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TMI Blog2010 (3) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... see was estimated at Rs. 5.23 crores. A notice was issued on February 9, 2007 by the Commissioner of Income-tax (Central) to the assessee to show cause why the order of assessment should not be revised in exercise of powers under section 263. The assessee responded to the notice following which an order was passed on March 26, 2007 by the Commissioner of Income-tax (Central) under section 263, setting aside the order of block assessment and directing the Assessing Officer to pass a fresh order of assessment. 3. The power under section 263 has been exercised on two grounds which are elucidated in the notice dated February 9, 2007 that was issued to the assessee. The first ground is that during the course of the search and seizure action, documents which were seized revealed the purchase and sale of gold and silver jewellery which was not disclosed to the Department. These documents included "jama kharch panas" for the period November 2, 1999 to September 17, 2002. The Commissioner of Income-tax (Appeals), on a reference made by the Assessing Officer estimated the initial investment of the assessee at Rs. 10 lakhs on the basis of an average turnover of Rs. 75 lakhs. According to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 40A(3) are given in paragraph 11 of the audit report wherein pagewise explanation of the seized material is given. However, since a consolidated figure of purchase and expense is given in jamakharch papers it is not possible to state whether any individual payment is made in excess of limits specified under section 40A(3). The assessee has explained that in view of the decision in the case of Janta Tiles v. Asst. CIT [2000] 66 TTJ 695 (Pune) and Madhuvana House Building Co-op. Society v. Asst. CIT [2002] 76 TTJ 948 (Bangalore) the undisclosed transactions are outside the purview of section 40A(3). The Assessing Officer may consider this decisions." 7. Thereafter, an internal audit query was raised within the Department on the ground that purchases amounting to Rs. 93.76 crores were made in cash and that twenty per cent. thereof, which works out to Rs. 18.75 crores, should be disallowed under section 40A(3) and added to the taxable income. Shri S. K. Rastogi, Additional Commissioner of Income-tax, Central Range 1, Pune, who was the Assessing Officer observed that the audit observation was not correct. In his response, the Assessing Officer noted that as per the seized do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, it has emerged that during the course of the assessment proceedings, the Assessing Officer had directed a special audit under section 142(2A) and among the aspects on which the audit was requisitioned, was the issue relating to transactions which were carried out in excess of an amount of Rs. 20,000 in cash. The auditor came to the conclusion that it was not possible to state as to whether any individual payment had been made in excess of the limit specified in section 40A(3). The auditor recorded the submissions of the assessee, based on the decisions of the Tribunal, that undisclosed transactions were outside the purview of section 40A(3). Evidently, the Assessing Officer, during the course of the assessment proceedings did not consider that there was any violation of the provisions of section 40A(3). As a matter of fact, the Assessing Officer in response to the internal audit query relied upon several judgments of the Tribunal in support of his conclusion that the provisions of section 40A(3) were not applicable and that in any event, it was his view that it was difficult to infer from the consolidated figures that were available as to whether any individual transaction had t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termining the initial investment, the substantially higher turnover for the remaining years of the block had been ignored. 13. Now, on this aspect of the case, the record indicates that following the order of assessment, during the pendency of the proceedings before the Commissioner of Income-tax (Appeals), a request for enhancement was made by the Additional Commissioner of Income-tax, Central Range 1, Pune, by a letter dated May 16, 2005. In his request for enhancement of the returned income, the Additional Commissioner of Income-tax stated that in the block assessment order, an estimation of the initial investment required to carry out undisclosed business had remained to be done for the first year of the block period. The Commissioner of Income-tax (Appeals) was, therefore, requested to enhance the undisclosed income on account of the initial investment. Following the request for enhancement, by an order sheet entry dated May 20, 2005, the assessee was called upon to explain as to why an enhancement should not be made for the initial investment for undisclosed business transactions. The assessee's response to the notice governed the entire period of the block assessment. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he first three years of the block, but, as a matter of fact, the Commissioner also estimated what has been ploughed back in unaccounted trading for the remaining years of the block. 15. Reading paragraph 16.5 of the order of the Commissioner of Income-tax (Appeals), as it stands, there is merit in the submission of the assessee. The order of the Commissioner of Income-tax (Appeals) refers, firstly, to the fact that for the period between 1996-97 and 1st November 1999, the undisclosed profit of the assessee was determined at Rs. 69.33 lakhs which could be considered as being ploughed back in unaccounted trading. The Commissioner of Income-tax (Appeals) observed that this profit could be considered as capital used in undisclosed trading. The Commissioner of Income-tax (Appeals) then noted that the initial seed capital required for the first year of the block period needed to be estimated. In this regard, the Commissioner of Income-tax (Appeals) noted that the average turnover for the first three years of the block was Rs. 75 lakhs and taking a rate of 12.5 per cent. as a reasonable percentage, the profit was worked out at Rs. 10 lakhs. This was treated in the order of the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that the exercise of the jurisdiction, in the facts of this case under section 263 was not warranted since the exercise cannot be sustained under the section. 17. We must also advert to the circumstance that in so far as the second ground for the exercise of the jurisdiction under section 263 is concerned, there was an audit query specifically with reference to the initial investment made in purchases in the year 1999-2000. The audit query was responded to by the Additional Commissioner of Income-tax. The Additional Commissioner of Income-tax in his response to the audit query was of the view that the observation in the audit was not correct. The view of the Additional Commissioner of Income-tax was confirmed by the Com-missioner of Income-tax (Central), Pune. The Commissioner of Income-tax while passing his order under section 263 has observed that the request for enhancement made by the Assessing Officer to the Commissioner of Income-tax (Appeals) was only for the first year, namely, the assessment year 1997-98. The Commissioner has proceeded on the basis that the initial investment computed at Rs. 10 lakhs was determined only for the first year of the block period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urses permissible in law and it has resulted in loss of revenue ; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law." 19. The power under section 263(1) can be exercised by the Commissioner where he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. Explanation (c) to the provision provides that where any order referred to in sub-section (1) and passed by the Assessing Officer has been made a subject-matter of any appeal, the powers of the Commissioner under the sub-section shall extend to such matters as had not been "considered and decided" in the appeal. In other words, the exercise of power under section 263(1) is in respect of an order passed by the Assessing Officer, where the order is regarded as being erroneous and prejudicial to the interests of the Revenue. Where an order passed by the Assessing Officer is subject to an appeal that has been filed, the power of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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