Vemula Laxminarayana, Hyderabad vs Assessee

This appeal by assessee is against the order of the Commissioner of Income Tax-VI, Hyderabad dt. 30-10-2013 setting aside the assessment order u/s. 143(3) of the Income Tax Act [Act] completed on 20-03-2013.

2. Briefly stated, assessee filed return of income for AY. 2010-11 on 28-02-2011 admitting total income of Rs. 2,21,540/-. In the financial year relevant for the assessment year, a survey operation u/s. 133A had been conducted on 22-12-2009 and the case was selected for scrutiny. In the scrutiny assessment completed, Assessing Officer (AO) disallowed various amounts thereby determined the total income at Rs.11,63,000/-. This order of AO is subject matter of appeal before the Ld. CIT. In the mean time, Ld. CIT had an occasion to examine the assessment records.

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He noticed that assessee has claimed a TDS amount of Rs. 23,297/- and the corresponding income of Rs. 2,32,964/- was not offered to tax. He also noticed that assessee claimed depreciation of Rs. 5,492/- and the proof of using the assets for the purpose of business was not examined by the AO. He also noticed that, assessee has admitted personal expenditure to the tune of Rs. 2,40,000/- and AO has not considered this issue while completing the assessment. On the above grounds, a notice u/s. 263 dt. 25-09-2013 was issued to assessee to show cause as to why the assessment should not be revised or set aside.

2.1 Assessee submitted that TDS amount claimed was on the interest received by assessee in the business of bill discounting and submitted that the entire commission as well as interest income was offered to tax. It was submitted that an amount of Rs. 3,21,540/- was income admitted which included interest received. With reference to depreciation claimed, it was submitted that assessee purchased a scooter which was used for the purpose of business. As far as personal drawings, it was submitted that assessee had debited an amount of Rs. 3,08,760/- towards drawings. On the reason that these aspects have not been examined by the AO, Ld. CIT set aside the assessment by stating as under:

"6. I have perused the explanation of the assessee objecting to the proposed issues emanating from the show cause notice u/s. 263 of the I T Act. It is clarified by the Authorized Representative that the amount of Rs. 12,01,742/- disclosed in the profit & loss account including the interest income of Rs. 2,81,210/-. Therefore, there is no cause for revisiting the same issue in the present proceedings initiated u/s. 263 of the Income Tax Act. However, on perusal of the assessment record, it is noticed that the assessee never disclosed the interest income of Rs. 2,81,210/- separately either in the Income Tax Return or in the profit and loss account filed during the course of scrutiny proceedings. In fact, in a separate note on income, the assessee has clearly stated that in the activity of cheque I.T.A. No. 1660/Hyd/2013 :- 3 -: Vemula Laxminarayana

discounting received commission of Rs. 12,01,742/- in the financial year 2009-10 and the same was shown as income in the profit & loss account. It shows that these details have not been called for in order to examine by the AO at the time of scrutiny proceedings and completed the assessment without examining whether the assessee has disclosed interest income or not.

6.1 The next issue is in respect of personal drawings. In the course of revision proceedings, the assessee has filed capital account for the financial year 2009-10 showing drawings of Rs. 3,08,760/-, hence it is suffice to the personal drawings of the assessee. But, the details are not made available to the AO nor called for by the AO at the time of scrutiny proceedings so as to examine the same in proper prospective.

7. Therefore, without application of mind and without calling for the basis details, the AO completed the assessment thereby there is error erept in the assessment order framed by the AO which is prejudicial to the interest of the revenue and deserves to be set aside and the Commissioner is empowered to revise such assessment by invoking provisions of Section 263. There are various judicial decisions in support of such proposition which are as under:

i. Rampyari Devi Sarogi Vs CIT (SC) 67 ITR 84 ii. Malabar Industrial Co. Ltd Vs CIT (SC) 243 ITR 83

iii. Swarup Vegetable Products Industries Ltd Vs CIT(All) 187 ITR 412 iv. Gee Vee Enterprises Vs Addl. CIT & Ors (Del) 99 ITR 375 v. Rajalakshmi Mills Ltd Vs ITO (ITAT, SB-Chennai) 121 ITD 343, 313 ITR(AT) 182.

vi. SRM Systems & Software Pvt. Ltd. Vs ACIT 2010-TIOL-646- HC-MAD-IT.

vii. Deloitte Haskins & Sells, Chennai V. DCIT ITA No. 1164/Mds/12 dtd. 4.7.2013.

Accordingly, the assessment order of the AO for the AY. 2010- 11 is set aside with a direction to redo the same after examining the details as per the Law, after providing sufficient opportunity to the assessee".

3. Ld. Counsel referring to the Paper Book placed on record and the replies submitted to CIT stated that assessee has shown gross I.T.A. No. 1660/Hyd/2013 :- 4 -: Vemula Laxminarayana

commission income of Rs. 12,01,742/- which included the impugned interest income. It was submitted that as against the above commission, assessee claimed various expenditure of salaries and interest paid. AO in the scrutiny assessment disallowed the salaries and also an amount of Rs. 6,41,462/- u/s. 40(a)(ia). It was further submitted that the TDS claim was made in the return of income and the same is also figuring in the departmental data base and the AO has given credit as per 26AS. He also referred to the detailed submissions made before CIT, particularly to page 20 of the Paper Book, wherein it was submitted that assessee had commission amount of Rs. 9,20,532/- and the interest amount of Rs. 2,81,210/- totaling to Rs. 12,01,742/-. It was further submitted that as against this amount, after claiming various expenditures, the net profit transferred to capital account was at Rs. 3,21,540/- which was the gross total income offered. Assessee claimed various other expenditures including PF and NSC. These aspects were examined by the AO and referred to the show cause notice issued by the AO in the course of scrutiny proceedings on 15-02-2013. He also referred to the assessment order wherein AO has given a finding that after examining the material furnished, total income returned by assessee was computed. Ld. Counsel further submitted that CIT cannot direct to make roving enquiries, as considered by the Andhra Pradesh High Court in the case of Spectra Shares and Scrips Pvt. Ltd., Vs. CIT [354 ITR 35] (AP).

4. Ld. CIT in reply however, submitted that assessee has not given any information about the receipts and AO also has not examined whether the amount was included in the above, while giving credit to the tax. In view of this, he supported the orders of CIT invoking jurisdiction.

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5. I have considered the issue and examined the record. As seen

from the order of CIT, it is very much evident that the issues which were taken up by the CIT are so trivial no separate findings are required to be given in the assessment order, if scrutiny was completed by the AO. In fact in this case, there was survey during the course of accounting year itself and also on the basis of the survey, the case was selected for scrutiny. The TDS made on behalf of assessee was itself reflected in 26AS of the department and the same amount was given credit. In view of this, the Ld. CIT's presumption that this amount of income covered by TDS was not offered to tax and assessee's concealed income cannot be accepted. With reference to the depreciation claimed of Rs. 5,698/- it was the contention that assessee purchased a scooter and the same was being used in the business. In the event the asset is not figuring in assessee's Balance sheet or accounts schedules, one can doubt the claim of depreciation. Assessee is doing small business of bill discounting and use of scooter by assessee in the proprietary concern business cannot be doubted. As far as third issue of personal drawings at Rs. 20,000/- per month, the same was also found debited in the personal account. In view of the above, considering the fact that AO has completed the assessment u/s. 143(3) after issuing the show cause notice dt. 15-02-2013 u/s. 142(1) calling various details under 11 heads including confirmation of loans and advances in respect of cheques discounted, source of advances made in the finance business etc. These indicate that all aspects have been examined by the AO. Therefore, the CIT's observation that AO has not examined these issues does not have any basis. Moreover, when assessee has pointed out the same before the CIT in the proceedings u/s. 263, it is incumbent upon the CIT to examine the contentions and give findings rather than setting aside the assessment, which is already subject matter of appeal before CIT(A) on other issues.

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6. The Hon'ble AP High Court in the case of Spectra Shares and Scrips Pvt. Ltd., Vs. CIT [354 ITR 35] (AP), after analyzing the principles governing the exercise of jurisdiction by the Commissioner u/s. 263 has culled out the following principles:

"a) The Commissioner has to be satisfied of twin conditions, namely,

(i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue - recourse cannot be had to Sec.263 (1) of the Act.

b) Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax 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 Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law.

c) To invoke suo motu revisional powers to reopen a concluded assessment under Sec.263, the Commissioner must give reasons;

that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo motu revisional powers unless supported by adequate reasons for doing so; that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision.

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e) The Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the department cannot be permitted to begin fresh litigation because of new views they entertain on facts or new circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted.

f) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Sec.263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed.

g) The power of the Commissioner under Sec.263 (1) is not Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment".

7. In this case, as can been seen from the notice issued and the assessment order by AO do indicate that he has applied his mind to the issues. If there was an enquiry, even if it is inadequate that would not by itself give occasion to the CIT to pass order u/s. 263. Respectfully following the principles laid down by the jurisdictional High Court, I am of the opinion that proper case has not been made out by the Ld. CIT in exercising jurisdiction u/s. 263. Not only that considering the explanation given by assessee, he should have dropped proceedings rather than directing the AO to make unnecessary enquiries which are I.T.A. No. 1660/Hyd/2013 :- 8 -: Vemula Laxminarayana

not warranted in this case. In view this, assessee's grounds are allowed and order of the CIT dt. 30-10-2013 is set aside.

8. In the result, appeal is allowed.

Order pronounced in the open court on 22nd July, 2015.

Sd/-

(B. RAMAKOTAIAH) ACCOUNTANT MEMBER

Hyderabad, Dated 22nd July, 2015

TNMM

Copy to :

1. Vemula Laxminarayana, Warangal, C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, I Floor, Somajiguda, Hyderabad.

2. The Asst. Commissioner of Income Tax, Circle-1, Warangal

3. CIT-VI, Hyderabad.

4. The Addl. CIT, Warangal Range, Warangal.

5. D.R. ITAT, Hyderabad.

6. Guard File.