TMI Blog2022 (5) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... initiation of assessment proceedings itself was on account of bogus business transactions only. Thus, it is case of incorrect assumption of facts without any enquiries or verification As question is not filing the documents by the assessee with the A.O. during the assessment proceedings, however, here the question is with respect to carrying out necessary verifications on the information of the department and that of the documents submitted by the assessee. Unfortunately, we have not been able to lay our hands of any sort of verification carried out by the A.O. In our view, the A.O. has proceeded only on the basis that modus operandi of providing bogus sales cannot be relied upon in the light of the concrete information available on the record. Thus, in this way, only on this basis, the A.O. treated the sales as bogus and charged 25% as income derived out in lieu of accommodation entries without any basis, enquiry or verification. Even, throughout the assessment proceedings, there is not even any whisper from the side of the A.O. that he had carried out any sort of investigation or verification or recorded his satisfaction. Thus, we are in consonance with the findings of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case and in law, ld. PCIT has erred in exercising the revisionary powers by passing order u/s 263 of I.T. Act, 1961 setting aside the order passed u/s 147/143(3) dated 27/12/2018. The action of the ld. PCIT is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the order passed u/s 263. 2. In the facts and circumstances of the case and in law, ld. CIT has erred in holding the order passed u/s 147/143(3) dated 27/12/2018 as erroneous and prejudicial to the interest of the revenue. The order passed u/s 263 is bad in law and therefore, the action of the ld. CIT is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the order passed u/s 263 and holding the order passed u/s 147/143(3) dated 27/12/2018 as not erroneous and prejudicial to the interest of the revenue. 3. The assessee craves its right to add, amend or alter any of the grounds on or before the hearing. 5. The brief facts of the case are that the assessee is engaged in business of trading of groundnut and mustard seeds and oil. Assessee's case was reopened for the A.Y. 2011-12. In response to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT is illegal as the appeal of the assessee was pending before CIT(A). In this regard, the ld AR has drawn our attention towards Explanation 1(c) to Section 263(1) of the Act, which is reproduced below: where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988 ], the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend ***[and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal. It was further argued by the ld. AR that once the appeal is filed by the assessee against the order of A.O. then in that eventuality, he surrenders himself to the jurisdiction of ld. CIT(A). Thus, this surrender is unconditional and the assessee in that eventuality, has no right to withdraw the appeal or to take U-turn. It was further submitted by the ld AR that power of enhancement to CIT(A) are akin to powers of revision to PCIT conferred u/s 263 of the Act. Thus, in this regard, the ld. AR also placed reliance on the following judicial pronouncements in support of his contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment under Schedule D. The Commissioners of Inland Revenue were not satisfied that the assessment was adequate. The Special Commissioners then proposed to proceed with the hearing of the appeal in the ordinary way. At that stage the taxpayer sought a writ of prohibition to prohibit the Special Commissioners from hearing the appeal. It was held by the Court of Appeal that notice of appeal having once been given, the Commissioners were bound to proceed in accordance with the IT Acts and determine the true amount of the assessment. At page 493 of the report, Lord Wright observed as follows: ...in making the assessment and in dealing with the appeals, the Commissioners are exercising statutory authority and a statutory duty which they are bound to carry out. They are not in the position of judges deciding an issue between two particular parties. Their obligation is wider than that. It is to exercise their judgment on such material as comes before them and to obtain any material which they think is necessary and which they ought to have, and on that material to make the assessment or the estimate which the law requires them to make. They are not deciding a case inter partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(b) and Explanation of Section 251(2) of I.T. Act, we come to the conclusion that the Ld. CIT(A) is not empowered to dismiss the appeal for non-prosecution of appeal and is obliged to dispose of the appeal on merits. Once the Assessee files an appeal U/s 246A of I. T. Act, the Assessee sets in motion the machinery designed for disposal of the appeal under Sections 250 and 251 of 1.T. Act. If the appeal filed by the assessee fulfils the requirements of maintainability and admissibility prescribed under Sections 246, 246A, 248 and 249 of I.T. Act; neither the Assessee can stop the further working of that machinery as a matter of right by withdrawing the appeal, or by not pressing the appeal, or by non-prosecution of the appeal; nor the first appellate authority, CIT(A) in this case, can halt this machinery by ignoring either the procedure in appeal prescribed U/s 250 of l.T. Act or powers of Commissioner (Appeals) prescribed U/s 251 of I. T Act. CIT(A), the first appellate authority, cannot dismiss assessee's appeal in limine for non- prosecution without deciding the appeal on merits through an order in writing, stating the points of determination in the appeal, the decision t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill, 1988, which is at page No. 1-2 of the department s paper book, memorandum of Finance Bill, 1988, which is page No. 3 of the department s paper book, Section 31 of the Income Tax Act, 1922 which is at page No. 4-5 of the department s paper book, Section 31A of the Income Tax Act, 1922, which is at page No. 6 of the department s paper book and the ld. CIT-DR has also relied on the decision of the Coordinate bench of this Tribunal in ITA No. 255/JP/2020 dated 25/03/2021. The ld. CIT-DR has further relied on the following judicial pronouncements: (i) CIT Vs Shri Arbuda Mills Ltd. (1998) 98 Taxman 457 (SC) (ii) CIT Vs Ratilal Bacharilal Sons (2006) 153 Taxman 86 (Bom) (iii) CIT Vs South India Shipping Corporation Ltd. (2000) 111 Taxman 58 (Mad). (iv) CIT Vs Carborandum Universal Ltd. (1999) 240 ITR 99 (Mad.) (v) CIT Vs Shree Durga Agencies Ltd. (1999) 239 484 (Calcutta) (vi) Aditi Technologies (P) Ltd. Vs ITO, Ward 4(1), Banglore (2014) 47 taxmann.com 166 (Bang-Trib) (vii) CIT, Patiala Vs Ganesh Steel Industries (2009) 184 Taxman 220 (P H). (viii) CIT Vs Indo Persian Rugs (2007) 160 Taxman 127 (Allahabad) (ix) CIT Vs Soble Miglani (2005) 145 Taxman 35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an appeal is decided against an order even on one or two points alone, while a number of High Courts have held that there is only partial merger and not the merger of the whole order in case where only one or some particular aspects have been contested. To eliminate litigation and to clarify the legislative intent in respect of the provisions in the three Direct Tax Acts, it is proposed to clarify the legal position in this regard in the Explanation to the relevant sections. The proposed amendments are intended to make it clear that record would include all records relating to any proceedings under the concerned direct tax laws available at the time of examination by the Commissioner. Further, as held by several High Courts, the Commissioner will be competent to revise an order of assessment passed by an Assessing Officer on all matter except those that have been considered and decided in appeal. 12. It is evident from the above, that the power of PCIT u/s 263 extends to such matters which had not been considered and decided in such appeal. The use of the word considered and decided leaves no room for doubt that if some issue is decided by CIT(A) in an appeal against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 251 of the Act on issue A but after passing of the appellate order by the CIT(A), now the PCIT can assume jurisdiction u/s 263 of the Act as the Ld. CIT(A) has not considered and decided such issue A in the appellate order. This cannot be the intention of the legislature as time limit is there for passing order u/s 263 of the Act, whereas there is no such limit for the CIT(A) for adjudicating an appeal and this interpretation makes the provisions of section 263 of the Act practically redundant during the pendency of appeal before CIT(A). 13. In another circumstances, if an appeal, against the assessment order passed by the AO, has been filed with the CIT(A) but has not been decided and is pending before CIT(A), then the Doctrine of Merger will even otherwise not apply as there is no order of CIT(A) with which the assessment order could merge and thus, the PCIT will surely have jurisdiction u/s 263 of the Act in respect of all the issues whether contested before CIT(A) or not. Although, it was argued by ld. AR that once an appeal is filed by the assessee against the order of AO, then he surrenders himself to the jurisdiction of CIT(A). Thus, this surrender is unconditional and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above that in view of the proviso to section 33A of 1922 Act. the PCIT cannot exercise jurisdiction u/s 33A of the Act, (a) if the appeal against the order lies to CIT(A)/ITAT and the time to file such appeal has not expired or (b) the order is pending on an appeal before the CIT(A) or has been made the subject of an appeal to the ITAT or (c) the order has been made more than one year previously. It may be mentioned that the above proviso to section 33A of 1922 Act is conspicuous by its absence in section 263 of the Act of 1961. Thus, these judicial pronouncements of Hon'ble Apex Court as relied upon by the ld. AR are of no help to the assessee. In the case of CIT v. Shri Arbuda Mills Ltd. [1998] 98 Taxman 457 (SC), the assessment of the assessee-company was completed under section 143(3) read with section 144B wherein the ITO made certain additions and disallowances and also accepted certain claims relating to three items. The assessee-company filed an appeal and the three items in respect of which the decision was in its favour were not the subject-matter of the appeals. In respect of these three items, the Commissioner exercised his power U/s 263. The assessee contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond question of law is concerned, it relates to the question of merger. In our view, the order of the ITO which was the subject-matter of revision before the Commissioner under section 263 did not merge with the order of the first appellate authority as the subject-matter of appeal before the first appellate authority was different. Therefore, on the basis of the decisions of the Supreme Court in the case of CIT v. Shri Arhuda Mills Ltd. [1998] 231 ITR 50/98 Taxman 457 and Shree Manjunathesware Packing Products Camphor Works case (supra), the Tribunal was not correct in holding that there was a merger of the order of the ITO with the order of Commissioner (Appeals) precluding the Commissioner from exercising his revisional powers. Our answer to the second question of law also is in the negative and in favour of the revenue. 15. We noticed from perusal of the record that vide its letter dated 15.09.2021, the ld. AR has relied upon the following judicial pronouncements: * CIT Vs. Vain Resorts Hotels P Ltd [2019] 418 ITR 723 (All) * Renuka Philip Vs. ITO [2018] 409 ITR 567 (Madras) * ACC Limited Vs. CIT(LTU) in ITA No. 3576/Mum/2019. In this regard, we no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee before us. We are conscious of the fact that in respect of arguments of the assessee to the effect that he has already filed income tux appeal before the ld. CIT(A) against the order of the assessment dated 26/12/2017 and the entire issue was at large now before the Appellate Commissioner and that the ld. CIT(A) while hearing the assessee 's appeal has power to enhance the assessment. If he was of the opinion that not only limited additions made by the A.O. hut much larger additions were justified., then in that eventuality, he could have certainly exercised such powers by putting the assessee to notice. For ready reference, we reproduce clause (c) of Explanation 1 of section 263 of the Act as under: 263(1) (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1st day of June, 1988], the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend [and shall he deemed always to have extended] to such matters as had not been considered and decided in such appeal.] From the above proposition of law, we noticed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion. Reliance is placed on the judgement of Hon'ble Supreme Court in the case of Commissioner of Income Tax vs. Kwality Steel Suppliers (2017) 395 ITR 001, wherein the Hon'ble Court held thus : At the same time, this Court has also laid down that this provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. While interpreting the expression 'prejudicial to the interests of the Revenue', it is also held that order of the Assessing Officer cannot be termed as prejudicial simply because Assessing Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner did not agree.(See CIT v. Arvind Jewellers ((2003) 259 1TR 502)),It is clear from the above that where two view are possible and the Assessing Officer has taken one view and the CIT again revised the said order on the ground that he does not agree with the view taken by the Assessing Officer, in such circumstances the assessment order cannot be treated as an order erroneous or prejudicial to the Interest of the Rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investigation wing of the department that the assessee has provided accommodation entries in the garb of business transactions. In fact, as per the assessment order, there was specific information that the assessee has provided bogus sale bills to Shri Ram Trading Corporation amounting to Rs. 34.20 Lakh. Thus, that was the starting point of the assessment proceedings. However, while completing the assessment, the AO has made addition of Rs. 8.55 lakh being 25% of 34.20 Lakh. The assessment order was cancelled by the Id PCIT as the same has been completed without making any enquiry and without application of mind by the AO for the following reasons: * The AO has not considered at all investigation done by the department in respect of accommodation entries. * The AO has not made any enquiry about the quantum of sales to M/s Shri Ram Trading Co. He has just focussed on sale of Rs. 34.20 Lakh as intimated by the investigation wing. * The AO has treated the sale of Rs. 34.20 Lakh as bogus but has made addition of only Rs. 8.55 lakh only without any reasoning and application of mind. * The AO has not examined the complete bank account of the assessee even though opening bala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held by the Hon'ble Apex Court that there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. The AO accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry, in these facts the conclusion that the order of the Income-tax Officer was erroneous is irresistible. In the case of Kirtidevi. S. Tejwani v. POT [7070] 116 taxmann.com 965 (Mumbai - Trib.), it has been held that it is well settled in law that when an Assessing Officer remains passive on the facts which call for further inquiry, such an inertia on the part of the Assessing Officer also renders the order erroneous and prejudicial to the interests of the revenue as held in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi) . In the case of CIT Vs Baliarpur Industries Ltd. [2017] 85 taxmann.com 10 (Bombay), it has been held by the Hon'ble High Court that: It is now settled that non-enquiry before allowing the claim would make the order of the Assessing Officer amenable to jurisdiction under section 263. The non-e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order. It, therefore, appeared that the Assessing Officer after having asked a pertinent question of the method of valuing unlisted shares did not pursue that line of enquiry. Thus, this was a case of non-enquiry and not inadequate enquiry. Therefore, the order of the Assessing Officer was certainly erroneous and prejudicial to the revenue. In the case of Hunumesh Realtors (P.) Ltd. Vs PCIT [2017] 88 taxmann.com 185 (Mumbai - Trib.), it has been held by the Coordinate Bench that: ....The view which was adopted by the Assessing Officer based on material available on record could not have been adopted by the Assessing Officer as material was not sufficient to come to such conclusion as no proper enquiry/verifications were conducted by the Assessing Officer making assessment order erroneous so far as prejudicial to the interest of Revenue amenable to exercise of revisionary powers by the Pr. Commissioner under section 263.... The Assessing Officer even did not have course content with him before arriving at the conclusion that these are business expenses. Thus, there was complete lack of application of mind by the Assessing Officer before allowing these educ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut making a proper enquiry and without applying his mind to the return and the documents filed by the assessee, as such the order is erroneous as well as prejudicial to the interest of revenue. The Tribunal has also recorded a finding of fact, on the basis of the record available, that in the instant case, though the Assessee has submitted records before the Assessing Officer, he has simply accepted the claim of the assessee without examining the same and therefore, the present case is one where the impugned order of assessment is erroneous as well as prejudicial to the interest of revenue on account of lack of enquiry and application of mind to the facts of the case by the Assessing Officer. 9. On a careful perusal of the record, it is apparent that the Commissioner of Income Tax as well as the Income Tax Appellate Tribunal both have recorded a finding to the effect that though the records were filed before the Assessing Officer and a detailed questionnaire was also issued to the appellant by the Assessing Officer to which a reply was filed by the appellant in that regard, the Assessing Officer did not apply his mind nor did he conduct an enquiry into the matter although he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exercise of revisionary power under section 263 that is, the law, with effect from 1-6-2015, deems an order as so, where any of the circumstances specified is, in the opinion of the competent authority, satisfied. It has nothing to do with the date of the passing of the order deemed erroneous, or the year to which it pertains. Being a part of the procedural law, the provision shall have effect from 01-6-2015. 21. Having considered the entirety of facts and circumstances of the present case, we further found that here the question is not filing the documents by the assessee with the A.O. during the assessment proceedings, however, here the question is with respect to carrying out necessary verifications on the information of the department and that of the documents submitted by the asseessee. Unfortunately, we have not been able to lay our hands of any sort of verification carried out by the A.O. In our view, the A.O. has proceeded only on the basis that modus operandi of providing bogus sales cannot be relied upon in the light of the concrete information available on the record. Thus, in this way, only on this basis, the A.O. treated the sales as bogus and charged 25% as i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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