TMI Blog2022 (8) TMI 1312X X X X Extracts X X X X X X X X Extracts X X X X ..... n, necessarily require being subject to a comprehensive scrutiny, cannot be countenanced as, even so, notice u/s. 143(2) issued in the instant case is, as a matter of fact, for limited scrutiny. We, accordingly, uphold the revision under reference. The AO shall, in the set aside proceedings, adjudicate on this aspect of the matter after allowing the assessee a reasonable opportunity of being heard, in accordance with law and by issuing definite findings of fact. As explained in Anantharam Veerasinghaiah Co. [ 1980 (4) TMI 2 - SUPREME COURT] the Tribunal has to consider, from an overall consideration of all the relevant facts and circumstances, whether the unexplained cash deposits and cash credits could be reasonably attributed to the pre-existing fund of concealed income or they were reasonably explained by reference to the concealed income earned in the relevant year. Decided against assessee. - I.T.A. No. 22/JAB/2022, I.T.A. No. 15/JAB/2021 - - - Dated:- 31-8-2022 - SHRI SANJAY ARORA, HON BLE ACCOUNTANT MEMBER AND SHRI MANOMOHAN DAS, HON'BLE JUDICIAL MEMBER For the Appellant : Shri Rahul Bardia, FCA For the Respondent : Smt. Neeraja Pradhan, CIT-DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fying the assessment or cancelling the assessment and directing a fresh assessment. Explanation 1 Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 3.1 The issue under reference stands considered at length by this Tribunal in Nitin Sharma v. Pr. CIT [2020] 60 CCH 415 (Jabalpur) (APB pgs. 7- 27). The operative part of the said order, also read out during hearing, reads as under:- 7.1 Next, we proceed to examine the legal impli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigation the facts stated in the return when circumstances would make such an inquiry prudent that the word erroneous in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. (emphasis, supplied) 7.2 .His order, however, does not find fault with the assessment on that score alone. In his view, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inquiry, has been laid down by the Hon'ble Courts toward regarding an order erroneous and prejudicial to the interest of the Revenue. And for which reference may again be made to the decision by Hon'ble jurisdictional High Court in Deepak Kumar Garg (supra), holding as under: (pg. 437) The Assessing Officer accepted the version of the assessee without proper enquiry and a result a substantial amount of taxable income was not brought to tax. In such a case the assessment order would be erroneous and prejudicial to the interest of the Revenue because law enjoins upon the Assessing Officer to make the assessment order bringing all taxable income to tax. The enquiry held in a perfunctory manner could not be said to be a proper enquiry before passing the assessment order. This cannot be a ground to shut out the jurisdiction of the Commissioner of Income-tax that an adequate enquiry was conducted by the Assessing Officer. Similarly, it held as under in Mahavar Traders (supra): Held, that the Income Tax Officer should have examined the matter in the light of the conditions mentioned in both the sections before granting relief. The Commissioner of Income-tax had not give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... toward better management of tax assessments. The same therefore itself provides for extension of the said scope in appropriate cases. Not only is the said Instruction binding, not observing its mandate makes an assessment made in disregard thereof as infirm and, accordingly, liable for revision u/s. 263. In fact, providing an absolute bar would dilute the plenary power of the assessing authority in the matter of assessment, so that all that the Board instruction seeks to provide is for a mechanism for the exercise of that power with a view to optimize scarce resources nothing more and nothing less, i.e., where a return has been initially selected for scrutiny on limited aspects. That apart, it would be inconsistent with the scheme of the Act, which seeks to bring the total income of an assessee to tax. Further still, inasmuch as one AO may extend the scope of an assessment, and the other not, providing for the assessment made without observing the said mandate as infirm, liable for revision u/s. 263, places the two situations on an even keel, i.e., on a same footing, under law. An absence of such a provision would make the law inequitable as between the two assessees, similarly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollow the said mandate? As afore-noted, a failure to observe a BI would itself attract sec. 263. The Tribunal in Mahender Singh Dhankar (supra) however, regards it as akin to the exercise of power u/s. 147. Would it (i.e., where the AO, even though he ought to have made out a case and sought the approval of the competent authority, as required by the BI, does not do so), constrain or bind the revisionary authority not to initiate revisionary proceedings, extending the scope of inquiry by the assessing authority? The answer to this would clearly lie in the scope of the power of revision. No answer, on being so enquired during hearing, was forthcoming from Sh. Bardia, even with reference to the order by the Tribunal being relied upon by him, nor indeed do we find any in the said order. At this stage, Sh. Bardia was questioned by the Bench about clause (c) of Explanation 2 to sec. 263. This is as the BI itself obliges the AO to, as also explained in Nitin Sharma (supra), move the competent authority where aspects outside the specified areas, i.e., as mentioned in the notice u/s. 143(2), warrant enquiry or circumstances provoking enquiry are found to obtain. To no answer again by Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ained in J.K. Synthetics Ltd. (supra). Reference in this context may also be made to the decision in Pahwa Chemicals (P.) Ltd. v. CCE [2005] 274 ITR 87 (SC), wherein the Hon'ble Apex Court clarified that the Instructions by the Board u/s. 37B (of the Central Excise Act, 1944), which is akin to sec. 119 of the Act, are circumscribed by the consideration stated in section 37B itself, i.e., in furtherance of the provisions of the Act. Earlier in Kerala Financial Corporation v. CIT [1994] 210 ITR 129 (SC), it explained that the powers of the Board u/s. 119 are for the purposes of the Act and, thus, cannot override the provisions of the Act or detract from the same. The matter is well-settled, and case law abundant. Reference here may also be made to L. Hazari Mal Kuthiala vs. ITO [1961] 41 ITR 12 (SC), wherein the Apex Court explains that the provisions of the Act must be read in a manner which make its machinery workable, rather than not. In its words: the exercise of power would be referable to a jurisdiction that confers validity thereto, and not to a jurisdiction under which it would be nugatory. Why, the proviso to s. 119(1) itself clarifies the position of law in the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rutiny, being, in law, duty bound to, given his purview in law, i.e., to assessee the total income of the assessee. We have already clarified that the proposition that the power of assessment of the assessing authority is plenary represents well-settled law. 3.5 Next, we may examine the power of revision under law. A mere browse of sec. 263(1), reproduced hereinbefore, defines the power of revision, exercise of which is governed by the satisfaction of twin conditions of the subject order being erroneous and prejudicial to the interests of the Revenue, absence of any one of which would fail the revision in given a case. That is to say, the order of the AO is erroneous, and the error has resulted in a prejudice to the Revenue. Further, this error could be of fact or of law. The Apex Court in Malabar Industries Co. v. CIT [2000] 243 ITR 83 (SC) laid down a four-way test for an order to be regarded as erroneous and prejudicial to the interests of the Revenue, liable for revision u/s. 263, viz. wrong assumption of facts; incorrect application of law; non-application of mind; and omission to observe the principles of natural justice. 3.6 We shall here confine ourselves only to no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bed by the BI for such conversion cannot thus be read as limiting the power, either of the AO, as explained earlier, nor of the revisionary authority. The same cannot be read as a limitation, which would only be defeative of s.143(2), as indeed of s. 119, given the underlying object of a fair assessment of the total income chargeable u/s. 4 to tax. Concurrence of a higher authority, which the AO is to obtain to extend the scope of enquiry, is only enabling and facilitative, and necessarily so, the purpose of an assessment itself being to bring to tax the taxable income. The reason for the same, i.e., a two-step process, limiting the areas of inquiry initially on the basis of predefined parameters, is only, as explained in Nitin Sharma (supra), toward better management of resources and, as explained in the BI itself, only proper cases with tax potential are selected. This is as much a duty of the AO as if the return selected was for complete scrutiny in the first place itself, and this is what the Board clarifies, albeit requiring him to follow a process. As such, where he fails to do so, as found by the said higher authority on an examination of the record, he is well within his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(2) notice. As clarified, the said notice is both in law and in fact issued by the assessing authority and by no other, and the BI only provides for a procedure for the exercise of this inherent power of assessment by the AO, with a view that it is directed toward deserving cases, i.e., it is not inhibitive, and neither can be, but regulative and facilitative and, at the same time, eliminating any possible misuse of power by making the process transparent. Being binding, the same (i.e., the said procedure), ought to have been observed by the AO where applicable, and which is what the revisionary authority in effect does. As explained in J.K. Synthetics Ltd. (supra), the Board is not competent to give directions regarding the exercise of any judicial power by its subordinate authorities. In Kerala Financial Corporation (supra) and Pahwa Chemicals Ltd. (supra), it further explained that the power of the Board u/s. 119 is only for the furtherance of the objects and for the purposes of the Act. This, then, provides the prescriptive and the legal framework under which Explanation 2(c) below s. 263(1) is to be read. True, a BI is binding, however, its contours and parameters are laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been made, as the assessee/s contends, or not, as does the revisionary authority. We shall consider the facts of the two cases in this respect separately. 4.1 In Alankar (ITA No. 22/Jab/2022), the assessee-firm was subjected to a survey u/s. 133A of the Act during the relevant previous year at its business premises, whereat an excess stock of Rs. 117.98 lacs was found and admitted by the assessee. The said amount was subsequently credited by the assessee to it s profit loss account for the year, which thus gets included in and returned as business income. The assessee s return was selected for verification of Large increase in capital during the year , and qua which, accordingly, enquiry was made by the AO during the course of the assessment proceedings. No enquiry was made in respect of the excess stock surrendered, nor, accordingly finds any mention or reference in the assessment order. In view of the ld. Pr. CIT, the said amount ought to have been subjected to tax, not as business income u/s. 28, but u/s. 69A, i.e., as undisclosed assets, and subject to tax at a higher rate u/s. 115BBE. 4.2 There has been without doubt no enquiry in the matter by the AO in the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the excess stock of Rs. 118 lacs, without anything more, would surely make the assessment order erroneous and prejudicial to the interests of the Revenue. Reference in this regard be made to the decision in M.B. Abdulla vs. CIT [1990] 183 ITR 96, 101 (SC). Further, the objection by the ld. CIT-DR before us, i.e., the survey cases, in terms of Board Instruction, necessarily require being subject to a comprehensive scrutiny, cannot be countenanced as, even so, notice u/s. 143(2) issued in the instant case is, as a matter of fact, for limited scrutiny. 4.3 We, accordingly, for the reasons afore-noted (paras 3 to 4.2), uphold the revision under reference. The AO shall, in the set aside proceedings, adjudicate on this aspect of the matter after allowing the assessee a reasonable opportunity of being heard, in accordance with law and by issuing definite findings of fact. As explained in Anantharam Veerasinghaiah Co. v. CIT [1980] 123 ITR 457 (SC), the Tribunal has to consider, from an overall consideration of all the relevant facts and circumstances, whether the unexplained cash deposits and cash credits could be reasonably attributed to the pre-existing fund of concealed income or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter that we consider relevant. The first is the decision by the Tribunal in Mahendra Singh Dhankar (HUF) (supra). The same, admittedly, as well as other included in his compilation by the assessee, though not referred to during hearing, do not consider clause (c) of Explanation 2 to s.263(1), which we have found as applicable, making them, thus, as afore-stated, distinguishable. On it being argued by the Revenue before it that the Board Instruction provides for a mechanism to convert a limited scrutiny case into a complete scrutiny case, the Tribunal in that case would, with reference to the Board Instruction No. 05/2016, dated 14/7/2016 requiring the AO to refer only deserving cases to the competent authority, acting on credible information, opined the same to be akin to s.147 of the Act, and rejected the arguments advanced before it on that basis as the AO had not made out a case following the procedure u/s. 147. In the opinion of the Tribunal, areas other than those specified in s.143(2) notice, could be enquired into by the AO only where the same qualify for being subject to reassessment proceedings, the condition precedent for which is reason to believe escapement of income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsiders in Mahendra Singh Dhankar (HUF) (supra), that it so does, would also need to be addressed. And which, the said decision by the Tribunal does not. Continuing further, true, the assessee found favour with the Tribunal (Jabalpur Bench) in Vishal Sethi (supra) on the basis that the AO was justified in not seeking approval from a higher authority even as the Board Instruction, binding on him u/s. 119, required him to report and seek the said approval for enquiry into areas outside those specified in the s. 143(2) notice. The same, however, is subject to the tax-effect thereof exceeding a particular threshold limit, defined separately for metro (Rs. 10 lacs) and non-metro (Rs. 5 lacs) charges, which was not breached in that case. The said decision is thus distinguishable, as also observed in Nitin Sharma (supra). We are conscious that there is a dichotomy here inasmuch as we have in the instant case observed that a Board Instruction, insofar as it places an absolute bar on the exercise of his power of assessment by the AO, who in law issues the notice s. 143(2), may be ultra vires s.119, and such bar could only be by way of a statutory provision, as u/s. 143(2) itself. This q ..... X X X X Extracts X X X X X X X X Extracts X X X X
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