TMI Blog2011 (5) TMI 564X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 263 of the Act is restored. Against assessee. - ITA No.553 of 2010 ITA No.557 of 2010 ITA No.487 of 2011 ITA No.488 of 2011 - - - Dated:- 11-5-2011 - MR. JUSTICE A.K. SIKRI, MR. JUSTICE M.L. MEHTA, JJ. For Applicant : Ms. Prem Lata Bansal, Sr.Advocate with Mr. Deepak Anand, Avocate. For Respondent : Mr. C.S. Aggarwal, Sr.Advocate with Mr. Prakash Kumar, Advocate. A.K. SIKRI, J. ITA No.553 of 2010 ITA No.557 of 2010 1. These appeals are admitted on the following substantial question of law: Whether the ITAT was correct in law in setting aside the order passed by the CIT under Section 263 of the Income Tax Act? 2. We heard the arguments in detail at the time of admission itself. 3. These two appeals pertain to the Assessment Years 2003-04 and 2004-05. They are filed against the common orders dated 21.01.2009 passed by the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal) in respect of both the assessment years. In these appeals before the Tribunal, the assessee had challenged the orders of Commissioner of Income Tax (CIT) passed under Section 263 of the Income Tax Act ( the Act for brevity). Since both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was erroneous to the extent that he did not bring unexplained cash to the tax on the basis of the admission of the assessee at the time of search. The assessment order so farmed by the assessee was erroneous and prejudicial to the interest of revenue. Further, although the cash of ₹ 6.30 lacs was offered as unexplained income for A.Y. 2003-04, in the return of income filed subsequently cash of ₹ 21 lacs was offered as undisclosed income for A.Y. 2004-05. Here also, the Assessing Officer was at fault as the cash was not taxed in accordance with the statement given by the assessee. 11. Since the assessment orders of both the Assessment Years 2003-04 and 2004-05 are erroneous and prejudicial to the interest of revenue these are set aside on the limited issue of cash found during the search proceedings. The Assessing Officer is directed to examine the issue of cash found at the residential premises of the assessee in light of the statement recorded at the time of search and surrounding circumstances. It is clarified that assessment orders for both Assessment Years are set aside since the assessee has offered part of the said cash in A.Y. 2004-05. 7. The assessee filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date, he had explained that there was cash in hand in the books of M/s In-Style Export, of ₹ 18,17,202/- and in the books of In-Style Export Pvt. Ltd. of ₹ 18,78,518/-. The total of these two comes to ₹ 36,95,720/-. Out of total cash found in the course of search of ₹ 62,30,300/-, if cash of these two concerns are excluded, the remaining cash is only ₹ 25,34,580/- out of which, the assessee had included ₹ 21 lacs on this account in the return of income filed by him for the assessment year 2004-05 and hence, the remaining amount is only ₹ 4,34,580/- was explained by the assessee as cash as per his own books. On this basis, the Tribunal concluded that the AO had examined the claim and accepted the claim of the assessee after verifying the books of accounts. 10. No doubt, the order-sheet shows that the AO had asked the assessee to explain cash found. However, whether the AO had, in fact, gone into the issue and accepted the claim of the assessee or not is not discernible from the assessment order. No doubt, the AO is not supposed to write the orders in detail in the same manner as a Judicial Officer is supposed to write the judgments. At t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. This may give an impression that it may be an afterthought on the part of the assessee to explain the cash. 11. Under these circumstances, the AO was required to go into this issue in proper perspective and could not beperfunctory in his approach. The AO in the assessment order did not discuss the statement recorded at the time of search. No doubt, as per the assessee, this statement was retracted. In a case like this, it was necessary for the AO to at least reflect that the retraction was proper. Another factor which we have highlighted is that the entire cash belonging to two firms was found at the residence. 12. In the aforesaid circumstances, the CIT held the view that the matter was not examined by the AO. We are of the opinion that it was a reasonably fit case for exercising revisionary jurisdiction under Section 263 of the Act. After all, CIT gave another chance to the assessee to explain the source of cash. 13. Once we are convinced that there was no proper consideration of the issue by the AO, the very foundation of the order of the Tribunal is knocked off. Thereafter, the Tribunal has ventured to undertake the exercise by itself satisfying about the explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxation in A.Y. 2004-05 which indicated that in spite of being in export business, the assessee was in habit of keeping substantial amount of unaccounted cash at his residence. It is also evident from the fact that during A.Y. 1998-99, the assessee had surrendered an amount of ₹ 66 lacs during the course of survey and offered the same in his return of income. 14. Since these contentions were satisfied and the matter was relegated to the AO to conduct an inquiry, the Tribunal should have limited its discussion focusing on the proprietary of order by the CIT invoking his power under Section 263 of the Act and keeping in view the scope of that provision. 15. In this backdrop, we would like to refer to the judgment of Kerala High Court in the case of V. Kunhikannan Vs. Commissioner of Income Tax 219 ITR 235. In the said case, the High Court held that: It is true that the Explanation was inserted and came intoeffect from April 1, 1989, that is, after the search was made in this case. But, the Explanation thereunder seeks to clarify the necessary import of the main provision contained in Sub-section (4) of Section 132 of the Act. It does not change the substant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue is not given right to file an appeal, as there is no such provision. Limited jurisdiction is given to the CIT to revise such orders, if he finds that the same is prejudicial to the interest of Revenue. On the facts of this case, when it is found that there was no proper consideration by the AO to the issue at hand, he left many loose ends, that too in a case where huge cash was found during survey; most of it was surrendered by giving statement at the time of search, though retracted and sought to be explained afterwards. It was necessary for the AO to properly adjudicate upon this issue and the assessment order should have at least reflected that he had satisfied with the explanation disclosing source of the cash found and that there was a proper and valid retraction. We may also reproduce the following observations of the Gujarat High Court in the case of Commissioner of Income Tax Vs. Minalben S. Parikh (1995) 215 ITR 81 (Guj): The words prejudicial to the interest of the Revenue has not been defined. However, giving the ordinary meaning to the words used in the statute, they must mean that the orders under consideration are such as are not in accordance with law a ..... 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