Income Tax Appeal No. 239 of 2006 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 239 of 2006 Date of decision: 1.12.2010 The Commissioner of Income Tax Panchkula --- Appellant Versus M/s. G.M.G. Industries, Yamuna Nagar --- Respondent --- CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Yogesh Putney, Standing Counsel for the appellant-Revenue. None for the respondent-assessee --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 28.2.2005, passed by the Income Tax Appellate Tribunal Chandigarh Bench ‘A’, Chandigarh (in short “the Tribunal”) in ITA No. 648/CHANDI/2004, relating to the assessment year 1999-2000. Income Tax Appeal No. 239 of 2006 2 The following substantial question of law has been claimed for determination by this Court: “Whether on the facts and in the circumstances of the case, the Ld. ITAT was right in quashing the order passed by the CIT, Panchkula, u/s 263 of the I.T. Act?” The facts of the case, necessary for adjudication and as narrated in the appeal, are that the assessee filed return for the assessment year 1999-2000 declaring net taxable income of Rs. 6,865/- whereas an advance tax of Rs. 2,00,000/- had been deposited by him as against the tax worked out at Rs. 2,405/-. The assessee, thus, claimed refund of Rs.1,97,595/-. A survey operation u/s 133-A of the Act was carried out at the business premises of the assessee on 11/12.3.1999. Certain discrepancies were noticed in the stock and the books of accounts of the assessee. As a consequence thereof, the assessee made a surrender of Rs. 14,00,000/-. The assessee thereafter filed its return of income but he retracted from the proposal of surrender of Rs. 14,00,000/- and instead made a surrender of Rs. 3,81,400/- only. The return was processed under Section 143(1) of the Act and a refund of Rs. 21,305/- was worked out. Subsequently, the case was taken up for scrutiny. The assessee was issued notice under Section 263(1) of the Act to show cause why the assessment order earlier made be not cancelled. The Commissioner of Income Tax (in short “the CIT”) in the order dated 30.3.2004, passed in revisional proceedings, observed that the order of the assessing officer passed under Section 143(3) was erroneous and prejudicial to the interest of the Revenue and accordingly set aside the said order with a direction to Income Tax Appeal No. 239 of 2006 3 make fresh assessment after affording full opportunity of hearing to the assessee. The CIT in its order passed under Section 263 had noticed certain short-comings in the order of the assessing officer. The observations made by the said revisional authority, insofar as the same are relevant for adjudication of the issue, are as under: “The perusal of assessment record and other relevant documents/ material revealed that the assessing officer had accepted the assessee’s explanation dated 7.2.02 and the changed explanation dated 15.3.2002 without application of mind, without proper examination of record and the material before him. It has been observed that the books of accounts have not been examined by the Assessing Officer. There is no mention either in the note sheet or in the body of the assessment order to indicate that books of accounts were examined. The AO simply accepted the assessee’s proposition that if there were sales outside the regular books of accounts, there must be corresponding purchases also outside the books of accounts while it had categorically stated in its earlier letter dated 7.2.2002 that the purchases had been included in the total purchases recorded till the date of survey. The partner had admitted on the date of survey that the purchases had been recorded but that the sales had not been recorded. In the process, the value of gross profit worked out by the assessee on these lines was not correct and was deflated to that extent. Moreover, by Income Tax Appeal No. 239 of 2006 4 adopting these sales, and keeping all other values constant as these are not disputed, the trading account would yield a much higher gross profit rate. It was all the more necessary that detailed examination and investigations should have been carried out to arrive at the correct gross profit rate during this particular year irrespective of what has been shown by the assessee in earlier years. Further, in the trading account prepared as per books of account on 11.3.1999, the wages were taken at a figure of Rs. 1,41,279/-. In the return filed, these expenses have been shown at Rs. 2,28,279/- as on 31.3.1999. The books of account had been written up to 8.3.1999 as per the statement recorded on the date of survey and as actually seen at that time. Within 22 days, wages of Rs. 86,792/- had been paid. This aspect has not been examined to see if these expenses debited to the trading account were genuine. These facts revealed that the Assessing Officer had not applied his mind to the facts and material before him and the results arrived at stemmed from miscarriage of justice due to incorrect application of facts, wrong understanding and application of accounting principles and misapplication of law. The order of the assessing officer was considered erroneous and prejudicial to the interest of revenue.” Feeling not satisfied, the assessee filed appeal before the Tribunal. The appeal was allowed and the order of the CIT passed Income Tax Appeal No. 239 of 2006 5 under Section 263 of the Act, was set aside by the Tribunal vide the order under appeal. Hence, this appeal at the instance of the Revenue. The point for determination in this appeal is, whether the CIT was justified in resorting to the revisional jurisdiction under Section 263 of the Act in respect of surrender of Rs.14,00,000/- made by the assessee at the time of survey of its premises. The Tribunal while allowing the appeal of the assessee has nullified the order passed by the CIT under Section 263 of the Act, and recorded as under: “We have heard the rival submissions, perused the orders passed by the AO and the CIT, the paper-book and the case law cited by the assessee. We find that in this case, original assessment was framed by the AO after considering details and evidence submitted by the assessee in respect of purchase/ sale and the reason for the difference in stock and other documents found at the time of survey and has passed an order u/s 143(3), whereas the CIT presumed while invoking section 263 that the AO did not apply his mind in right perspective and took the view that the same has resulted in understatement of correct income and, therefore, the assessment order is prejudicial to the interests of the revenue. The admitted facts in this case are that during the course of survey conducted on 11/12.3.1999, the survey party found certain discrepancies and detected a g.p. of Rs. 13,13,958/-. To cover up the discrepancies, the Income Tax Appeal No. 239 of 2006 6 partner of the assessee-firm surrendered an additional income of Rs. 14 lacs. However, the assessee in its return has declared an income of Rs. 3,81,400/- only. During the course of assessment proceedings, the assessee produced the details, documents and evidence before the AO, duly reconciling the difference earlier found at the time of survey conducted on 11/12.3.1999. Now, we find from the record that the AO completed the assessment u/s 143(3) after only verifying the details, i.e. relevant documents, trading account furnished by the assessee and thereafter formed an opinion that the results shown were justified. Therefore, the assumption of jurisdiction u/s 263 by the CIT on the reasoning that such view of the AO was erroneous and prejudicial to the interests of the revenue, on the basis of recast trading account, tantamounts to the second view by recasting the trading result of the assessee for the same period, which had already been considered by the AO while completing the assessment u/s 143(3) and such order of the AO cannot be held prejudicial to the interests of the revenue, as held by the apex court in the case of Malabar Industrial Co. Ltd. (supra). While coming to such conclusion, we draw support from the latest decision of the Tribunal in the case of Nahar Exports Ltd. Vs. ACIT, reported in 92 ITD 484 (Chd), wherein it was held that if the AO had taken one of the possible views the Commissioner will have no jurisdiction to interfere with the view taken by Income Tax Appeal No. 239 of 2006 7 the AO by exercising his power u/s 263. We, therefore, keeping in view the above facts of the present case and the decisions (supra), are of the considered opinion that the order of the CIT passed u/s 263 is contrary to law and facts and cancel the same by accepting the grounds raised in the assessee’s appeal.” The assessee had surrendered a sum of Rs. 14,00,000/- as additional income during the course of survey on 11/12.3.1999 subject to no penalty and no prosecution. However, while filing the return of income, a sum of Rs. 3,81,400/- only had been surrendered and disclosed as its income. No plausible explanation had been furnished by the assessee for retraction from its earlier statement made during survey. In the absence thereof, there was, prima facie, no justification for accepting the surrendered income of Rs. 3,81,400/- instead of Rs.14,00,000/-. A perusal of the aforesaid order of the Tribunal shows that the Tribunal had not discussed the material produced by the assessee during the assessment proceedings and also had failed to record any firm finding based thereon. Further, no cogent reasons have been assigned for accepting the retraction of the assessee from the earlier surrender of income of Rs. 14,00,000/- made by it during the survey conducted on 11/12.3.1999. Thus, the Tribunal erred in nullifying the order passed by the CIT under Section 263 of the Act. In view of the above, the substantial question of law is answered accordingly, the order of the Tribunal is set aside and the matter is remanded to the Tribunal to take a fresh decision in Income Tax Appeal No. 239 of 2006 8 accordance with law on the issue under discussion. The appeal stands disposed of. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) December 1, 2010 JUDGE *rkmalik*