M/S.KAIRALI JEWELLERS,TRIVANDRUM vs. THE ITO, WD-1(4), TVM, TVM

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ITA 51/COCH/2018Status: DisposedITAT Cochin14 March 2022AY 2014-153 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The tribunal held that the Pr. CIT impermissibly widened the scope of Section 263 by issuing directions not included in the original show cause notice. Since no additions were made in the consequential order on the issues originally raised by the Pr. CIT, there was no error prejudicial to the revenue in the original assessment. Therefore, the Section 263 order was quashed.

What were the facts?

The assessee's assessment for AY 2014-15, completed under Section 143(3) r.w.s. 147, was revised by the Pr. CIT under Section 263. The Pr. CIT alleged lack of investigation into stock, unsecured loans, capital additions, and accumulated losses, setting aside the assessment for re-examination of these and other issues.

What were the issues?

Whether the Pr. CIT validly exercised powers under Section 263 by widening the scope of revision beyond the issues specified in the show cause notice and when no additions were made on the original grounds in the consequential assessment.

Which sections of the Income-tax Act were involved?

Section 263,Section 143(3),Section 147,Section 269SS,Section 68,Section 40A(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN

Before: Shri George Mathan, JM & Shri M. Balaganesh, AM

For Appellant: Shri T.M. Sreedharan, Advocate
For Respondent: Shri Shantham Bose, CIT-DR
Hearing: 14.03.2022Pronounced: 14.03.2022

This is an appeal filed by the assessee against the order C. No. 412/J/R-34/2015-16 dated 22.12.2016 of the learned Pr. CIT, Thiruvananthapuram for AY 2014-15.

2.

Shri Shri T.M. Sreedharan, Advocate represented the assessee and Shri Shantham Bose, CIT-DR represented Revenue.

3.

It was submitted by the learned A.R. that the assessee is in the business of retail jewellery. There was a survey on the premises of the assessee on 18.01.2013 and the assessment came to be completed on 11.05.2015. Subsequently notice under Section 263 of the Income Tax Act, 1961 came to be issued on 30.03.2016 to which the assessee had filed his reply objecting to the revision on 27.09.2916. The objections filed by the assessee were disregarded and the Pr.CIT had set aside the assessment order dated 11.05.2015, which was an assessment completed under Section 143(3) r.w.s. 147 of the Act, to the AO for redoing the assessment

2 M/s. Kairali Jewellers afresh after verification of all relevant issues including adequacy of profit as per trading results, examining the identity, genuineness and creditworthiness of the creditors. The show cause notice as issued to the assessee specified the alleged errors to be : -

(i) No investigation seen done to ascertain the correctness of stock reported. (ii) No investigation made in respect of unsecured loans and regarding the applicability of the provisions of section 269SS, (iii) Source of capital addition is not explained. (iv) How a net loss of Rs.52.48 lakhs was accumulated when the income returned for the previous year was Rs.4.81 crores, was not enquired into.” The learned A.R. placed before us a copy of the assessment order passed under Section 263 r.w.s. 143(3) of the Act dated 29.12.2017 wherein also the AO has extracted the directions of the learned Pr. CIT as follows: -

(i) Adequacy of profits as per trading results. (ii) Examining identify, genuineness and creditworthiness of purported creditors in accordance with section 68 AND (iii) Examining source of addition to capital account after affording reasonable opportunity to the assessee of being heard.” The issues mentioned by the AO are in no way connected to the issues in the show cause notice. Further a perusal of the consequential order shows the disallowance to be in respect of ‘Partners Advance’ and disallowance under Section 40A(3) of the Act in respect of administrative expenses. Thus it was the submission that the issues raised in the show cause notice itself was vague and also those issues have been examined by the AO, no addition on that ground has been made and additions on other issues has been raked up which is not permissible. It was thus the submission that the order passed under Section 263 of the Act is liable to be annulled.

4.

In reply the learned D.R. vehemently supported the order of the learned Pr. CIT. It was the submission that proper verification has not been done by the AO.

3 M/s. Kairali Jewellers 5. We have considered the rival contentions. Admittedly a perusal of the consequential order shows that no additions have been made on the issues raised by the learned Pr. CIT in his 263 order. Admittedly when setting aside assessment order the Pr. CIT has widened the scope of Section 263 of the Act by giving further directions which were not raised when issuing specific show cause notice to the assessee also. This admittedly is not permissible. Consequently the widening as done by the Pr. CIT in the order under Section 263 of the Act is unsustainable and stands quashed. In respect of the issues raised by the Pr. CIT in para 5 of his order no addition itself has been made in the consequential order which clearly shows that there is no error, much less, an error prejudicial to the interest of Revenue in respect of the original assessment order. Consequently the order under Section 263 of the Act is unsustainable and the same stand quashed.

6.

In the result, the appeal filed by the assessee is allowed.

Dictated and pronounced in the open Court on 14th March, 2022.

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