Goenka Enterprises, Kanpur V. Income Tax Officer-3(2), Kanpur

ITA 409/LKW/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4817 (ITAT-LUCKNOW)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-12-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 22-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARISH GIDWANI
• Assessee Lawyers: S C AGRAWAL
• Keywords: Source of fund; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW SMC BENCH, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER ITA NO.409/LKW/2015 ASSESSMENT YEAR:2006-07 GOENKA ENTERPRISES 32, ANANDPURI KANPUR V. INCOME TAX OFFICER 3(2) KANPUR PAN:AADFG1920E (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. S. C. AGRAWAL, ADVOCATE RESPONDENT BY: SHRI. HARISH GIDWANI, D.R. DATE OF HEARING: 23 12 2015 DATE OF PRONOUNCEMENT: 13 01 2016 O R D E R THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) ON A SOLITARY ISSUE THAT THE LD. CIT(A) HAS ERRED IN INVOKING THE PROVISIONS OF SECTION 251(2) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT') AND ACTED BEYOND AUTHORITY IN ENHANCING THE INCOME BY RS.8.42 LAKHS. 2. THE FACTS BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE HAS DECLARED INCOME AT RS.1,13,500/- BY FILING A RETURN WHICH WAS LATER ON ASSESSED AT RS.2,67,370/- UNDER SECTION 143(3) OF THE ACT. WHILE COMPLETING THE ASSESSMENT, THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.10,000/- AS GROSS PROFIT ADDITION AND SMALL ADDITIONS UNDER DIFFERENT HEADS ON ACCOUNT OF PERSONAL USE OF VEHICLE AND NON-MAINTENANCE OF BILLS AND VOUCHERS. ACCORDINGLY, SMALL ADDITIONS WERE MADE UNDER THE HEAD OUT OF TRADING ACCOUNT, OUT OF SCOOTER RUNNING EXPENSES, OUT OF DEEPAWALI EXPENSES, OUT OF CAR MAINTENANCE AND OUT OF SALE OF ASSETS DEBITED IN PROFIT AND LOSS ACCOUNT. EXCEPT THESE ADDITIONS, NO OTHER ADDITION WAS MADE :- 2 -: UNDER ANY OTHER HEAD. WHEN THE MATTER WAS TRAVELLED TO THE LD. CIT(A), THE LD. CIT(A) HAS OBSERVED IN HIS ORDER THAT HUGE BALANCES EXIST AGAINST SUNDRY DEBTORS AND CERTAIN SUNDRY CREDITORS OF THE APPELLANT. HE HAS EXAMINED THE BORROWED FUNDS AND ITS ADVANCEMENT TO THE SISTER CONCERN. THE ISSUE OF SUNDRY CREDITORS AND SUNDRY DEBTORS EXISTED IN THE BALANCE SHEET WAS NEVER EXAMINED BY THE ASSESSING OFFICER. HAVING NOTED THAT THE BORROWED FUNDS WERE GIVEN FOR INTEREST FREE ADVANCES TO THE SISTER CONCERN, THE LD. CIT(A) HAS ENHANCED THE INCOME BY MAKING CORRESPONDING DISALLOWANCE OF INTEREST TO THE EXTENT OF RS.8,42,982/-. 3. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT UNDER SECTION 251(2) OF THE ACT, THE LD. CIT(A) IS EMPOWERED TO ADJUDICATE ONLY THOSE ISSUES WHICH WERE EXAMINED BY THE A.O AND IN RESPECT OF THESE ISSUES, THE LD. CIT(A) CAN MAKE ENHANCEMENT OF INCOME ALSO. BUT ON THE ISSUES, WHICH WERE NOT TOUCHED BY THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT, THE LD. CIT(A) HAS NO JURISDICTION TO ADJUDICATE THE SAME TO FIND A NEW SOURCE OF INCOME. IN THE INSTANT CASE, THE A.O HAS ONLY EXAMINED THE ISSUE OF GROSS PROFIT ADDITION AND DISALLOWANCES UNDER CERTAIN HEADS AND THE ASSESSING OFFICER EVEN DID NOT TOUCH UPON THE ISSUE OF SUNDRY CREDITORS AND SUNDRY DEBTORS APPEARING IN THE BALANCE SHEET. THEREFORE, THE LD. CIT(A) HAS NO JURISDICTION TO ADJUDICATE THE ISSUE OF SUNDRY DEBTORS AND SUNDRY CREDITORS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE. BY ADJUDICATING THE ISSUE OF SUNDRY DEBTORS AND SUNDRY CREDITORS, THE LD. CIT(A) HAS EXCEEDED HIS JURISDICTION. THEREFORE, THE ADDITION MADE ON ACCOUNT OF ENHANCEMENT IS NOT SUSTAINABLE IN THE EYES OF LAW. IN SUPPORT OF HIS CONTENTION, THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SARDARI LAL & CO., 251 ITR 864, IN WHICH THE HON'BLE HIGH COURT HAS CATEGORICALLY HELD, IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS OF DIFFERENT HIGH COURTS AND APEX COURT, THAT WHENEVER QUESTION OF TAXABILITY OF INCOME FROM NEW SOURCE OF INCOME IS CONCERNED, WHICH HAD NOT BEEN CONSIDERED BY THE :- 3 -: ASSESSING OFFICER, THE JURISDICTION TO DEAL WITH THE SAME IN APPROPRIATE CASES MAY BE DEALT WITH UNDER SECTION 147/148 AND 263 OF THE ACT, IF REQUISITE CONDITIONS ARE FULFILLED. IT IS INCONCEIVABLE THAT IN THE PRESENCE OF SUCH PROVISIONS, A SIMILAR POWER IS AVAILABLE TO THE FIRST APPELLATE AUTHORITIES. HE HAS ALSO PLACED RELIANCE UPON OTHER JUDGMENT OF THE HON'BLE DELHI HIGH COURT REPORTED IN 277 ITR 541. 4. THE LD. D.R., ON THE OTHER HAND, HAS PLACED RELIANCE UPON THE ORDER OF THE LD. CIT(A). 5. HAVING GIVEN A THOUGHTFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND FROM A CAREFUL PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW, I FIND THAT UNDISPUTEDLY THE ASSESSING OFFICER HAS MADE DISALLOWANCE UNDER THE HEAD GROSS PROFIT RATE AND DISALLOWANCE OF CERTAIN EXPENSES CLAIMED BY THE ASSESSEE UNDER DIFFERENT HEADS. THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE OF SUNDRY DEBTORS AND SUNDRY CREDITORS AVAILABLE IN THE BALANCE SHEET, BUT DURING THE COURSE OF HEARING OF THE FIRST APPEAL, THE LD. CIT(A) HAS EXAMINED THE ISSUE OF HUGE BALANCE EXISTED AGAINST THE SUNDRY DEBTORS AND SUNDRY CREDITORS OF THE ASSESSEE. HE HAS ALSO EXAMINED THE INTEREST PAID ON BORROWED FUNDS AND ADVANCES MADE BY THE ASSESSEE TO THE SISTER CONCERN WITHOUT INTEREST. THE LD. CIT(A) ACCORDINGLY MADE CORRESPONDING DISALLOWANCE OF INTEREST PAID ON THE BORROWED FUNDS, WHICH WERE ADVANCED TO ITS SISTER CONCERN. THE LD. CIT(A) HAS ALSO EXAMINED REASONABLENESS OF THE COMMERCIAL EXPEDIENCY FOR ADVANCEMENT OF LOAN ON THE BORROWED FUNDS TO THE SISTER CONCERN. IN THE LIGHT OF THESE FACTS, I AM OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS ADJUDICATED A NEW ISSUE WHICH WAS NOT EVEN TOUCHED UPON BY THE ASSESSING OFFICER FOR MAKING DISALLOWANCE IN THE HANDS OF THE ASSESSEE. I HAVE ALSO CAREFULLY PERUSED THE JUDGMENT OF THE HON'BLE HIGH COURT IN THE CASE OF CIT VS. SARDARI LAL & CO. (SUPRA), IN WHICH HON'BLE HIGH COURT HAS ADJUDICATED THE POWERS OF THE LD. CIT(A) CONFERRED UNDER SECTION 251(1)(A) OF THE ACT IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS OF DIFFERENT HIGH COURTS AND APEX COURT AND WAS OF THE :- 4 -: VIEW THAT WHENEVER QUESTION OF TAXABILITY OF INCOME FROM NEW SOURCE OF INCOME IS CONCERNED, WHICH HAS NOT BEEN CONSIDERED BY THE ASSESSING OFFICER, THE LD. CIT(A) OR THE FIRST APPELLATE AUTHORITY CANNOT EXAMINE THAT ISSUE OR NEW SOURCE OF INCOME. THE RELEVANT OBSERVATION OF THE HON'BLE HIGH COURT IS EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE:- A SIMILAR QUESTION HAS BEEN EXAMINED BY THE APEX COURT AS NOTED ABOVE, ON SEVERAL OCCASIONS. WE DO NOT THINK IT NECESSARY AND APPROPRIATE TO PROLIFERATE THIS JUDGMENT BY MAKING REFERENCE TO ALL THE DECISIONS. A FEW OF THE IMPORTANT ONES NEED TO BE NOTICED. ONE OF THE EARLIEST DECISIONS ON THE POINT WAS IN CIT V. SHAPOORJI PALLONJI MISTRY (1962) 44 ITR 891 (SC). THE MATTER RELATED TO THE CORRESPONDING PROVISIONS OF THE INDIAN INCOME TAX ACT, 1922 (HEREINAFTER REFERRED TO AS 'THE OLD ACT'). IT WAS HELD, INTER ALIA, THAT IN AN APPEAL FILED BY THE ASSESSED, THE APPELLATE ASSISTANT COMMISSIONER HAS NO POWER TO ENHANCE THE ASSESSMENT BY DISCOVERING A NEW SOURCE OF INCOME NOT CONSIDERED BY THE INCOME TAX OFFICER IN THE ORDER APPEALED AGAINST. A SIMILAR VIEW WAS EXPRESSED IN CIT V. RAI BAHADUR HARDUTROY MOTILAL CHAMARIA (1967) 66 ITR 443 (SC). THAT ALSO RELATED TO A CASE UNDER SECTION 31(3) OF THE OLD ACT. IT WAS HELD THAT THE POWER OF ENHANCEMENT UNDER SECTION 31(3) OF THE OLD ACT WAS RESTRICTED TO THE SUBJECT-MATTER OF THE ASSESSMENT OR THE SOURCE OF INCOME, WHICH HAD BEEN CONSIDERED EXPRESSLY OR BY CLEAR IMPLICATION BY THE ASSESSING OFFICER FROM THE POINT OF VIEW OF TAXABILITY AND THAT THE APPELLATE ASSISTANT COMMISSIONER HAD NO POWER TO ASSESS THE SOURCE OF INCOME, WHICH HAD NOT BEEN TAKEN INTO CONSIDERATION BY THE ASSESSING OFFICER. IT IS TO BE NOTED THAT STRONG RELIANCE WAS PLACED BY LEARNED COUNSEL FOR THE REVENUE ON THE DECISION OF THE APEX COURT IN CIT V. NIRBHERAM DALURAM (1997) 224 ITR 610. IT WAS SUBMITTED THAT A DIFFERENT VIEW WAS EXPRESSED ABOUT THE SCOPE AND AMBIT OF THE POWER OF THE FIRST APPELLATE AUTHORITY VIS-A-VIS THE SOURCES CONSIDERED BY THE ASSESSING OFFICER AND EVEN IF THE ACTION OF THE FIRST APPELLATE AUTHORITY RELATED TO A NEW SOURCE OF INCOME NOT CONSIDERED BY THE ASSESSING OFFICER, IT :- 5 -: WAS NOT IMPERMISSIBLE. IT IS TO BE NOTED THAT IN UNION TYRES' CASE (SUPRA), THIS DECISION WAS ALSO CONSIDERED BY THIS COURT IN THE BACKGROUND OF WHAT HAD BEEN STATED IN DALURAM'S CASE (SUPRA) AND IT WAS OBSERVED THAT THERE WAS REALLY NO DIFFERENCE FROM THE VIEW EXPRESSED EARLIER IN SHAPOORJI'S CASE (SUPRA) AND CHAMARIA'S CASE (SUPRA). LEARNED COUNSEL FOR THE REVENUE ALSO SUBMITTED THAT THIS CONCLUSION OF THE DIVISION BENCH NEEDS A FRESH LOOK. WE HAVE CONSIDERED THIS SUBMISSION IN THE BACKGROUND OF WHAT HAD BEEN STATED BY THE APEX COURT IN JUTE CORPORATION'S CASE (SUPRA) AND DALURAM'S CASE (SUPRA). IN JUTE CORPORATION'S CASE (SUPRA), THE APEX COURT WHILE CONSIDERING THE QUESTION WHETHER THE APPELLATE ASSISTANT COMMISSIONER HAS THE JURISDICTION TO ALLOW THE ASSESSED TO RAISE AN ADDITIONAL GROUND IN ASSAILING THE ORDER OF ASSESSMENT BEFORE IT, REFERRED TO SHAPOORJI'S CASE (SUPRA), AND DREW A DISTINCTION BETWEEN THE POWER TO ENHANCE TAX ON DISCOVERY OF A NEW SOURCE OF INCOME AND GRANTING A DEDUCTION ON THE ADMITTED FACTS SUPPORTED BY THE DECISION OF THE APEX COURT. RELYING ON CERTAIN OBSERVATIONS MADE BY THE APEX COURT IN CIT V. KANPUR COAL SYNDICATE (1964) 53 ITR 225 (SC), THE APEX COURT HELD THAT POWERS OF THE FIRST APPELLATE AUTHORITY ARE COTERMINOUS WITH THOSE OF THE ASSESSING OFFICER AND THE FIRST APPELLATE AUTHORITY IS VESTED WITH ALL THE WIDE POWERS, WHICH THE SUBORDINATE AUTHORITY MAY HAVE IN THE MATTER. IN DALURAM'S CASE (SUPRA), THE DECISIONS OF KANPUR COAL'S CASE (SUPRA) AND JUTE CORPORATION'S CASE (SUPRA) WERE ALSO CONSIDERED AND IT WAS OBSERVED BY THE APEX COURT THAT THE APPELLATE POWERS CONFERRED ON THE FIRST APPELLATE AUTHORITY UNDER SECTION 251 OF THE ACT WERE NOT CONFINED TO THE MATTER, WHICH HAD BEEN CONSIDERED BY THE INCOME TAX OFFICER, AS THE FIRST APPELLATE AUTHORITY IS VESTED WITH ALL THE WIDE POWERS OF THE ASSESSING OFFICER MAY HAVE WHILE MAKING THE ASSESSMENT, BUT THE ISSUE WHETHER THESE WIDE POWERS ALSO INCLUDE THE POWER TO DISCOVER A NEW SOURCE OF INCOME WAS NOT COMMENTED UPON. CONSEQUENTLY, THE VIEW EXPRESSED IN SHAPOORJI'S CASE (SUPRA) AND CHAMARIA'S CASE (SUPRA) STILL HOLDS THE FIELD. IT MAY BE NOTED THAT THE ISSUE WAS CONSIDERED IN CIT V. :- 6 -: MCMILLAN AND CO. (1958) 33 ITR 182 (SC). REFERRING TO A DECISION OF THE BOMBAY HIGH COURT IN NARONDAS MANOHAR DASS V. CIT (1957) 31 ITR 909 (BOM), IT WAS HELD THAT THE LANGUAGE USED IN SECTION 31 OF THE OLD ACT IS WIDE ENOUGH TO ENABLE THE FIRST APPELLATE AUTHORITY TO CORRECT THE INCOME TAX OFFICER NOT ONLY WITH REGARD TO A MATTER WHICH HAS BEEN RAISED BY THE ASSESSED BUT ALSO WITH REGARD TO A MATTER WHICH HAS BEEN CONSIDERED BY THE ASSESSING OFFICER AND DETERMINED IN THE COURSE OF THE ASSESSMENT. IT IS ALSO RELEVANT TO NOTE THAT IN THE JUTE CORPORATION'S CASE (SUPRA), THE APEX COURT, INTER ALIA, OBSERVED AS FOLLOWS: 'THE APPELLATE ASSISTANT COMMISSIONER, ON AN APPEAL PREFERRED BY THE ASSESSED, HAD JURISDICTION TO INVOKE, FOR THE FIRST TIME, THE PROVISIONS OF RULE 33 OF THE INDIAN INCOME TAX RULES, 1922 (HEREINAFTER REFERRED TO AS 'THE RULES'), FOR THE PURPOSE OF COMPUTING THE INCOME OF A NON-RESIDENT EVEN IF THE INCOME TAX OFFICER HAD NOT DONE SO IN THE ASSESSMENT PROCEEDINGS. BUT, IN SHAPOORJI PALLONJI MISTRY'S CASE (SUPRA), THIS COURT, WHILE CONSIDERING THE EXTENT OF THE POWER OF THE APPELLATE ASSISTANT COMMISSIONER, REFERRED TO A NUMBER OF CASES DECIDED BY VARIOUS HIGH COURTS INCLUDING THE BOMBAY HIGH COURT JUDGMENT IN NARRONDAS' CASE (SUPRA) AND ALSO THE DECISION OF THIS COURT IN MCMILLAN AND CO.'S CASE (SUPRA) AND HELD THAT, IN AN APPEAL FILED BY THE ASSESSED, THE APPELLATE ASSISTANT COMMISSIONER HAS NO POWER TO ENHANCE THE ASSESSMENT BY DISCOVERING NEW SOURCES OF INCOME NOT CONSIDERED BY THE INCOME TAX OFFICER IN THE ORDER APPEALED AGAINST. IT WAS URGED ON BEHALF OF THE REVENUE THAT THE WORDS 'ENHANCE THE ASSESSMENT' OCCURRING IN SECTION 31 WERE NOT CONFINED TO THE ASSESSMENT REACHED THROUGH A PARTICULAR PROCESS BUT THE AMOUNT WHICH OUGHT TO HAVE BEEN COMPUTED IF THE TRUE TOTAL INCOME HAD BEEN FOUND. THE COURT OBSERVED THAT THERE WAS NO DOUBT THAT THIS VIEW WAS ALSO POSSIBLE, BUT HAVING REGARD TO THE PROVISIONS OF SECTIONS 34 AND 33B, WHICH MADE PROVISION FOR ASSESSMENT OF ESCAPED INCOME FROM NEW SOURCES, THE INTERPRETATION SUGGESTED ON BEHALF OF THE REVENUE WOULD BE AGAINST THE VIEW WHICH HAD HELD THE :- 7 -: FIELD FOR NEARLY 37 YEARS.' (EMPHASIS, HERE ITALICISED IN PRINT, SUPPLIED). 4. LOOKING FROM THE AFORESAID ANGLES, THE INEVITABLE CONCLUSION IS THAT WHENEVER THE QUESTION OF TAXABILITY OF INCOME FROM A NEW SOURCE OF INCOME IS CONCERNED, WHICH HAD NOT BEEN CONSIDERED BY THE ASSESSING OFFICER, THE JURISDICTION TO DEAL WITH THE SAME IN APPROPRIATE CASES MAY BE DEALT WITH UNDER SECTION 147/148 OF THE ACT AND SECTION 263 OF THE ACT, IF REQUISITE CONDITIONS ARE FULFILLLED. IT IS INCONCEIVABLE THAT IN THE PRESENCE OF SUCH SPECIFIC PROVISIONS, A SIMILAR POWER IS AVAILABLE TO THE FIRST APPELLATE AUTHORITY. THAT BEING THE POSITION, THE DECISION IN UNION TYRES' CASE (SUPRA) OF THIS COURT EXPRESSES THE CORRECT VIEW AND DOES NOT NEED RECONSIDERATION. THIS REFERENCE IS ACCORDINGLY DISPOSED OF. 6. SIMILAR VIEW WAS AGAIN REITERATED BY THE HON'BLE DELHI HIGH COURT IN THE CASE REPORTED IN 277 ITR 541. SINCE THE LD. CIT(A) HAS EXAMINED A NEW SOURCE OF INCOME IN THE INSTANT CASE, THE LD. CIT(A) HAS EXCEEDED HIS JURISDICTION. THEREFORE, THE ADDITION RESULTING INTO ENHANCEMENT OF INCOME IS NOT SUSTAINABLE IN THE EYES OF LAW. ACCORDINGLY I SET ASIDE THE ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION. 7. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- [SUNIL KUMAR YADAV] JUDICIAL MEMBER DATED: 13 TH JANUARY, 2016 JJ:2812 :- 8 -: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR