Ghulam Mohiudin Mir,, Kashmir vs Assessee

Appellant by:S/Sh. R.K.Gupta & Rajan Gupta, CAs Respondent by::Sh.Tarsem Lal, DR

Date of hearing:12/03/2015 Date of pronouncement:26/03/2015

ORDER

PER B.P.JAIN,AM:

This appeal of the assessee arises from the order of the Commissioner

of Income Tax, Jammu dated 29.03.2014 against the order passed u/s 263 of

the Income Tax Act, 1961 ( In short, 'the Act'). The assessee has raised the

following grounds:

"1. That the order passed by the worthy Commissioner of Income -

tax, Jammu is bad in law against the facts of the case.

2 ITA No.340(Asr)/2014 2. That the order passed under section 263 of the Income -tax Act 1961 for the Assessment Year 2009-10 without application of judicial mind.

3. That the worthy Commissioner of Income-tax did not bother to understand that the cash received against sales does not cover any of the provisions of section under the Income -tax Act, when the cash sales 100% subject to tax, under the Vat of 2005 Jammu & Kashmir.

4. That instead of enquiry to be conducted in the case/case of the assessee from whom the payment of sales received by the assessee, the worthy Commissioner of Income-tax, Jammu is of the view that the enquiry is to be made in the case of assessee which is fully objected.

5. That the order of the worthy Commissioner of Income -tax, Jammu is illegal, arbitrarily and against the established facts liable to be quashed.

Any other Grounds of Appeal which may please be permitted to be taken at the time of hearing."

2. The brief facts of the case as arising from the order of the Ld. CIT are

reproduced for the sake of convenience as under:

"In this case, the assessment for the A.Y.2009-10 was completed under section 143(3) of the I.T. Act, 1961, by the Income Tax Officer, Annantnag, Kashmir on 16.12.2011 at total income of Rs.5,05,975/-. Thereafter, a proposal under section 263 of the I.T. Act,1961 was received from the said Assessing Officer vide his letter NO.3705 dated 14-03-2014 wherein it has been submitted that the then Assessing Officer has allowed the credit of prepared taxes of Rs.5,50,787/- which was not allowable, as the same was not deposited under the correct PAN and no correction of the same has been carried out by the then Assessing Officer. The Assessing Officer further, stated in his 3 ITA No.340(Asr)/2014

proposal that the Assessing Officer has not taken any action in this case where assessee has admitted to have received cash payment of more than Rs.20,000/- from the bogus sundry debtors from whom cash has been alleged to have been received amounting to Rs.2,08,37,841/- on which the potential tax effect @ 30% will be around Rs.62,51,352/- besides the above tax effect the penalty under section 271(1) (c ) of the I.T.Act,1961 at the minimum rate of 100% shall also be Rs.62,51,352/-. Accordingly, the Assessing Officer requested for the cancellation of the assessment order passed under section 143(3) for the assessment year 2009-10 as the order is erroneous and is prejudicial to the interest of the revenue.

2. The proposal received from the present Assessing Officer and the relevant records were carefully examined and a show cause notice vide No. 7723 dated 21-03-2014 was sent to the assessee with a request to explain as to why the above referred assessment may not be cancelled directing a fresh assessment to be made in his case in terms of the provisions of section 263 of the I.T. Act, 1961 and hearing was fixed on 26-03-2014. In response to the said show cause notice, Shri Ranjan Gupta, CA attended the proceedings and filed his reply stating therein as under:-

" In this connection, it is submitted that the assessee has been dealing the items mentioned in the annexed Tin No. of Vat Act,2005. The above said assessee has duly been registered with the commercial Tax Officer circle (K) Srinagar, Kashmir. Photocopy of TIN number and CST registration as well annexed herwith for your reference and records.

That all the items the assessee has been dealing 100% either covered under VAT, Act, 2005 or CST, Act 1956 all the goods imported either state and/or interstate. Since all the goods imported either of the case, use to pass check post Lower Munda, not even a single item has been imported and can be imported without a check post of Lower Munda.

The said facts may be verified at your own Level for the correctness of the transaction so far as purchases are concerned.

4 ITA No.340(Asr)/2014 All the payments to the supplier, i.e., 100% through bank. The said transaction duly verified by the A.O and nothing was found against the assessee.

Your goodself has mentioned in Para 2 of page-3 of Letter dated 21- 03-2014 which is as under:-

"While completing the assessment for the assessment year 2009-10 in the case of M/s. Mir Sale Corporation Kadalbal, Pampore, Pulwama, it is noted that you have made purchases in cash amounting from M/s. Mir Sales Corporation, Kadalbal, pampore, Pulwama during the period 01-04-2008 to 31-03-2009.

That it is well settled law that the provision of section 263 can't be invoked if the information is based on third party and it is against the provision of section 263 which is as under:-

The Commissioner may call for or examine the records of any proceedings under this Act, and if he considers that any order passed therein by the A.O. is erroneous in so far as it is prejudicial to the interest of revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or canceling the assessment and directing a fresh assessment.

From the bear reading of the section arbitrarily invoked, there must be two things mandatory on the part of Commissioner that the order of the A.O must be ERRONEOUS AND PREJDUCIAL TO THE INTEREST OF REVENUE.

So far as A.O is concerned he was rightly made the assessment since all the sales are made fully vouched and not a single discrepancy found during the course of assessment. The Income Tax Act,1961 right from starting to end does not bar the assessee to received the cash on account of sales made to the third parties, it is only mandatory on the part of parties who give cash to the purchaser (From whom the third parties made purchasers).

If at all the provision of section invoked only invoked in the case of third parties and not in the case of assessee, if invoked shall be bad in law and against the provisions of the Income tax Act,1961.

5 ITA No.340(Asr)/2014 The established prime facia, keeping into consideration the provisions of section 263, assessment order and nature of payment received (against the sale proceeds) will it amount to invoke the provision of section 263 when there is no existence of erroneous and prejudicial to the interest of revenue.

Moreover, all the sales made to the third parties are fully taxable items for which the assessee has filed quarterly returns to the concerned commercial Tax Officer which is on records and may be verified by your goodself for invoking the provision of section 263 in the case of third parties only and not in the case of assessee. Your goodself must be aware of provision of section mentioned in the chapter.

The parties mentioned in the page-4 from serial No.1 to 11 narrating exercise made for invoking the provision of section 263 arbitrarily is fully objected.

Since the matter is relating to previous year 2008-09 relevant to assessment year 2009-10 in the said period there was turmoil of Amarnath Yatra (Bam Bam Bhole) and whole of the state disturbed and the establishments mostly remained closed for more than 3 months. The material is being used by way of exercise made against the assessee is bad in law.

The power vested in the provision of section 263 not vested if material irregularities.

The assessee provided the details of sundry debtors are not denied but the identity to prove is not mandatory to prove genuineness of the debtors (in the case cash received against sales).

It is not obligatory on the part of assessee to inquire from the purchaser whether you are a assessee and/or bonafide purchaser and for this purpose not even a single provision of section of Income Tax Act.1961 are applicable.

Kindly refer notice under section 154/155 for the assessment year 2009-10 vide No.ITR/ANY/2013-14/852 dated 31-10-2013 photocopy of the same annexed herewith for your reference and records on the day of hearing the A.O allowed the tax paid to the assessee after verifying from OLTAS that the tax deposited on non-existing PAN.

The issue raised so far as said is concerned does not empower you to invoke the provision of section 263 arbitrarily and which is fully 6 ITA No.340(Asr)/2014

objected. Copy of the Income tax side also annexed herewith for your reference and records.

It is strange how your goodself you have proceeded against the assessee by invoking the provision of section 263 arbitrarily when the said order is not existence, because the basic order further rectify which is on record. (Photocopy of the notice under section 154/155 dated 31-10-2013 annexed herewith for your reference and records) The notices issued to the sellers on the basis of notice under section 154/15 to manipulate to invoke the provision of section 263 since the provisions of section is only applicable for prime facie arithmetical mistake/mistakes which is fully objected.

Your goodself reproduced in page-3 notice dated 21-03-2014 of the letter dated 25-02-2014 of the Assessing Officer which is as under:- "Calling of information for the financial year 2008-09 matter regarding."

Your goodself has failed to mentioned the last para of letter dated 25- 02-2014 of the A.O. which is as under:-

"As the same is required urgently by this office. Please be informed that in case of failure to provide the above information, your case will be dealt as per the provisions of Income Tax Act.1961."

It is again strange your action is only the basis of letter dated 25-02- 2014 of the A.O and not on the basis of record on record arbitrarily. Non application of judicial mind to charge the assessee that furnishing bogus sundry debtors against the sales is a matter of serious concern that under what circumstances the provisions of section invoked arbitrarily which is fully objected.

Whether on the established facts and rule of Law the provision of section 263 can be arbitrarily invoked is not amount to bad in law.

Your goodself has not gone through the record property since the basis adopted by you for reopening of the case under section 263 are as under:

(1) On the perusal of the records, it is seen that the assessee has deposited tax under PAN ACJPM2292D instead of ACLPM2292D Also as per AST sheet under section 143(3) available on record 7 ITA No.340(Asr)/2014

credit of prepaid taxes has been allowed at nil. However, the then Assessing Officer has issued demand notice of Rs.11630.00 after allowing of prepaid taxes to the tune of Rs.555,078.00 and not Rs.5,50,787.00 as mentioned in the Letter dated 21-03-2013 which was not allowable as the same was not deposited under the correct PAN and no correction of the same has been carried out by the then A.O before affording credit.

(2) It is also seen that as per detail on account of sundry debtors from whom you have admitted to have receive cash payment of more than Rs.20,000.00 during the assessment year are bogus. As per record, no action has been taken.

Sir, had it been admitted records of the A.O. gone through by your goodself why the notice under section 154/155 dated 31-10-2013 slipped.

On record the alleged order duly rectified and after verifying from the Income Tax site that the tax has been deposited on non-existent PAN, rightly allowed the credit of the same by the A.O under section 154/155.

As alleged in the letter dated 21-03-2014 that the assessee received case payment of more than Rs.20000.00 during the assessment year under consideration are bogus.

In this connection it is submitted that the alleged cash payment received against the sale proceeds duly reflected in the trading Account, VAT return and on record which were never doubted nor even a single discrepancy pointed out during the course of assessment proceeding and/or proceeding after that. The Income Tax 1961, does not debar the assessee to receive cash payment against sales from third party. The cash payment received against the sales already taxed if your goodself arbitrary invoked the provision of section 263 shall not amount to doubted taxation but also bad in law.

Sir, before operating provision of section 263 of the I.T.Act, 1961, there three mandatory requirements which are again as under:-

(1) RECORDS 8 ITA No.340(Asr)/2014

(2) ERRONEOUS AND

(3) It is prejudicial to the interest of revenue.

Since the record not properly gone through as stated elsewhere, there exist no mistake/mistakes which invoke the word erroneous and there is no loss to the revenue.

Sir, the case is crystal clear keeping in to consideration the established facts/evidences on record and provision of section of the I.T.Act,1961 the proceedings initiated under section 263 without the mandatory requirements are fully objected.

It is therefore, requested the wrongly initiated proceedings by invoking the section 263 arbitrarily kindly be filed for the sake of justice which lies in your august hands.

3. After considering the reply filed by the counsel of the assessee and also the facts brought on record, I hold that while passing the assessment order under section 143(3) of the Income Tax Act,1961 on 16.11.2011, no enquiries have been made and as such, the order passed is erroneous as well as prejudicial to the interest of revenue, therefore, the said assessment order dated 16.11.2011 is hereby cancelled with the directions to the Assessing Officer to make a fresh assessment after conducting proper enquiries and, after giving reasonable and adequate opportunity of being heard to the assessee".

3. The Ld. Counsel for the assessee argued that the AO issued notice

dated 31.10.2013 u/s 154/155 of the Act, whereas the assessment was made

for the impugned assessment year on 16.12.2011 u/s 143(3) of the Act, by

making an addition of Rs. 19,770/- on account of disallowance of certain

unvouched expenses. In the notice u/s 154/155 of the Act, the AO referred to

the payment of taxes amounting to Rs.55,078/- having been paid against the 9 ITA No.340(Asr)/2014

wrong PAN and the credit of the same was allowed by the then AO

mistakenly and therefore, the same is required to be withdrawn.

4. The AO after issuing the notice dated 31.10.2013 has not taken any

action against the assessee. However, on the date of hearing to the notice u/s

154/155, after verifying the tax deposited, the AO allowed the tax paid and

did not take any action thereafter in this regard.

5. However, the AO in the notice u/s 154/155 dated 31.10.2013 pointed

that since the payment of taxes have been made against the wrong PAN and

the credit of the same is allowed by then A.O., is required to be withdrawn.

The AO stated that on perusal of the account of sundry debtors, it is noticed

that the assessee has received cash payments exceeding Rs.20,000/- from

the parties/persons mentioned in annexed Annexure 'A' and the assessee

was requested to furnish complete particulars of these persons/parties

alongwith complete addresses, PAN and the Assessing Officer where the

debtors are filing returns of income. It was argued by the ld. Counsel for the

assessee that no action u/s 154/155 of the Act was taken by the AO. But the

AO submitted the report to the Ld. C.I.T., who issued a show cause notice

u/s 263 of the Act. The assessee submitted the explanation, which is

reproduced hereinabove. But the ld. CIT not being satisfied with the

explanation of the assessee and without assigning any reasons passed a non- 10 ITA No.340(Asr)/2014

reasoned none-speaking order and held in para 3 of his order that the order

of the A.O. is erroneous as well as prejudicial to the interest of the revenue

and therefore, he cancelled assessment order of the AO dated 16.11.2011

with the direction to the AO to make a fresh assessment after conducting

proper enquiries and after giving reasonable and adequate opportunity of

being heard to the assessee. The Ld. CIT has only given a show cause notice

that the assessee has received cash payments exceeding Rs.20,000/- from the

sundry debtors. This was the only objection in the show cause notice of the

ld. CIT. It was argued by the ld. Counsel for the assessee that the assessee

had been dealing in items which are 100% covered under VAT Act, 2005 or

CST Act, 1956 and all the goods are imported either interstate or within

state. It was stated that since all the goods are imported, therefore, they used

to pass check post Lower Munda and not even a single item has been

imported without passing check post of Lower Munda. The payments to the

suppliers of the purchases have been made through bank which has been

duly verified by the AO and nothing has been found against the assessee. In

the letter dated 21.03.2014 at para 2 of page -3, it has been mentioned by

the AO that while completing assessment for the assessment year 2009-10, it

was noticed that the parties like M/s. Mir Sales Corporation, Kadalbal,

Pampore, Pulwama have made purchases in cash during the period 11 ITA No.340(Asr)/2014

01.05.2008 to 31.03.2009. These are the information from the third party

and moreover all the sales made to third party are fully taxable items which

has been declared by the assessee in its quarterly returns to the concerned

Commercial Tax Officer and can be verified by the ld. CIT. The assessee

has provided details of all the sundry debtors that the assessee has received

cash against the sales made and therefore, it is not mandatory to prove their

identity. In case any enquiry is to be made, it has to be made in the case of

the sundry debtors and not in the case of the assessee. The assessee having

made genuine purchases for which the payments have been made 100%

through bank, is not under dispute. The sales have been made against those

purchases against which the assessee has received the cash is also not under

dispute and no violation of any of the provisions of the Act has been made

and therefore, the AO for the cash sales is not required to make any enquiry

and therefore, a view has been taken by the AO not to make any enquiry

from the debtors. The Ld. CIT having formed an another view cannot invoke

the provisions of section 263 of the Act, especially when there is no

violation of any of the provisions of the Act. Therefore, in view of the

decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co.

Ltd vs. CIT (2000) 243 ITR 43 (SC), where the two views of provisions of

section 263 of the Act cannot be invoked. As such, the ld. CIT is not 12 ITA No.340(Asr)/2014

justified in invoking the provisions of section 263 of the Act and the order of

the AO is neither erroneous nor prejudicial to the interest of the revenue.

Moreover, as discussed above, the ld. CIT has not passed a well reasoned

order and after issuance of show cause notice to assessee, has simply

proceeded in para 3 of his order by issuing direction to the AO to conduct

proper enquiry before making fresh assessment since the order of the AO is

erroneous and prejudicial to the interest of the Revenue. The ld. Counsel for

the assessee, therefore, prayed to cancel the order of the ld.. CIT .

6. The Ld. DR relied upon the order of the ld. CIT.

7. We have heard the rival contentions and perused the facts of the case.

The undisputed facts in the present case are that the assessment us/ 143(3) of

the Act was completed on 16.12.2011. The AO proceeded to issue notice u/s

154/155 of the Act dated 31.10.2013 that the amount of Rs.55,078/-

deposited under wrong PAN which in fact was liable to be withdrawn. The

AO did not take further action and gave credit of the same. Further, the AO

u/s 154/155 of the Act issued notice dated 31.10.2013 observing that the

assessee has received cash payments exceeding Rs.20,000/- and asked the

assessee to furnish the particulars of the debtors. At the outset, though the

assessee is not before us against the order u/s 154/155 of the Act, since no

order u/s 154/155 has been passed and the AO has presumably dropped the 13 ITA No.340(Asr)/2014

proceedings after giving credit of tax as pointed out in the show cause notice

u/s 154/155 of the Act. The AO submitted the report to the ld. CIT, who

proceeded to issue notice u/s 263 of the Act. As a matter of fact, the reason

of receiving the cash payment exceeding Rs.20,000/- has been explained by

the assessee But on the basis of information from the third party, there is no

reason to issue notice u/s 263 of the Act. However, the assessee having made

purchases of all imported goods through check post Lower Munda and all

payments having been made through account payee cheques is a matter of

explanation by the assessee and are on record before the ld. CIT in which no

defect has been pointed out. The assessee having made sales out of genuine

purchases so made and receiving cash has not violated any provisions of

the Act and this itself shows that receiving cash of more than Rs.20,000/-

from the debtors cannot be any reason to issue notice u/s 263 of the Act.

The AO has taken a view that no notice is required to be issued under any of

the provisions of the Act, in case cash sales are made by the assessee.

Moreover, the assessee is not required to maintain any record of the debtors

against cash sales made under any of the provisions of the Act. This view

was taken by the AO. Now, the ld. CIT cannot take another view, which

itself is against the provisions of the Act. Therefore, one of the two views is

possible. The ld. CIT cannot invoke the provisions of section 263 of the Act 14 ITA No.340(Asr)/2014

in view of the decision of the Hon'ble Supreme Court in the case of Malabar

Industrial Co. Ltd., vs. CIT (supra). Therefore, on this account alone, the

order of the ld. CIT is cancelled. Moreover, the ld. CIT has passed a non-

reasoned order and no reason has been assigned in para 3 as reproduced

hereinabove as to why the order of the AO is erroneous and prejudicial to

the interest of the revenue. Therefore, in the facts and circumstances of the

present case, the order of the ld. CIT is cancelled and all the grounds of the

assessee are allowed.

8. In the result, the appeal of the assessee in ITA No.340(Asr)/2014 is

allowed.

Order pronounced in the open court on March, 2015.

Sd/- Sd/- (A.D.JAIN) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: March, 2015 /SKR/ Pronounced on 26/03/2015 Sd/- JMs Copy of the order forwarded to:

1. The Assessee:Shri Ghulam Mohiudin Mir, Pulwama, Kashmir

2. The CIT, Jammu.

3. The SR DR, ITAT, Amritsar.

True copy By order

(Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.