CIT v. Ashok Logani - Taxpublishers.in

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The Tax Publishers2012 TaxPub(DT) 0244 (Del-HC) : (2012) 043 (I) ITCL 0452 : (2012) 347 ITR 0022 : (2011) 202 TAXMAN 0201 INCOME TAX ACT, 1961 --Revision under section 263--Erroneous and prejudicial order AO having not examined the issue of undisclosed income offered by assessee for taxation during search but the same not being offered in return of income--A search under section 132 was carried out in JMD Group on 16-12-2003. Since the assessee was a close associate of Mr. Sunit Bedi, MD of JMD Group, search was also carried out at the residence of assessee. However, his two concerns, viz, M/s. In-Style Exports (proprietary concern) and M/s. In-Style Exports Pvt. Ltd. (company in which he was a Director) were not covered under search/survey. During the search, a sum of Rs. 62,30,300 was found from the residence of the assessee. In the statement recorded during search, the assessee offered a sum of Rs. 61.30 lakhs for taxation as his undisclosed income for assessment year 2003-04. Subsequently, the assessee filed his return for the assessment year 2003-04 declaring income of Rs. 1,57,24,780. The assessment was framed by the AO under section 153(3)/143(3) at an income of Rs. 1,58,10,044. After calling the records, the CIT noticed that though the assessee had offered a sum of Rs. 61.30 lakhs for taxation during search for assessment year 2003-04, but the same was not offered in the return of income and the AO had not examined this aspect during the assessment proceedings. Accordingly, CIT passed orders dated 31-3-2008 under section 263 whereby he set aside the order passed by the AO with direction to him to examine the same in the light of statement recorded at the time of search and surrounding circumstances. Likewise, he found that in the assessment year 2004-05, the assessee had offered a sum of Rs. 21 lakhs only against the surrendered amount of Rs. 61.30 lakhs at the time of search. On this basis, another order on the same date, i.e., 31-3-2008 was passed under section 263 setting aside the assessment order in respect of assessment year 2004-05 also to the aforesaid limited extent and directing the AO to examine the same. The assessee filed appeals before the Tribunal challenging the aforesaid order in respect of these two assessment years. The Tribunal had set aside the aforesaid order of the CIT. *Held:* Since once it was found that there was no proper consideration of the issue at hand by the assessing officer and he left many loose ends, that too, in the instant case where huge cash was found during search, though retracted and sought to be explained afterwards, the very foundation of the order of Tribunal setting aside the original order of CIT holding that assessing officer had examined the issue though there was no mention of the same in assessment order, was knocked off and as a consequence thereof, the High Court would set aside the Tribunal's order and restore the order of CIT passed under section 263. *Held:* No doubt, the order-sheet shows that the assessing officer had asked the assessee to explain cash found. However, whether the assessing officer 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 assessing officer is not supposed to write the orders in detail in the same manner as a Judicial Officer is supposed to write the judgments. At the same time, it cannot be ignored that huge cash of Rs. 62,30,300 was found at the time of search and on that date, the assessee had surrendered a sum of Rs. 61.30 lakhs and offered the same for tax. However in his income-tax return, the assessee had offered a sum of Rs. 21 lakhs only against the surrendered amount of Rs. 61.30 lakhs at the time of search. In such a scenario, there should have been at least a brief discussion recording a satisfaction on the explanation offered by the assessee. There were two very important features, in the instant case. These are : First, keeping cash of Rs. 62.30 lakhs, part of which belongs to his sole proprietorship firm, but another part to a private limited company of which he is the Director, at residence, may raise certain doubts. Though in his letter dated 7-1-2004, he had stated that he had kept the cash at his residence in safe custody, however, this aspect needed to be properly examined. Secondly, before the Tribunal, the assessee had given an explanation that cash in hands in the books of account of M/s In-Style Export was Rs. 18,17,202 and in the books of In-Style Export Pvt. Ltd., was Rs. 18,78,518. Balance amount of Rs. 4,34,580, excluding Rs. 21 lakhs surrendered, was explained by the assessee 'as cash as per his own books'. Curiously, the explanation furnished before the assessing officer, as recorded by the CIT in reply to show-cause notice, was altogether different. This would give an impression that it might be an after thought on the part of the assessee to explain the cash. Under these circumstances, the assessing officer was required to go into this issue in proper perspective and could not be perfunctory in his approach. The assessing officer 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 assessing officer to at least reflect that the retraction was proper. Another factor which highlighted is that the entire cash belonging to two firms was found at the residence. In the aforesaid circumstances, the CIT held the view that the matter was not examined by the assessing officer. It was a reasonably fit case for exercising revisionary jurisdiction under section 263. After all, CIT gave another chance to the assessee to explain the source of cash. Once it was found that there was no proper consideration of the issue by the assessing officer, 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 explanation tendered by the assessee which it could not do. When the CIT passed the orders under section 263 at this stage he was only required to find out as to whether the income has escaped assessment and the order is prejudicial to the interest of revenue. Since these contentions were satisfied and the matter was relegated to the assessing officer 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 and keeping in view the scope of that provision. One has to keep in mind that against the orders passed by the assessing officer, the 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 assessing officer 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 assessing officer 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. As a consequence, the Tribunal's order was to be set aside and the order of the CIT passed under sedction 263 was to be restored. [Para 17] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 0244 (Del-HC) : (2012) 043 (I) ITCL 0452 : (2012) 347 ITR 0022 : (2011) 202 TAXMAN 0201

INCOME TAX ACT, 1961

--Revision under section 263--Erroneous and prejudicial order AO having not examined the issue of undisclosed income offered by assessee for taxation during search but the same not being offered in return of income--A search under section 132 was carried out in JMD Group on 16-12-2003. Since the assessee was a close associate of Mr. Sunit Bedi, MD of JMD Group, search was also carried out at the residence of assessee. However, his two concerns, viz, M/s. In-Style Exports (proprietary concern) and M/s. In-Style Exports Pvt. Ltd. (company in which he was a Director) were not covered under search/survey. During the search, a sum of Rs. 62,30,300 was found from the residence of the assessee. In the statement recorded during search, the assessee offered a sum of Rs. 61.30 lakhs for taxation as his undisclosed income for assessment year 2003-04. Subsequently, the assessee filed his return for the assessment year 2003-04 declaring income of Rs. 1,57,24,780. The assessment was framed by the AO under section 153(3)/143(3) at an income of Rs. 1,58,10,044. After calling the records, the CIT noticed that though the assessee had offered a sum of Rs. 61.30 lakhs for taxation during search for assessment year 2003-04, but the same was not offered in the return of income and the AO had not examined this aspect during the assessment proceedings. Accordingly, CIT passed orders dated 31-3-2008 under section 263 whereby he set aside the order passed by the AO with direction to him to examine the same in the light of statement recorded at the time of search and surrounding circumstances. Likewise, he found that in the assessment year 2004-05, the assessee had offered a sum of Rs. 21 lakhs only against the surrendered amount of Rs. 61.30 lakhs at the time of search. On this basis, another order on the same date, i.e., 31-3-2008 was passed under section 263 setting aside the assessment order in respect of assessment year 2004-05 also to the aforesaid limited extent and directing the AO to examine the same. The assessee filed appeals before the Tribunal challenging the aforesaid order in respect of these two assessment years. The Tribunal had set aside the aforesaid order of the CIT. Held: Since once it was found that there was no proper consideration of the issue at hand by the assessing officer and he left many loose ends, that too, in the instant case where huge cash was found during search, though retracted and sought to be explained afterwards, the very foundation of the order of Tribunal setting aside the original order of CIT holding that assessing officer had examined the issue though there was no mention of the same in assessment order, was knocked off and as a consequence thereof, the High Court would set aside the Tribunal's order and restore the order of CIT passed under section 263.

Held: No doubt, the order-sheet shows that the assessing officer had asked the assessee to explain cash found. However, whether the assessing officer 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 assessing officer is not supposed to write the orders in detail in the same manner as a Judicial Officer is supposed to write the judgments. At the same time, it cannot be ignored that huge cash of Rs. 62,30,300 was found at the time of search and on that date, the assessee had surrendered a sum of Rs. 61.30 lakhs and offered the same for tax. However in his income-tax return, the assessee had offered a sum of Rs. 21 lakhs only against the surrendered amount of Rs. 61.30 lakhs at the time of search. In such a scenario, there should have been at least a brief discussion recording a satisfaction on the explanation offered by the assessee. There were two very important features, in the instant case. These are : First, keeping cash of Rs. 62.30 lakhs, part of which belongs to his sole proprietorship firm, but another part to a private limited company of which he is the Director, at residence, may raise certain doubts. Though in his letter dated 7-1-2004, he had stated that he had kept the cash at his residence in safe custody, however, this aspect needed to be properly examined. Secondly, before the Tribunal, the assessee had given an explanation that cash in hands in the books of account of M/s In-Style Export was Rs. 18,17,202 and in the books of In-Style Export Pvt. Ltd., was Rs. 18,78,518. Balance amount of Rs. 4,34,580, excluding Rs. 21 lakhs surrendered, was explained by the assessee 'as cash as per his own books'. Curiously, the explanation furnished before the assessing officer, as recorded by the CIT in reply to show-cause notice, was altogether different. This would give an impression that it might be an after thought on the part of the assessee to explain the cash. Under these circumstances, the assessing officer was required to go into this issue in proper perspective and could not be perfunctory in his approach. The assessing officer 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 assessing officer to at least reflect that the retraction was proper. Another factor which highlighted is that the entire cash belonging to two firms was found at the residence. In the aforesaid circumstances, the CIT held the view that the matter was not examined by the assessing officer. It was a reasonably fit case for exercising revisionary jurisdiction under section 263. After all, CIT gave another chance to the assessee to explain the source of cash. Once it was found that there was no proper consideration of the issue by the assessing officer, 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 explanation tendered by the assessee which it could not do. When the CIT passed the orders under section 263 at this stage he was only required to find out as to whether the income has escaped assessment and the order is prejudicial to the interest of revenue. Since these contentions were satisfied and the matter was relegated to the assessing officer 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 and keeping in view the scope of that provision. One has to keep in mind that against the orders passed by the assessing officer, the 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 assessing officer 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 assessing officer 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. As a consequence, the Tribunal's order was to be set aside and the order of the CIT passed under sedction 263 was to be restored. [Para 17]