TMI Blog2013 (5) TMI 853X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer after calling explanation of the assessee and examining the books of account and documents etc. made certain disallowances / additions and computed the income of the assessee at nil income after adjusting brought forward losses of preceding assessment year 2008-09 vide assessment order dated 03.05.2011 u/s. 143(3) of the IT Act. The ld. CIT, Allahabad found the above assessment order to be erroneous in so far as prejudicial to the interest of Revenue and initiated the proceedings u/s. 263 of the IT Act. 4. The assessee filed appeal against the order of the CIT before ITAT and stay application was also filed. Stay of balance demand was granted vide SA.No.5/Alld/2012 order dated 19.11.2012 early hearing was also granted. Accordingly, the appeal is fixed for hearing. 5. On the basis of information the CIT found that the assessment order passed by A.O. under Section 143(3) dated 03.05.2011 is prejudicial to interest of revenue. The CIT issued show cause notice dated 09.08.2012 on ten issues. Out of ten issues the CIT dropped the proceedings under Section 263 of the Act in following issues:- (CIT Pages 2 to 9) 2.You have debited in P/la/ca sum of ₹ 57,098/-as pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Income Head Sale/Commission Account and this amount should not be treated as Income Twice. Preliminary expenses incurred before commencement of business can be allowed as a deferred expenditure in accordance with Section 35D of Income Tax Act, 1961. It is, however, seen that as per section 35D w.e.f. A.Y. 1999-2000, preliminary expenses incurred after 31.03.1998, interalia, by a person resident in India can be amortised in five equal installments for five successive previous years i.e. one fifth of the expenditure shall be allowed as a deduction for a period of five successive previous years the expenses should be incurred prior to the commencement of business (w.e.f. A.Y.2009- 10, this deduction will be allowed for setting up or extension of all units will not be restricted to industrial undertaking or in connection with his setting up a new industrial unit, after the commencement of the business. The aggregate amount of the preliminary expenditure incurred after 31.03.1998 should not exceed 5% of the cost of project if it exceeds 5% then the expenditure shall be limited to 5% of the cost of the project. However, in case of an assessee other than a company or a cooperativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee but not credited by the bank. Further, that there is nothing wrong in reversing the cheques received in F.Y.2007- 08(A.Y.2008-09) remained Uncashed till till 31st March, 2009 that the said entries were passed within the same financial year, to which they relate. However, the assessee s submission is for from truth, as it has failed to explain the capital introduction and therefore, a sum of ₹ 83,00,000+Rs.87,00,000 i.e. ₹ 1,70,00,000/- is hereby treated as an unexplained cash credit u/s 68 of the I.T. Act, 1961, for the assessment year under consideration as the Tax Audit Report filed u/s 4 AB of I.T. Act, 1961 by C.A. Mr. Ashish Agarwal, Partner (for Ashish A. Agarwal Co., Chartered Accountant) dated Sept. 29,2009 has not only failed to notice the same, but has certified Capital Introduction in the case of Sh. Anil Khetrapal at ₹ 27,64,249/- (excluding salary) and Sh. Sunil Khetrapal at ₹ 12,24,691(excluding salary) and Sh. Sunil Khetrapal at ₹ 12,24,691/- (excluding salary) and that further, it has failed to provide any remarks or qualify its tax audit report, in this regard. Hon ble Allahabad High Court in Jag Mohan Ram Chandra V C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the assessee have been shown at ₹ 66,34,000/- from Benu Khetrapal ₹ 99,26,000/- from Shabnam Khetrapal, during the F.Y. 208-09 (A.Y.209-10). Ledger A/c of Shabnam Khetrapal in the books of accounts of the assessee, interalia, reflects a credit of ₹ 59,00,000/- on 31.03.2009 by way of a cheque (Cheque No. etc and mentioned), which is stated to be not encashed and subsequently claimed to have been returned after one year on 31.03.2010. Similarly, Ledger A/c of Benu Khetrapal in the books of account of the assessee, interalia, reflects a credit of ₹ 50,00,000/- on 31.03.2009 by way of a cheque (Cheque No. etc mentioned), which is also stated to be not encashed subsequently claimed to have been returned after one year on 31.03.2010. Therefore, it is not clear as to when the asseseee has further received deposits of ₹ 1,05,00,000/- in case of Sabnam Khetrapal and ₹ 70,00,000/- from Benu Khetrapal, on various dates between 01.04.2009 to 31.03.2010 (A.Y.2010-11), why the sum received in F.Y.2008-09 (A.Y.2009-10)have been returned by the assessee in F.Y.2009- 10 (A.Y.2009-10) and that too after one year ? The assessee in this regard has submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nexplained for which the assessee could not put forward any explanation. Therefore, the same is hereby added u/s 68 of I.T. Act, 1961, as the genuineness of the transaction could not be proved by the assessee and u/s 68, the onus is on the assessee to prove the identity and creditworthiness of the creditor and the genuineness of the transaction (CIT V P. Mohanakala (2007) 291 ITR 278 (SC); Roshan Di Hatti V. CIT (1997) 107 ITR 938 (SC); Kale Khan Mohammad Hanif V. CIT (1963) 50 ITR 1 (SC); Shankar Industries V CIT 114 ITR 689 (Cal). 8. The learned Authorized Representative reiterated the issue-wise submissions which were made before the CIT(A). The learned Authorized Representative submitted that prior period expenses of ₹ 2,83,277/- shown in P L a/c of relevant F.Y.2008-09, consist of expenses incurred towards servicing repairing of our True Value cars (Old Cars) meant for sales. The said amount of ₹ 2,83,277/- was debited to True Value account during the F.Y.2007-08 relevant to A.Y. 2008-09. The learned A.R. submitted that the facts were scrutinized by the then A.O, which is evident from the copy of ledger account of Truce Value (W.S.) 2007-08. Further this am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT. The learned D.R. relied upon following judgments :- 1. Commissioner of Income-Tax Vs. Shri Bhagwan Das 272 ITR 367 2. Swarup Vegetable Products Industries Ltd. Vs. Commissioner of Income Tax 187 ITR 412 3. Commissioner of Income-Tax Vs. Escorts Employees Ancillaries Ltd. 242 ITR 74 11. The D.R. submitted that on merit, he relied upon the order of CIT but the learned Authorized Representative submitted the CIT himself has made the additions, therefore, his contention are together as regards invoking Section 263 of the Act as well as merit of the case. 12. We have heard learned representatives of the parties and records perused. Whether under the facts and circumstances the CIT is justified in exercising power under Section 263 of the Act and making additions on four issues detailed as above. To examine the issues we would like to see the scheme of the Act in this regard. The issue under consideration is pertaining to section 263 of I.T Act. The said section reads as under:- 263. (1) The Commissioner may call for and examine the record3 of any proceeding under this Act, and if he considers that any order passed therein by the 4[Assessing] Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded. 13. From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue . It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The power of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. 15. In the light of above discussions, if we consider the facts of the case we noticed that the A.O. in his original assessment order has categorically mentioned that besides the points raised/considered for selection of scrutiny other points were also raised and written submissions/explanations were sought from time to time and requisite evidences/explanations/papers were furnished by the assessee. In addition to above fact, the books of accounts were also produced by the assessee before the A.O. which were examined and case was discussed in depth. 16. As regards the issue of prior period expenses ₹ 2,83,2,777/- we noticed that the assessee has followed a system of accounting in respect of sale of old cars. The old cars when got repaired to fit for sale all relevant expenses accounted for in true value account and this account is shown in balance sheet under grouped sundr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not help to the Revenue in view of the judgment of Hon ble Apex Court in the case of CIT Vs. Lovely Export (P) Ltd.(supra). 18. On merit, we find that the assessee has explained the transactions with facts and figures by referring various pages of paper book, pages no. 119,121,122,123 114. The partners given cheques which were credited in partners account and debited to bank account. The details of cheques which were not sent for collection to bank at the year end is also on record. The details of cheques in hand filed by the assessee which is at page 114 of assessee s paper book. The assessee has furnished bank reconciliation statement of which copy has been placed on page 119 121 of the paper book. The assessee has also furnished capital account of concerned partners of which copies have also been placed in paper book page nos.115 120. The entries have been reversed in capital account by the unrealized cheques. The CIT added the amount on the ground that the assessee has failed to explain the capital introduced. There is no dispute regarding the facts of the case as noted above, when facts are not in dispute, this is simple case of appreciation of relevant accounting e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has explained the facts to A.O. that in anticipation of availability of resources to the lenders (family members of partners) of the firm in individual capacity in future, cheques were given to the firm. Cheque No.041744 dated 31.03.2009 on ICICI Bank for ₹ 50,00,000.00 received from Smt. Benu Khetrapal and Cheque No.461987 dated 31.03.2009 on Punjab National Bank for ₹ 59,00,000.00 received from Smt. Shabnam Khetrapal remained un-enchased. In addition, all evidences were produced/furnished to A.O. to substantiate that these cheques were remaining Un-encashed and were reflecting in Bank Reconciliation Statement of ICICI Bank as amount debited by us but not credited by Bank. After verifying all the facts and evidences the A.O. has accepted the assessee s submissions. We further find that there is nothing wrong in reversing the cheques received in F.Y.2008-09 being stale cheques (older than 6 months) and remained un/encashed till 31st March, 2010. We find that this issue has been examined by the AO at the time of original assessment proceeding by raising various quarries vide ordersheet dated 08.03.2011, 16.03.2011 others when the A.O. asked the assessee to furn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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