ARABINDA ROY,HOOGHLY vs. C.I.T KOLKATA - XX, HOOGHLY

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

This appeal has been filed by the assessee relating to assessment year (AY ) 2008-09 is against the order passed by Commissioner of Income Tax-XX, Kolkata under the provision of Section 263 of the Act of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide No. CIT-XX/Kol/Revision u/s. 263/28/2012- 13 dated 06/19.03.2013. Assessment was framed by ITO Ward-1(4), Hooghly u/s 143(3) vide his order dated 23.12.2010. The grounds raised by the assessee per its appeal are as under:-

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 2 “1. FOR THAT none of the conditions precedent for the assumption of jurisdiction u/s. 263(1) of the Income Tax Act, 1961 existed and/or have been complied with and/or fulfilled on the part of the Ld. Commissioner of Income Tax, Kolkata-XX, Kolkata in the instant case and the specious order dated 06- 03-2013 passed u/s. 263 of the Income Tax Act, 1961 in pursuance to the impugned notice dated 08-08-2012 is therefore ab initio void, ultra vires and ex-facie null in law.

Shri Somnath Ghosh, Ld. Authorized Representative appeared on behalf of assessee and Shri Sachchidananda Srivastva, Ld. Departmental Representative appeared on behalf of Revenue.

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 3 3. Facts in brief as have been brought on record that assessee, an individual, is engaged in the trading business of potato. The assessee filed its income tax return for the year under consideration on 19.09.2008 showing total income of ₹1,13,464/-. Thereafter the case was selected for scrutiny assessment and accordingly notice u/s 143(2) r.w.s. 142(1) of the Act issued. The assessment was framed at ₹2,18,330/- after making certain disallowance / addition to the total income of assessee.

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 4 40A(3) of the Act and this issue was not at all examined by the AO while framing his assessment order. (e) The assessee has shown agricultural income of ₹5,000/- per annum for the year under consideration but he owns no agricultural land by way of ownership as per its balance-sheet.

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 5 carried forward from the earlier year. The payment was made in the current year for the purchases made in the preceding year. (iv) With regard to cash cheque issued by assessee, it was submitted that Shri U Tiwari is the regular employee and he was authorized to withdraw money from bank. Accordingly after withdrawal of money, payments were released to the sundry creditors and in none of the case, the payment was exceeding of ₹20,000/- in a day. Therefore, the provision of Sec. 40A(3) r.w.r. 6DD of the IT Rules have no application in the instant case of assessee. (v) The assessee with regard to agricultural income of Rs.5,000/- submitted that agricultural land was inherited. So the agricultural land in question was not reflecting in the balance-sheet of assessee. However the agricultural income was also shown in the earlier year which was duly verified by predecessor of AO without any dispute. Therefore, it should be accepted as normal agricultural income of assessee. However, Ld. CIT in his order u/s. 263 of the Act disregarded the claim of assessee by observing as under:- i) The contention of the assessee that the loans of Rs. 2,50,000.00 were brought forward from the earlier years needs to be verified by the AO with reference to the assessment records of earlier years. Similarly the interest needs to be verified on such loans as the forms 15H/G are not available in assessment records. It has also to be checked whether the provisions of section 194A are applicable to the assessee in the instant case. ii) The genuineness and credit worthiness of the parties who have given a sum of Rs. 3.5 lacs in aggregate require to be verified. iii) The payment of Rs. 2,75,000.00 to two parties was not verified with the purchases which the assessee claimed to have made in the earlier year. iv) The verification with regard to the withdrawal of sum of Rs. 21.80 lacs from the bank and cash payment exceeding the limit by violating the provisions of section 40A(3) of the Act need to be verified.

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 6 v) The inherited property and its agricultural use need to be ascertained by the AO with reference to the documents and earlier year records. Accordingly the ld. CIT(A) disregarded the submission of the assessee by holding as under : “In view of the above, I am of the considered opinion that owing to the omission on the part of the AO to conduct necessary enquiries in relation to the issues mentioned in the receding paragraphs the assessment order has undoubtedly been rendered erroneous as well as prejudicial to the interests of the revenue. It is also pertinent to mention that the documentary evidences furnished by the Ld. AR before the undersigned in the course of hearing are not complete in nature and therefore the same only tend to vaguely support the AR/s contentions. No concrete inference can be drawn therefrom. I am, therefore, left with no other alternative but to set aside the assessment order dated 23.12.2010 u/s. 263 of the IT Act with the direction to the AO to frame the assessment de novo in the light of the observations made in the foregoing paragraphs and after conducting the requisite enquiries to that effect it is needless to say that while doing so, the AO shall afford a reasonable opportunity of being heard to the assessee.”

Being aggrieved by this order of Ld. CIT assessee came in appeal before us.

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 7 that the assessee's claim was to be accepted that since he had the declarations of the payees in the prescribed form before him at the time when the interest was paid. he was not liable to deduct tax therefrom under section 194A and; if he was not liable to deduct tax u/s 40(a)(ia) was not attracted [VIPIN P. MEHTA -VS- I.T.O. (2011) 46 SOT 71 (MUM)]. However, the Ld CIT in exercising his powers u/s 263 of the Act in the instant case has remitted the issue back to the file of the AO without concluding that the assessee had any legal liability for deduction of tax at source from the payments made to them.

6.1 Further, in respect of three deposits aggregating to a sum of Rs. 3.50 lakhs in the savings bank account bearing no. 364010200000903 with Axis Bank. Arambagh, it was apprised that these are amounts received on account of sale proceeds and the AO was convinced by such elucidation. However, the Ld. CIT in exercising his powers u/s. 263 of the Act in the instant case has remitted the issue back to the file of the AO on the justification that such deposits in the accounts were not explained qua creditworthiness of the parties which renders the assessment order erroneous. The AO was satisfied with the genuinity of the payments received by the assessee and no adverse proof was led by the Ld. CIT to prove the contrary. However, the specious conclusion drawn in this respect is bereft of legal sanctity by conceiving that the deposits in the names of Debol Angami on 28-06-2007 of Rs, 1 lakh Durlov Sharma on 02-07- 2007 of Rs. 1 lakh and Shri Balaji Comm. on 28-12-2007 of Rs.1.50 lakh amounted to undisclosed income. During the course of assessment proceedings, the assessee had provided the details of sundry debtors which incorporates the impugned payments received on this behalf which are on account of sale price of potato from the purchasers. Since the amount of Rs. 3.50 lakh is duly considered in the receipts on which the income was computed as disclosed in the percepts of the books produced during the assessment proceedings. The specious findings of the Ld. CIT in this respect will not stand the test of judicial scrutiny.

6.2 The issue relating to the payment of Rs. 2.75 lakh is that it was found that the assessee had issued two cheques to two parties aggregating to the aforesaid amount

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 8 during the previous year relevant to the assessment year under dispute who were not included in such details of purchase parties furnished by him. In course of assessment proceedings, it was apprised to the AO that such payments were made on account of discharge of liability for the preceding AY 2007-08. However, such enumeration did not impress the Ld. CIT who without considering them in the proper perspective remitted the issue back to the file of the AO on the finding "It is not ascertainable whether these payments were really examined by the AD with reference to the purchase details of this accounting year or earlier years”. There is no doubt or dispute that the issuance of cheque being no. 4235 to Kalosona Himghar Udyog on 03-07-2007 in the sum of Rs.1.50 lakh and No. 4239 to Haradhan Samanta on 07-07- 2007 amounting to Rs. 1.25 lakh were payments outstanding on account of purchase of potato during the preceding assessment year. In fact, such payments were on account of discharge of creditors which was outstanding as on 31-03-2007 as evidenced by the balance-sheet for the assessment year 2007-08. The AO was impressed with such categorical evidence on record and accepted such payments. However, the Ld. CIT brushed aside the evidence and without finding any error on the part of the AO branded the assessment order as erroneous.

6.3 In so far as the cash cheque payments relating to Shri U. Tewari is concerned, the assessee had made payments mainly in cash on account of purchase of potatoes as well as daily expenses are concerned Shri U. Tiwary being one of the trusted employees of the assessee was deputed to draw cash from the bank. The cash/cheques were being issued in his name to draw cash from the bank and, therefore, in the bank records his name was recorded as recipient of the cheque value. The cash withdrawn by Shri U. Tiwary were deposited in the cash book of the assessee wherein the inflow and outflow of cash are duly recorded therein. In course of the assessment proceedings, the assessee had produced his cash book and ledger account. It was proved that Shri U. Tiwary was not paid such amounts on any account. In other words, those were not expenditures incurred by the assessee. However, the Ld. CIT in exercise of his powers u/s. 263 of the Act conceived that such amount of Rs. 21.80 lakh was paid to one Shri U. Tiwary during the assessment year under dispute through

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 9 cash cheques were hit by the provisions of s. 40A(3) of the Act. It was apprised that unless and until it is established that the assessee had incurred expenditure in cash exceeding Rs. 20,000/- in each transaction out of such withdrawals provisions of s. 40A(3) of the Act are not attracted. It is an admitted fact that the name of Shri U. Tiwary is recorded in the salary register of the assessee which was adduced in course of the assessment proceedings. The entire amount was merely withdrawals from the bank account through his trusted employee which did not represent any expenditure and as such, the provisions of s. 40A(3) of the Act is not applicable. It is undisputed fact that the withdrawals made were deposited in the cash book were proved before the AO in the course of the assessment proceedings The provision of s. 40A(3) of the Act refers to the expenses undertaken in cash in excess of Rs. 20,000/- and not to withdrawals in excess of Rs. 20,000/- from banks. When provisions of s. 40A(3) were applied on cash withdrawal from bank it was held that such section is intended only for payments made in cash above Rs. 20,000/- and the addition resorted to on that ground was struck down [SUSHANfA SARKAR - VS- I.T.O. (I.T.A. NO. 95/KOL/09 DATED 27- 03-2009)1. In other words, the conception that cash withdrawal in excess of Rs. 20,000/- from bank has no connotation for inviting the mischief of s. 40A(3) of the Act is wrongly conceived by the Ld. CIT since the basis to invoke the provision of s. 40A(3) of the Act is altogether non-existent in the instant case. However, the Ld. CIT in exercising his powers u/s. 263 of the Act in the instant case remitted the issue back to the file of the Assessing Officer to verify the contention of the assessee.

6.4 Apropos the exemption claimed by the assessee in the sum of Rs.5,000/- in his return on account of agricultural income. since the agricultural land is an inherited asset and do not find a place in the business balance sheet of the assessee and following the rule of consistency, the AO had allowed such exemption. However the Ld. CIT in exercising his powers u/s. 263 of the Act in the instant case has remitted the issue back to the file of the AO on the justification that inheritance of the agricultural land and carrying out of agricultural operations on the said land are clearly the subject-matters of verification by the AO through enquiry or with reference to appropriate legal documents." The claim of exemption of agricultural income of

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 10 Rs. 5,000/- was passed muster year in and year out. The Ld CIT was seriously remiss in the stand taken by him in view of the rationale established in this respect from year to year. It can be verified from the records of the assessee that income under the head "Agricultural Income" was disclosed from year to year which was accepted by the Revenue. Thus, the claim of the assessee that income was correctly disclosed as agricultural income exempted u/s. 10 of the Act. In view of the Rule of Consistency does not brook any interference. In the impugned revision order passed by the Ld. CIT the conclusion reached by him is that the instant case needs further re-examination and re-verification. In course of the assessment proceedings, the assessee had produced the books of accounts and other relevant evidence. On the other hand the ld. CIT vehemently supported the order of the CIT.

2) [B AND A PLANTATIONAND INDUSTRIES LID AND ANOTHER -VS- C.LT. (2007) 290 ITR 395 (GAU)].

“Revision—Erroneous and prejudicial order—Absence of finding/reasons by CIT—An order cannot be termed erroneous unless it can be shown to be an order which is not in accordance with law—Every error of an assessing authority is not open to exercise of powers under s. 263—Error committed by the primary authority must be an error of jurisdiction—Assessing authority allowed deduction of bonus to the assessee—Rectification proceeding initiated under s. 154 at the initiative of the audit party was dropped as the assessing authority was

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 11 satisfied that there was no mistake apparent from the record in allowing the claim of said deduction—Initiation of suo motu revisional proceedings in the same matter amounted to entrenching upon the powers of the assessing authority which have been specifically reserved for it—It was not open to the CIT to consider the order of the AO as erroneous merely because in his view certain amount of bonus should have been disallowed—Further, CIT could not initiate revisional proceedings on the basis of audit objection—There is nothing to show that the CIT has applied his independent mind to come to the conclusion that the assessment needs to be revised—That apart, the assessment order had merged in the order dropping the rectification proceedings—In such circumstances, the assessment order could not be revised without interfering with the rectification order—Therefore, impugned notice as well as the order passed by the CIT are set aside and quashed”

3) [DWARKA DASS & CO. - VS- I.T.O. (1983) 16 TTJ (CHD) 304].

“The assessee firm was granted registration by the ITO. Subsequently the Commr. issued a notice to the assessee to show cause why the order granting registration be not set aside under s. 263(1). The said notice was issued at the instance of the report of the audit party according to which the registration granted to the firm was illegal in view of Punjab & Haryana High Court’s judgment in the case of Hardit Sing Pal Chand & Co. (1979) 8 CTR(P&H) 365 as the assessee was a firm dealing in liquor and the ITO had not made necessary enquiries before granting registration. The assessee challenged the validity of the order of Commr. setting aside the order of registration on the ground that he had relied upon the audit party’s report for initiating revision proceedings whereas that report was not a part of the assessment record, and could not be taken into consideration for assuming jurisdiction under s. 263(1).The assumption of jurisdiction by the Commissioner was illegal as the order of registration passed by the ITO could not be considered erroneous on the basis of the report of the audit party. The order passed by the Commissioner is set aside.”

In other words, the application of mind by the Ld. Commissioner is a sine qua non for initiating proceedings u/s. 263(1) of the Act and the absence thereof, will render the proceedings ab initio void and ex-facie null in law. There is no doubt or dispute that the initiation of the instant proceedings was made on an advice of the Audit Party and not on the independent application of mind. In other words, it is the sole prerogative of the Ld. CIT which alone will be a ground for action u/s. 263 of the Act and any departure therefrom negates the jurisdiction vested in him under the law. Where it is clear that the Ld. CIT initiated the revisional proceedings influenced by the objection raised by the internal audit party and has not applied his independent mind, while passing the impugned order, such order is liable to be set aside and quashed It is also settled that the assumption of jurisdiction by the Commissioner was illegal as the order of registration passed by the ITO could not be considered erroneous on the basis of the report of the audit party Where in the impugned revision order Ld. CIT does mention about a few points, ostensibly borrowed from revenue audit objections, on the basis of which revision proceedings were initiated, but it was not even the Ld. CIT's case that he had any opinion of his own beyond this borrowed opinion to even

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 12 consider the assessment order as erroneous and prejudicial to the interest of the revenue. Clearly, therefore, the conditions precedent for initiating revision proceeding u/s 263 of the Act were not satisfied. There is no doubt or dispute that the Ld, CIT had initiated the proceedings u/s. 263 on the basis of the audit objections in the present facts and circumstances of the case. The impugned show-cause notice was issued in the present case was only borrowed from the opinion of the audit party and the impugned order passed by him u/s. 263 of the Act directing the Ld. Assessing Officer to re do the assessment order is not tenable in law. The provisions of s. 263 of the Act are clear and absolute that the power is to be exercised by the Commissioner of the Income Tax from the examination of the records of the proceedings under the Act. The Explanation appended to s. 263 of the Act defines 'records' as all records relating to an) proceedings under the Act available at the time of examination by the Ld. CIT. The audit objections under no circumstances can be called as constituting record empowering the Ld. CIT to exercise jurisdiction u/s. 263 of the Act. Where it is apparent that the Ld. CIT has initiated the revision proceedings only on the basis of audit objection sue exercise of power under section 263 is not tenable in law and accordingly, the order passed by the Ld. CIT u/s 263 is to be set aside JASWINDER SINGH -VS- C.I.T. (2012) 150 TTJ 33 (CHD)(UO) 33]. The Audit Party is neither authorized nor competent to act as judicial supervisors of the Ld. CIT in discharging his quasi-judicial function under the scheme of statute. The requirement of law for initiating proceeding u/s 263 of the Act is that there must be independent application of mind by the Commissioner which is conspicuously lacking in the instant case. The act taken u/s. 263 of the Act in the instant case is solely borrowed opinion from the report of the audit party and hence untenable in law. Therefore, in the instant case, neither the assessment order framed by the AO was proved to be erroneous nor it was proved that there was any prejudice caused to the revenue and there being no material on record to justify his action for assuming jurisdiction for issuance of notice u/s. 263 of the Act the action of the Ld. CIT in issuing the impugned notice is inconsistent with the settled position in law.

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 13 7.1 We also find that assessee has produced the books of accounts and other relevant details during assessment proceedings before the AO. Therefore it cannot be said that there was no application of mind of the AO in the matter. The only basis for invoking the provisions of s. 263 of the Act was improper examination in an appropriate perspective, i.e. lack of enquiry by the Assessing Officer. There is a distinction between 'lack of enquiry' and 'inadequate enquiry'. If there is an enquiry, even inadequate that would not by itself confer authority on the Ld. CIT to assume jurisdiction u/s. 263 of the Act merely because he has a different opinion in the matter. In this connection we rely in the following judgments. 1. [PLASTIC CONCERN -VS- A.C.I.T. (1998) 61 TTJ (CAL) 87]. “Revision—Validity—Change of opinion—Confidential note, of AO reveals that revisional authority had looked into the facts of the case and material on record in coming to conclusion that no addition could be made at the stage of assessment and gave his consent to AO to proceed with assessment— Later, initiated proceedings under s. 263—Not justified—By this action, he only intended to give AO further time of two years to complete the assessment at leisure—Jurisdiction of CIT cannot be extended to make further enquiries which could not be made for want of time—This extension of period of limitation is not within powers vested with revisional authority—Further, since CIT was convinced that no further enquiry was possible cannot now change his opinion and hold that order of AO is erroneous”

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 14 Therefore one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate that would not by itself give occasion to the Ld. CIT to pass orders under section 263 merely because he has different opinion in the matter. It is only in cases of 'lack of inquiry' that such a course of action would be open [C.I.T. - VS- SUNBEAM AUTO LID. [(2009) 322 ITR 167 (DEL)]. In the instant case, the AO had made necessary enquiries in the course of the assessment proceedings on the issues raised in the show cause notice before him and reached a conclusion not being detrimental to the assessee. It is settled that the Ld. CIT cannot remand the matter to the AO to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry. The Ld. CIT must record a clear finding that the inadequate inquiry has resulted in passing an erroneous order. An order of remit cannot be passed by the Ld. CIT to ask the AO to decide whether the order was erroneous. This is not permissible. A finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 [I.T.O. - VS- DG HOUSING PROJECTS LTD. (2012) 343 ITR 329 (DEL)]. The purported action of the Ld. CIT of remitting the issues raised in his show cause notice and without adjudicating the issues to the file of the AO to decide the same de novo cannot be sustained in the instant case. The Ld. CIT had not taken any steps for making any enquiry as regards the issues raised by the assessee in the rejoinder to the show cause notice and he was unable to establish any purported error so committed by the AO which makes his order unsustainable in law. The provision of s. 263 of the Act lays down that the jurisdiction of the Ld. CIT can only be exercised if there is a specific finding to the effect that the order passed by the Assessing Authority is erroneous in so far as it is prejudicial to the interest of revenue. In other words, the provision of s. 263 of the Act can only be invoked when the Commissioner of Income Tax is satisfied about the existence of the two preconditions: (1) The action of the Assessing Officer sought to be revised is erroneous; (2) It is also prejudicial to the interest of revenue. If any of these pre-conditions are absent. The Ld. CIT cannot seek recourse to this provision. It is settled that the Ld. CIT can invoke s. 263 if the order

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 15 of AO is erroneous and it is also prejudicial to interests of the Revenue; both conditions must co-exist [MALABAR INDUSTRIAL CO. LTD. - VS- C.I.T. (2000) 243 ITR 83 (SC)]. In the instant case, the Ld. CIT has not established anywhere in the impugned order that the assessment order of the AO is erroneous as well as prejudicial to the interests of the revenue. The non-compliance with the statutory prescription as evident from the impugned order is a serious infirmity vitiating the validity of the proceedings. In a situation where the Assessing Authority as an adjudicator decides an issue and renders a wrong decision which is unsustainable in law. It can be corrected by the Commissioner in exercise of revisionary power. In such cases, the Ld. CIT has to come to the conclusion and himself decide that the order is erroneous by conducting appropriate enquiry if required and necessary before the order u/s. 263 of the Act is passed. In such cases, the order of the Assessing Authority will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. The jurisdictional precondition stipulated is that the Ld. CIT must come to the conclusion that the order is erroneous and is unsustainable in law. The finding of an "error" is the condition precedent for proceedings u/s. 263 of the Act which is palpably missing in his order and accordingly, the specious conclusion of the Ld. CIT without laying down any basis therefore is totally contrary to law. Therefore, the conditions precedent for invoking the provisions of s, 263 of the Act not having been satisfied, the action of the Ld. CIT of assuming jurisdiction there under is in contravention of the settled position in this regard. In view of above, we hold that the order passed by the ld. CIT is not sustainable in the law and accordingly we reverse the same. Hence the grounds of appeal of the assessee are allowed.

Sd/- Sd/- (S.S.Viswanethra Ravi) (Waseem Ahmed) Judicial Member Accountant Member *Dkp �दनांकः- 24/08/2016 कोलकाता / Kolkata

ITA No.1367/Kol/2013 A.Y 2008-09 Arabinda Roy vs. CIT-XX, Kol Page 16 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. अपीलाथ�/Appellant-Arabinda Roy, C/o Somnath Ghosh, Advocate, Seven Brothers Lodge, P.O. Buroshibtala, P.S. Chinsurah, Dist. Hooghly, Pin 712 105 2. ��यथ�/Respondent-CIT, Kolkata-XX, 54/1, Rafi Ahmed Kidwai Road, Kol-16 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण कोलकाता / DR, ITAT, Kolkata 6. गाड� फाइल / Guard file.

By order/आदेश से, /True Copy/ उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, कोलकाता