total interest of Rs. 25,09,376/- and had claimed only Rs. 14,02,209/- as deduction from the interest earned shown under the head Income from other sources. As per the submission of the assessee, he had not claimed deduction of interest to the extent of Rs. 11,07,167/- as the said interest was paid on the loans received from investment in share. The Ld. CIT after going through the fund flow position for the FY 2007-08 and calculation of deductible interest, submitted by the assessee, held that there is no direct nexus between the entire amount of interest bearing loan taken and given. The assessee has not used the entire amount of loan received to advance loans to others. There are instances where, at the time of advancing loans, the assessee already had other credit balances in his bank accounts apart from the loan received. Thus it cannot be said that entire loan advance were out of interest bearing loan taken. The Ld. CiT further issued the direction to the AO to verify the disallowance holding that the claim of assessee is disallowable to the extent of Rs. 2,07,773/-.
4.5 As regards details of flats, the assessee has stated that he owned housed properties at Poonawadi CHS Ltd. Dadar, at a cost of Rs.4,79,218/-, Vimal Smruti CHS Ltd. Dadar at cost of Rs.6,7C,800 and Trimurti CHS ltd.,Santacruz at the cost of Rs.28,58,644/-. The assessee had paid Rs.2,14,289 as flat at maintenance to the builder for the period 01.11.2005 to 30.09.2008. In view of the submissions of the assessee, the Ld CIT holding that value of Rs.55000/-and Rs 10,000/- respectively, brought to tax as per the provisions of section 23(4) of the Act, in respect of two properties claimed by the assessee to be m u c h l o w e r s i d e , i s s u e d d i r e c t i o n s t o t h e A O t o t a k e i n t o account the past history of these properties and conduct proper enquiry to arrive at a judicious and relatable value and to bring to tax such value in respect of the two properties in question.
We have heard the rival submissions of the parties and perused the relevant record. The Ld. counsel for the assessee submitted that the order of the Ld. CIT is without jurisdiction as the 'error' envisaged by section 263 of the Act, is not one which depends on possibility or guess work, but it should be actually an error either of facts or of law; The order of the AO cannot be termed as erroneous merely on surmises and guesswork and the Ld. CIT hasdeviated from the grounds of revision as set out in the show cause notice while passing the impugned order which is not permissible under the law. The Ld. Counsel for the assessee further contended that the Ld. CIT has no jurisdiction to direct the AO to bring to the tax a specified amount as calculated by him, while exercising the revisional jurisdiction.
On the other hand the Ld. DR submitted that the Ld. CIT has rightly passed the order in question in the light of the facts of the case and as per the provisions of law.
We have carefully perused the orders of the authorities below in the light of the rival submissions of the parties. The appellant has challenged the impugned order mainly on two grounds, i.e. a), the order passed by the Ld. CIT is not in accordance with the law because the assessment order passedby the AO is neither erroneous nor prejudicial to the interest of the Revenueand, b), the Ld. CIT has no jurisdiction to direct the AO to bring to tax theamounts mentioned in ground No 2 to 6 of the appeal; direct to verify disallowance of Rs.2,07,773/-on account alleged excess claim of interest and to bring to tax rateble value in respect of two properties mentioned in ground No.6 and 7respectively, while exercising the powers u/s 263 of the Act.
Therefore, there are basically two issues before us for adjudication i.e,(i) whether the Ld. CIT had jurisdiction in the present case to exercise the revisional power envisaged by section 263 of the Act? and ii) whether the Ld. jurisdiction to direct the AO to bring to the tax the amounts specified in ground No 2 to 6 of the appeal ?
So far as issue No 1 is concerned, as per the settled law, the power of suo motu revision under section 263 ( 1) is in the nature of supervisory jurisdiction and the same can be exercised by the authority concerned if it considers that any order passed by the assessing officer is erroneous in so far as it is prejudicial to the interest of the revenue. In the present case, the Ld . CIT has pointed out certain issues on the basis of which he has concluded t h a t t h e A O h a s p r i m a f a c i e f a i l e d t o c o n d u c t a p p r o p r i a t e 9enquiries/investigation relevant for determination of income of the assessee. Hence, in view of the settled law and in the light of the facts of the case, it is incorrect to say that in the present case the power exercised by Ld.CIT under section 263 of the Act, is without jurisdiction and the original Assessment order was neither erroneous nor prejudicial to the interest of the revenue. Since the facts of the case in hand and the material on record do not suggest that the Ld. CIT has exercise the revisional power on the basis of surmises and conjunctures, we hold that the LD. CIT has rightly exercised his powers in accordance with law. The first issue is accordingly decided against the appellant and in favour of the Revenue.
The second issue is whether the order of the Ld. CIT directing the AO to make addition of the amounts mentioned in ground No 2 to 6 of the appeal to bring the same to tax is within the ambit of section 263 of the Act? or in other words, whether the CIT has power u/s 263 of the Act to direct the AO to add a specific amount calculated while exercising revisional power, tothe income of the assessee to bring the same to tax? TheHon’ble High Court of Karnataka in Sankar Construction Co vs Add! CUT (2001) 124 STC 265, 271 (Karn) has held that the revisional authority has vide powers exercisable in cases where the decision has been prejudicial to the interest of the revenue , and in exercise of those powers modifications are permissible, and if the authority is of the view that the assessment is required to be done afresh, such direction can be issued to the assessing authority. But it is wholly impermissible for the revisional authority to step into the shoes of the assessing authority and to redo the assessment or pass a fresh assessment order, In the present case the Ld. CIT has calculated the amounts under different heads and directed the AO to bring the same to the tax. In the light of the ratio laid down by the Honible Karnataka High Court in the case(supra), the Ld. CIT has no jurisdiction to assess the return filed by theassessee while exercising powers under section 263 of the Act and to further direct the AO to bring to tax, the amount calculated in the process of calling for the record under section 263 of the Act. The CIT can direct the AO for further enquiry/verification for the purpose of fresh determination on his arriving at the conclusion that the earlier findings of AO is erroneous and prejudicial within the meaning of section 263 of the Act
In the present case the Ld. CIT himself has determined and quantified amounts to be added to the income of the assessee and directed the AO to add the same to the income of the assessee, which is, in our opinion not permissible as the amounts to be added, if any, to the income of the assessee, the same is required to be determined by the AO concerned after conducting fresh/further enquiry/verification in the light of the observations of the Ld. CIT. No doubt, the Ld. CIT has power to direct the AO to re-assess the return of income of the assessee, or modify the same, however, he has no power to direct the AO to add the amounts so determined by him. Issuing of direction by the CIT to the AO to bring to tax a particular amount will certainly tentamount to re-assessment of return by the CIT while exercising revisional powers u/s 263 of the Act, which is not permissible under law, as he law does not permit any authority to exercise any power indirectly which it cannot exercise directly. Only the AO has jurisdiction to determine the amounts under the different heads, that too after conducting further enquiry and verification. Hence, in our considered opinion, the Ld. CIT has nojurisdiction to direct the AO to bring to the tax the specified amounts mentioned in ground No 2 to 5 of the appeal. The second issue is, therefore, decided against the Revenue and in favour of the assessee. The Ld. CIT has not directed the AO to add any particular amount mentioned in ground No 6 and 7 of the appeal, to the income of the assessee, therefore, the AO bound to comply with the directions issued by the Ld. CIT in respect ground No 6 and 7. Accordingly, we modify the findings of the Ld. CIT to that extent and direct the AO to re-assess the return of the assessee in the light of the shortcomings in the original assessment pointed
out by the Ld. CIT, without being influenced by the calculations made and direction issued by the Ld. CIT, to add the amounts mentioned in grounds 2 to 5 of the appeal to the income of the assessee.
The additional issue raised by the Ld. AR that the Ld. CIT has deviated from the issues set out in the notice under section 263 of the Act does not hold water as the findings of the Ld. CIT pertain to the issues raised in the notice only.
In the result, appeal of the assessee is partly allowed.”
If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, direction contained in the aforesaid case, decided by the Tribunal, which pertains to brother of the assessee, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that on identical fact, revisional jurisdiction was initiated/invoked in the case of the brother of the assessee on identical fact. However, so far as, invocation of jurisdiction is concerned, we find no infirmity in the same but it is noticed that the Ld. Commissioner of Income Tax has exceeded its jurisdiction in directing the Assessing Officer to make addition and bring to tax particular amount. Thus, the ld. Assessing Officer is directed to follow the directions contained in the aforesaid order of the Tribunal, consequently, to the above extent, the appeal of the assessee is allowed.
Finally, the appeal of the assessee is partly allowed and is disposed of in terms indicated hereinabove.
This order was pronounced in the open in the presence of ld. representatives from both sides at the conclusion of the hearing on 23/05/2016.