Income Tax Appeal No. 271 of 2006 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 271 of 2006 Date of decision: 13.12.2010 The Commissioner of Income Tax Karnal --- Appellant Versus M/s. Modern Feed Industries Industrial Area, Kurukshetra --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Yogesh Putney, Senior Standing Counsel for the appellant. Mr. Amit Rawal, Advocate for the respondent. --- 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 ‘B’ Chandigarh (in short “the Tribunal”) in ITA No. 375/CHANDI/2004, relating to the assessment year 2000-2001. Income Tax Appeal No. 271 of 2006 2 The appeal was admitted on 10.12.2007 for determination of the following substantial question of law by this Court: “Whether on the facts and in the circumstances of the case, the Tribunal was right in law in canceling the order passed by the CIT under Section 263 of the Income Tax Act, 1961, when the fresh assessment in pursuance to order passed under Section 263 of the Act has already been finalized on 28.12.2004 (whereas the order of the Tribunal has been passed on 28.2.2005) and the assessee has itself voluntarily surrendered the additional income of Rs.1,24,004/- on account of difference in stock, during the course of fresh assessment?’ The facts, in brief, necessary for adjudication, as narrated in the appeal are that a survey under Section 133A of the Act was conducted on the business premises of the respondent-assessee firm when an excess stock of Rs. 1,24,004/- was found in the books of accounts. The assessee surrendered the amount of excess stock as its additional income for the assessment year in question. The assessee filed its return of income on 28.9.2000 declaring total income of Rs. 88,750/-. Subsequently the case of the assessee was selected for scrutiny and the assessment was completed at an income of Rs. 1,43,050/- by making certain additions by the assessing officer vide order dated 26.6.2001. The Commissioner of Income Tax [for short “the CIT”] found that the assessee had not declared the excess stock of Rs. 1,24,004/- during the course of survey in its return of income and it did not include the said amount as additional income which was surrendered. The order passed by the assessing officer was found to be Income Tax Appeal No. 271 of 2006 3 erroneous, inasmuch as the same was found to be prejudicial to the interest of the Revenue because excess stock found during survey was to be treated as current year’s income of the assessee-firm. The assessment order was consequently set aside by the CIT under Section 263 of the Act vide order dated 1.3.2004. The assessing officer was, thus, directed to complete the assessment afresh. The assessee feeling aggrieved by the order of the CIT preferred appeal before the Tribunal. The Tribunal after relying upon various judgments noticed in its order did not concur with the view of the CIT and consequently, by order dated 28.2.2005 cancelled the order passed by the CIT. Hence, this appeal at the instance of the Revenue. In the meantime, the assessing officer re-considered the matter and after examining the controversy in the light of the observations made by the CIT, completed the assessment at Rs. 2,48,490/- vide order dated 28.12.2004. In the said proceedings, the assessing officer had made addition of an amount of Rs. 1,24,004/- as assessee’s additional income which was surrendered by the assessee. We have heard learned counsel for the parties and perused the record. Learned counsel for the Revenue vehemently submitted that the CIT in exercise of power under Section 263 of the Act held that the order of assessment passed by the assessing officer on 26.6.2001 was erroneous and prejudicial to the interest of the revenue as the assessing officer had failed to tax the excess stock of Rs. 1,24,004/-. The premises of the assessee were surveyed on 10.3.2001 when on physical verification excess stock valuing Rs. 1,24,004/- was found. The asssessee had surrendered this amount as additional income which was Income Tax Appeal No. 271 of 2006 4 not taken into consideration by the assessing officer while passing the assessment order on 26.6.2001. The further case of the Revenue was that after the order of the revision passed under Section 263 by the CIT, the assessee had again surrendered additional income of Rs. 1,24,004/- on account of difference in stock during the course of fresh assessment which was finalized on 28.12.004, i.e. prior to the impugned order passed by the Tribunal on 28.2.2005 and, therefore, the Tribunal was not justified in holding that the exercise of jurisdiction under Section 263 of the Act by the CIT was erroneous. Learned counsel for the assessee, on other hand, supported the order passed by the Tribunal. After hearing learned counsel for the parties we find considerable weight in the submissions made by learned counsel for the Revenue. Learned counsel for the assessee was unable to dispute that the assessee had made surrender of Rs. 1,24,004/- on account of excess stock in the course of survey conducted on 10.3.2001 which was not taken into consideration by the assessing officer while passing assessment order dated 26.6.2001. The order of assessment dated 26.6.2001 was, thus, erroneous in so far as it was prejudicial to the interest of Revenue. Further, the CIT in the order passed under Section 263 of the Act, in paras 4 to 6 had recorded as under: 4. I have carefully considered the submissions of the assessee and material on record. It is seen from the Audited trading and profit and loss account filed along with the return of income that the assessee has not made any disclosure of the additional income of Rs. 1,24,004/- surrendered by it Income Tax Appeal No. 271 of 2006 5 during the course of survey. Rather the gross profit was disclosed @ 6% as against 6.8% in the A.Y. 1999-2000 and @ 7.31% in the assessment year 1998-99. It is further seen that certain expenses which are debited to the P&L account at a substantial figure have not been carefully examined by the A.O. like payment of sales commission to its sister concern. The Assessing Officer has not cared to examine if these expenses were justified in the facts of the case of the assessee. 5.Further, if excess stock is found in the course survey, the amount representing extra stock is to be treated as current year’s income as held in the case of Jewellery House Vs. ACIT 57 ITD 544 (Banglore Tribunal). In this case the difference of stock worked out by the department during the course of survey and admitted by the assessee should have been added as income by the assessee in its return which was not shown by the assessee nor was added back by the A.O. concerned while finalization of assessment proceedings. 6. In view of above, it is apparent that the assessment has been finalized without proper verification of the results declared. The assessment being erroneous in so far as it is prejudicial to the interest of revenue deserves to be set aside and is restored to the A.O. for completing the assessment carefully after examining the material on record.” In view of the above, it can not be held that the Tribunal was justified in holding that the CIT could not have assumed jurisdiction Income Tax Appeal No. 271 of 2006 6 under Section 263 of the Act and the substantial question of law is to be answered in favour of the Revenue. Accordingly, the appeal is allowed and the substantial question of law is answered in favour of the Revenue. No costs. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) December 13, 2010 JUDGE *rkmalik*