Shri Vinay Kumar Pandey , Gonda vs Department Of Income Tax

Revenue by Dr. Anand Kumar Agarwal, CIT, D.R. Smt. Neelam Agarwal, D. R. Assessee by Shri R. C. Jain, C. A. & Shri Sandeep Kumar, C. A. Date of hearing 23/01/2015 Date of pronouncement 27/02/2015

ORDER PER A. K. GARODIA, A.M.

There is one appeal by the assessee, which is directed against the order of CIT, Faizabad dated 15/03/2013 passed by him u/s 263 of the Act. The remaining appeal is filed by the Revenue for the same assessment year 2

and is directed against the order of learned CIT(A)-II, Lucknow dated 27/06/2011. The Cross Objection is filed by the assessee and the same is directed against the order of learned CIT(A)-II, Lucknow dated 27/06/2011. Both the appeals and the Cross Objection were heard together and are being disposed of by way of this common order for the sake of convenience.

2. First we take up the appeal of the assessee i.e. I.T.A. No.287/Lkw/2013, which is directed against the order passed by learned CIT u/s 263 of the Act. In this appeal, the assessee has raised the following grounds:

"1.1 BECAUSE the learned Commissioner of Income-tax has erred in law and on facts in holding that the assessment order dated 29/12/2010 passed by the Income Tax Officer, Gonda (4), Lucknow is erroneous and prejudicial to the interest of revenue and in canceling the said order dated 29-12-2010, with the direction to the Assessing Officer "to frame the assessment afresh".

1.2 BECAUSE the regular assessment order dated 29-12-2010 was passed by the Assessing Officer after making all such inquiries as were warranted in the instant case and the order passed by him accorded fully with the provisions of law and the same could not have been termed as "erroneous in so far as it is prejudicial to the interest of revenue."

1.3 BECAUSH in relation to the regular assessment order dated 29/12/2010 the learned C.I.T could not have exercised his revisionary powers under section 263 and the order dated 15/03/2013 as passed by the learned CIT canceling the regular assessment order as above, is wholly without jurisdiction.

2. Because the foundation of the order learned CIT is based on conjectures, surmises, hearsay and imagination and there is no valid ground in the order of the learned CIT to infer that the order passed by the assessing officer is erroneous and prejudicial to the interest of revenue.

3 3. Because the learned Assessing Officer having already pointed out the defects which included the issues raised by the learned Commissioner of Income Tax in the proceedings u/s 263 of the Income Tax Act, 1961 and the AO having rejected the books of account due to the defects pointed out and framing the assessment by applying the net profit rate, it cannot be said that the assessment order was erroneous and prejudicial to the interest of revenue.

4. Because the issues raised by the learned Commissioner of Income Tax having already been considered in the first appeal, the learned Commissioner of Income Tax had no jurisdiction to pass order in regard to those issues in the revisionary proceedings u/s 263.

5. Because the assessee having given detailed explanation in regard to the issues raised by the learned Commissioner of Income Tax in the revisionary proceedings u/s 263 of the Income Tax Act, 1961 along with documentary evidence and the learned C.I.T. having not considered them and not given any finding on the submissions, the order u/s 263 stands vitiated and is liable to be cancelled.

6. BECAUSE in the proceedings under section 263, the learned CIT was liable to discharge his functions as a quasi-judicial authority and the view expressed by him on various issues cannot be said to be fair and reasonable, which has the effect of vitiating the order as a whole.

7. Because without prejudice to the above, in view of the finding of learned CTT only in a limited number of item, the learned CIT ought not to have directed the assessing officer "to frame a fresh assessment order".

8. Because the order appealed against is contrary to facts, law and principles of natural justice."

3. It was submitted by Learned A.R. of the assessee that the show cause notice issued by learned CIT u/s 263 is available on pages 1 and 2 of the paper book. He further submitted that as per this show cause notice, learned CIT has raised six issues. The first issue is regarding assessee's 4

claim in respect of payment of toll tax at Rs.3,14,90,048/- but as per the agreement, the toll tax was to be deposited at Rs.2,64,81,000/- and therefore, as per CIT, there was excess claim of Rs.50,09,048/-. The second objection of CIT is that against the claim of stamp charges of Rs.26,53,350/-, the assessee furnished evidence only for Rs.16,25,000/- and the remaining claim was not verified by the Assessing Officer during assessment proceedings. The third objection of CIT is that the assessee claimed acquisition of two vehicles during the year but the source of payment other than that of bank loan was not verified in the assessment proceedings. The fourth objection of CIT was that it was noticed from the balance sheet that the assessee gave substantial loans to Shri G. Sharma & Co., Vineet Kumar Pandey, UTOL and Yogendra Singh but details furnished during assessment proceedings were vague and did not give any information about the purpose of these transactions. His fifth objection was that it was noticed from the toll collection ledger furnished during the assessment proceedings that some collection was made through account payee cheques but in practice, most of toll tax collection is made in cash or through debit cards. The sixth objection of CIT was that the interest accrued on investment including NSC, FDRs was not examined by the Assessing Officer in the assessment proceedings. He submitted that on these six issues, query was raised by the Assessing Officer in course of assessment proceedings and reply was submitted by the assessee and opinion was formed by the Assessing Officer after considering the reply of the assessee and therefore, the order of the Assessing Officer cannot be said to be erroneous and as a consequence CIT has no jurisdiction u/s 263 of the Act.

4. Learned counsel for the assessee further submitted that against this show cause notice issued by learned CIT u/s 261(1), reply was furnished by the assessee before CIT, Faizabad on 12/03/2012 and copy of the same is available on pages 3 to 6 of the paper book. He drawn our attention to this 5

reply where it is stated by the assessee that vide order sheet entry dated 16/12/2010, the assessee was specifically required by the Assessing Officer to produce the books of account along with bills and vouchers in support of the expenses and as to why the books of account not be rejected. He furnished the copy of order sheet entry and our attention was drawn to order sheet entry dated 16/12/2010, typed copy of which is available on page No. 16 & 17 of the paper book. He further submitted that it was also explained to CIT that the agreements in two cases covering major expenses aggregating to Rs.264.81 lac were filed before the Assessing Officer on sample basis during assessment proceedings and other expenses for minor tolls were verified during assessment proceedings.

5. Regarding the second objection also, it was submitted by the assessee before the CIT that the explanation is same in this regard because for stamp charges also, only two agreements were submitted before the Assessing Officer on sample basis.

6. Regarding the third item i.e. regarding vehicles, he drawn our attention to page No. 98 of the paper book and in particular, our attention was drawn to order sheet entry dated 22/04/2010 where the Assessing Officer required to produce invoices of additions made in the assets. He further pointed out that on the same date, the Assessing Officer asked to produce supporting evidence to prove expenses debited in profit & loss account with supporting proof and copy of agreements for securing toll contract. He submitted that as per this order sheet entry, it is clear that the Assessing Officer has asked the assessee to produce invoices and the same was produced before him.

7. Regarding the 4th item i.e. regarding loans to various persons, he drawn our attention to page No. 99 and in particular to the order sheet entry dated 13/10/2010 where he asked the assessee to produce loans and 6

advances details. He further drew our attention to page No. 61 along with pages 62 to 65 of the paper book as per which full details were submitted regarding loans to Shri G. Sharma & Co., Vineet Kumar Pandey, UTOL and Yogendra Singh. He pointed out that it was explained before the Assessing Officer that advance to Shri G. Sharma & Co. was given for purchase of goods. Regarding the advance to Vineet Kumar Pandey, it was explained that this is a loan. Regarding the loan to UTOL, it was explained that this advance was given for obtaining toll tax contract. Regarding the advance to Yogendra Singh, it was explained that it was given for purchase of land.

8. Regarding collection of toll tax by way of cheques, he submitted that it was submitted before CIT that against total tax collection of Rs.3.78 crores, toll collection in this case by way of cheque was only to the extent of 5.88 Lacs, which is only 1.5% i.e. negligible and it was also explained before the Assessing Officer that collection by cheque is received in such cases where fixed amount is remitted by large business establishment by getting the toll passes issued in bulk and then surrendering the passes as and when their vehicles use the toll plaza.

9. Regarding the sixth item i.e. interest accrued on interest, it was submitted before CIT that the issue regarding accrual of interest on investment including NSC, FDR etc. was examined by the Assessing Officer in detail during the assessment proceedings. He further submitted that on page No. 2 of the assessment order, the Assessing Officer has stated that total amount of interest earned is at Rs.6,45,736/-. He also submitted that the Assessing Officer has made addition of Rs.3,30,457/- with regard to interest income and Rs.3.96 lac with regard to another interest income by treating it as income from other sources and including it in the addition of Rs.7,78,044/- as income from other sources.

7 10. He further submitted that as per the reply submitted by the assessee before CIT and the documents produced before him and before the Tribunal, it can be seen that on all the issues, enquiries were made by the Assessing Officer and replies were furnished by the assessee before the Assessing Officer and there was application of mind by the Assessing Officer and therefore, it is not a fit case for invoking the provisions of section 263 of the Act. Reliance was placed on the following judicial pronouncements:

(i) I.T.A.T. Jodhpur Bench decision in the case of Jain Construction Co. vs. DCIT in I.T.A. No.106/JU/2010.

(ii) CIT vs. Jain Construction Co. [2013] 84 DTR 369 (Raj)

(iii) I.T.A.T. Jodhpur Bench decision in the case of Jeewanram Choudhary vs. CIT as reported in [2013] 84 DTR (Jd) (Trib) 317

11. Learned D.R. of the Revenue placed reliance on the order of learned CIT. He also placed reliance on the judgment of Hon'ble Allahabad High Court rendered in the case of Jagdish Kumar Gulati vs. CIT [2004] 269 ITR 71 (All). He also placed reliance on a Tribunal decision in the case of K. K. Goenka vs. CIT in I.T.A. No.1310/Lkw/06 dated 25/05/2007. He submitted copy of this Tribunal decision.

12. We have considered the rival submissions. We find that in the paper book, the assessee has furnished copy of order sheet entries only in support of the claim that proper enquiries were made by the A. O. in course of assessment proceedings and no questionnaire etc. having been issued by the A.O. has been produced except Notice u/s 142 (1) dated 12.01.2010 on pages 9 & 10 of the paper book. In this notice, there is no query on any of six issues raised by CIT. In the order sheet, only general queries are made by the A.O. on 22.04.2010 asking the assessee to substantiate with supporting evidence the receipts shown in toll plaza and to prove expenses debited in the P & L account and copy of agreements for securing toll plaza contract along with books of accounts. The replies furnished to A.O. and 8

available in the paper book on pages 106 - 107 is in course of proceedings under section 143 3) / 263 and not in course of original assessment proceedings. Hence, it cannot be said that proper enquiries were made by the A.O. Moreover, it is noted by learned CIT that as per the records, the assessee was required to make payment of Rs. 264.81 lacs as per toll agreements but the assessee claimed Rs. 377.78 lacs. He also noted that on account of stamp charges , the assessee claimed deduction of Rs. 26,53,350 but documentary evidence brought on record was for Rs. 16.25 lacs only. Hence, it is seen that there is no application of mind also by the A.O. even to the material available on record in respect of items no. 1 & 2 noted above. In respect of item no. 3, i.e. source of financing vehicles purchased, the A.O. made a query on 22.04.2010 asking the assessee to provide bills for additions made in depreciable assets but there is no query about source of funds.

In respect of 4th issue i.e. giving of loans 7 advances to various parties such as G. Sharma & Co., Vineet Kumar Pandey, UTOL & Yogendra Singh, it was explained that purpose of these advances were explained to A.O. as per page 61 of the paper book. When we examine the page no. 61 of paper book, we find that the reply is very cryptic without any supportive evidence or detailed explanation. Hence, even if it is accepted that query was made and reply given, it is a case of clear non application of mind by the A.O.

In respect of the 5th issue i.e. receipt of toll tax of Rs. 5.88 lacs by cheque, we are of the considered opinion that on this issue, it cannot be said that the assessment order is pre judicial to the interest of revenue because, whether received in cash or by cheque, it was offered to tax.

In respect of the 6th issue i.e. accrual of interest income on NSC, FD etc., it was submitted that the details are available on page 84 of the paper book. When we examine the page no. 84 of paper book, we find that in respect of 9

two FDs with Allahabad bank of February, 2008 of Rs. 6 lacs & Rs. 26 Lacs, no interest income was accounted for but the same was required to be accounted for on accrual basis for the period up to 31.03.2008. Hence, even if it is accepted that query was made and reply given, it is a case of clear non application of mind by the A.O. on this issue also. Hence, except item no. 5 i.e. receipt of toll charges by cheque, on all other issues, the assessment order is erroneous as well as prejudicial to the interest of revenue. Since learned CIT has not given any specific direction for any addition or disallowance and he has asked the A.O. to frame fresh assessment order, no interference is called for in the order of CIT.

12.1 It was contended that as per the original assessment order framed by the Assessing Officer u/s 143(3) on 29/12/2010, books of account were rejected by the Assessing Officer and business income was determined at Rs.15,11,127/- by applying net profit rate of 4.7% on disclosed receipts of Rs.3,77,78,180/-. In the light of these facts, reliance was placed on the judgment of Hon'ble Rajasthan High Court in the case of CIT vs. Jain Construction (Supra). In this case, it was held by Hon'ble Rajasthan High Court that once the Assessing Authority rejected the books of account of the assessee on those very defects pointed out by CIT and passed the best judgment assessment on the basis of gross profit rate and made additions in the declared total income, there was no occasion of revising the assessment order on the ground that the Assessing Authority did not verify the closing stock of the assessee. As per the assessment order framed by the Assessing Officer in the present case, it is seen that the objection of the Assessing Officer was that most of the vouchers are self-made on which no reliance can be placed. This objection of the Assessing Officer is in respect of expenses incurred on various heads in trading account. It was also an objection of the Assessing Officer that the interest income shown by the assessee did not tally with either of the bank account nor the assessee 10

himself in the financial statement has disclosed interest income. Hence, it is seen that the objection of the Assessing Officer was not same and objections of the CIT are different when he says that as per material available on record, excess deduction of expenses on account of toll charges and stamp charges were claimed and allowed. Objection of CIT about non declaration of correct interest income in respect of FD, NSC and some advances is also different and interest issue for which addition is made by the A.O. is different. Source of fund for purchasing vehicles is also different. Therefore, this judgment of Hon'ble Rajasthan High Court is not applicable in the facts of the present case.

13. As per above discussion, we find that the judgment cited by learned AR of the assessee is not rendering any help to the assessee. On facts also, we have seen that except item no. 5 i.e. receipt of toll charges by cheque, on all other issues, the assessment order is erroneous as well as prejudicial to the interest of revenue. Since learned CIT has not given any specific direction for any addition or disallowance and he has asked the A.O. to frame fresh assessment order, no interference is called for in the order of CIT.

14. In the result, the appeal of the assessee stands dismissed.

15. Now we take up the Revenue's appeal i.e. I.T.A. No.530/Lkw/2011 for assessment year 2008-09 and the Cross Objection of the assessee i.e. C.O. No.08/Lkw/2012 which are arising out of original assessment proceedings completed by Assessing Officer u/s 143(3) order dated 29/12/2010. Since we have held that the order of CIT u/s 263 is proper and we have upheld the same in the above Para, this appeal of the Revenue and Cross Objection of the assessee have become infructuous because when he learned CIT has cancelled the original assessment order, these appeals and C.O. have become infructuous and no decision is called for.

11 29. In the combined result, the appeal of the assessee in 263 proceedings is dismissed, the appeal of the Revenue and the Cross Objection of the assessee are dismissed as infructous.

(Order was pronounced in the open court on the date mentioned on the caption page)

Sd/. Sd/.

(SUNIL KUMAR YADAV) ( A. K. GARODIA ) Judicial Member Accountant Member

Dated:27/02/2015 *C.L.Singh

Copy of the order forwarded to : 1.The Appellant 2.The Respondent. 3.Concerned CIT 4.The CIT(A) 5.D.R., I.T.A.T., Lucknow Asstt. Registrar