Dy. CIT Cir-I, Sangli V. M/s. S.F.Chougule, Sangli

ITA 605/PUN/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0324 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 22-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income; Depreciation; Income from undisclosed sources; Bad and doubtful debts; Validity of assessment; Capital expenditure; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 142(1); 133A; 40(a)(ia); 201; 143(2); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 458 /PN/20 1 2 / ASSESSMENT YEAR: 20 08 - 09 M/S. S F CHOUGULE, 347/6, NEAR BIRNALE COLLEGE, NEMINATHNAGAR, SANGLI 416416 . / APPELLANT PAN: AA VFS1308N VS. THE JOINT COMMISSIONER OF INCOME TAX , RANGE 1, SA NGLI . / RESPONDENT . / ITA NO. 605 /PN/201 2 / ASSESSMENT YEAR: 20 08 - 09 THE JOINT COMMISSIONER OF INCOME TAX, RANGE 1, SANGLI . / APPELLANT VS. M/S. S F CHOUGULE, 347/6, NEAR BIRNALE COLLEGE , NEMINATHNAGAR, SANGLI 416416 . / RESPONDENT PAN: AAVFS1308N ASSESSEE BY : S HRI C.H. NANIWADEKAR REVENUE BY : SHRI S.K. KULKARNI / DATE OF HEARING : 19. 1 2 .201 6 / DATE OF PRONOUNCEMENT: 21 . 1 2 .201 6 ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 2 / ORDER PER SUSHMA CHOWLA, JM: THE CROSS APPEAL S FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST ORDER OF CIT( A ), KOLHAPUR , DATED 0 4 . 0 1 .201 2 RELATING TO ASSESSMENT YEAR 20 08 - 09 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) . 2. THE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 3 . THE ASSESSEE IN ITA NO. 458 /PN/201 2 HAS RAI SED THE FOLLOWING GROUNDS OF APPEAL : - APPEAL : - 1 . THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN UPHOLDING DISALLOWANCE OF LABOUR PAYMENTS OF RS.18,53,885 BEING 20% OF TOTAL LABOUR PAYMENTS OF RS.92,69,429. HE FAILED TO APPRECIATE TH E FACTS AND CIRCUMSTANCES AS WELL AS ARGUMENTS ADVANCED BY THE ASSESSEE IN PROPER PERSPECTIVE. 2 . THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN ENHANCING THE ASSESSMENT BY RS.21,70,537 ON ACCOUNT OF TREATMENT OF EXPENDITURE O N G. I . SHEETS AS CAPITAL EXPENDITURE (NET OF DEPRECIATION) AS AGAINST REVENUE AS CLAIMED BY THE ASSESSEE. HE OUGHT TO HAVE GIVEN PROPER NOTICE FOR SUCH ENHANCEMENT. IN ANY CASE, HE OUGHT TO HAVE APPRECIATED THAT THE SUBJECT EXPENDITURE IS PURELY REVENUE IN NATURE. THE REASONS ASSIGNED ARE THE SUBJECT EXPENDITURE IS PURELY REVENUE IN NATURE. THE REASONS ASSIGNED ARE ARBITRARY. 3 . THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN UPHOLDING DISALLOWANCE OF RS.31,000 MADE BY THE A.O. U / S 40A(3). 4 . THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACT S AND IN LAW IN UPHOLDING DISALLOWANCE OF RS.1,51,927 OUT OF SITE EXPENSES. 5 . WITHOUT PREJUDICE TO GROUND NO . 1 TO 4 AND IN THE ALTERNATIVE, THE ORDER PASSED BY THE ID A O IS BAD IN LAW AS MUCH AS THE SAME IS PASSED AGAINST THE RELAXED NORMS BY CBDT VIDE PRE SS RELEASE WHICH WAS BINDING UPON HIM. ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 3 4. THE REVENUE IN ITA NO. 605 /PN/201 2 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A), KOLHAPUR ERRED IN DELETING THE ADDITION OF LOW GROS S PROFIT DUE TO REJECTION OF BOOKS BY THE ASSESSING OFFICER ON THE GROUND THAT THE OBSERVATIONS OF THE ASSESSING OFFICER WERE NOT FACTUAL AND THE INFERENCES DRAW THERE FROM WERE INCORRECT IN THE PROCESS IGNORING THE OTHER DEFECTS POINTED OUT BY THE ASSESSI NG OFFICER VIZ. LABOUR PAYMENTS WERE NOT VERIFIABLE WITH RESPECT TO THE BUSINESS AND NO VALUATION OF THE CLOSING WORK IN PROGRESS WAS DONE & SAID FIGURES WERE ON ESTIMATE BASIS. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) E RRED IN IGNORING THE OTHER DEFECTS POINTED OUT BY THE ASSESSING OFFICER VIZ. LABOUR PAYMENTS WERE NOT VERIFIABLE WITH RESPECT TO THE BUSINESS AND NO VALUATION OF THE CLOSING WORK IN PROGRESS WAS DONE & SAID FIGURES WERE ON ESTIMATE BASIS WHICH CONSTITUTE M AJOR DEFECTS IN THE MAINTENANCE OF BOOKS OF ACCOUNTS DUE TO WHICH THE FINANCIAL RESULTS DRAWN FROM THE DEFECTIVE BOOKS WERE NOT RELIABLE. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) ERRED IN IGNORING THE FACT THAT THE ASSESSEE HAD VO LUNTARILY OFFERED ADDITIONAL INCOME IN THE FORM OF EXCESS CASH AND DIFFERENCE IN WORK - IN - PROGRESS AS PER BOOKS THE AGGREGATE OF WHICH WAS LESS THAN THE TAXABLE INCOME DISCLOSED IN THE RETURN OF INCOME WHICH ALSO CONSTITUTED A DEFECT RENDERING THE BOOKS OF ACCOUNTS UNRELIABLE FOR ASSESSING THE INCOME OF THE BOOKS OF ACCOUNTS UNRELIABLE FOR ASSESSING THE INCOME OF THE ASSESSEE. (4) ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE THE CIT(A) WHILE REDUCING THE ADDITION ON ACCOUNT OF THE LABOUR CONTRACTORS PAYMENTS OF RS . 92 , 69 , 429 ERRED IN IGNORING THE ASSESSEE'S FAILURE TO SUB S TANTIATE EVEN A PART OF THE PAYMENT WITH RESPECT TO THE VARIOUS PROJECTS CARRIED OUT OR WITH RESPECT TO INDIVIDUAL RECIPIENTS OF THE AMOUNTS WHEREBY THE ASSESSEE FAILED TO DISCHARGE HIS ONUS OF SUBSTANTIATING THE CLAIM OF EXPENDITURE MADE. (5) O N THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSEE ON THE DISALLOWANCE U /S 40(A)(IA) OF THE I T ACT 1961 OF INTEREST PAID BY THE ASSESSEE TO A CO - OPERATIVE CREDIT SOCIETY WITHOUT DEDUCTING TAX AT S OURCE BY DIRECTING THE ASSESSING OFFICER TO VERIFY THE POSITION OF SHARE CAPITAL OF THE CO - OPERATIVE SOCIETY AND ALLOW THE DEDUCTION CLAIMED ON THE BASIS OF SUCH VERIFICATION AS THE SAME AMOUNTED TO SETTING ASIDE THE ASSESSMENT. (6) ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN HOLDING THAT A CO - OPERATIVE CREDIT SOCIETY IS REQUIRED TO BE TREATED AS A CO - OPERATIVE BANK IF ITS SHARE CAPITAL EXCEEDS RS . 1 LAKH IN ABSENCE OF ANY SUCH CLAIM MADE BY THE CO - OPERATIVE CREDIT SOCIE TY OR ANY SUCH RECOGNITION GRANTED BY THE RESERVE BANK OF INDIA. (7) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN HOLDING THAT A CO - OPERATIVE CREDIT SOCIETY IS REQUIRED TO BE TREATED AS A CO - OPERATIVE BANK IN TERMS OF T HE ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 4 MADHAVA COMMITTEE REPORT WHICH HAS NO APPLICATION TO THE ISSUE ON HAND WHICH IS WHETHER BY VIRTUE OF EXEMPTION IF AVAILABLE TO THE CO - OPERATIVE CREDIT SOCIETY U/S 194A(3) OF THE IT ACT THE ASSESSEE COULD PAY INTEREST TO THE CO - OPERATIVE CREDIT SOCIETY W ITHOUT DEDUCTION OF TAX AT SOURCE. 5. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE GROUND OF APPEAL NO.5 RAISED IS CHALLENGING THE VALIDITY OF ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER AND THE SAME BEING JURISDICTIONAL ISSUE BE DECIDED FIRST. SO, WE PROCEED TO DECIDE THE GROUND OF APPEAL NO.5 AFTER HEARING BOTH THE LEARNED AUTHORIZED REPRESENTATIVES . 6. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE HAD FURNISHED E - RETURN OF INCOME ON 30.09.2008 DECLAR ING TOTAL INCOME OF RS. 81,64,590/ - . SURVEY ACTION UNDER SECTION 133A OF THE ACT WAS CONDUCTED AT THE PREMISES OF ASSESSEE ON 30.01.2008. DURING THE COURSE OF SURVEY, THE PARTY DETECTED CERTAIN DISCREPANCIES IN CASH AS PER CASH BOOK AND ACTUAL CASH INVENT ORIES MADE, AS PER WHICH EXCESS IN CASH AS PER CASH BOOK AND ACTUAL CASH INVENT ORIES MADE, AS PER WHICH EXCESS CASH OF RS.13,467/ - WAS DECLARED BY THE ASSESSEE. FURTHER, ON - MONEY RECEIPTS WERE FOUND ENTERED IN THE DIARY MAINTAINED BY THE ASSESSEE, FOR WHICH ADDITIONAL INCOME WAS DISCLOSED AT RS.12 LAKHS. IN ADDITION, THE DIFFERENCE FOUND IN THE WORKING OF WIP AND EXCESS WIP WAS TO THE EXTENT OF RS.33,80,000/ - WHICH WAS ALSO DISCLOSED AS ADDITIONAL INCOME OVER AND ABOVE THE REGULAR INCOME, DURING THE COURSE OF SURVEY . T HE TOTAL UNACCOUNTED INCOME / UNEXPLAINED INVESTMENT WAS DECLARE D AT RS.45,93,467/ - . THE STATEMENT OF PARTNER OF ASSESSEE FIRM WAS RECORDED UNDER SECTION 133A OF THE ACT DURING THE COURSE OF SURVEY ON 30.01.2008 AND IN RESPONSE TO THE QUERY RAISED, THE SAID PARTNER AGREED TO THE ADDITIONAL INCOME. THE ASSESSEE HAD FU RNISHED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 81,64,590/ - AND THE COMPUTATION OF INCOME FILED BY THE ASSESSEE IS INCORPORATED UNDER PARA 4.2 AT PAGES 7 AND 8 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER NOTES THAT THE ASSESSEE HAD DECLARED T HE NET PROFIT FROM BUSINESS AT RS. 11,62,084/ - , DESPITE THE FACT THAT IT HAD DISCLOSED ADDITIONAL INCOME ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 5 OF RS. 45,93,467/ - DURING THE COURSE OF SURVEY. THE ASSESSING OFFICER FURTHER NOTED THAT TOTAL INCOME DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME A T RS. 81,64,590/ - WAS MOSTLY DUE TO DISALLOWANCE OF VARIOUS AMOUNTS INCLUDING DISALLOWANCE OF RS. 68,31,574/ - DUE TO VIOLATION OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THE ASSESSING OFFICER THUS, NOTED THAT THE ASSESSEE HAD FAILED TO DISCLOSE NORMAL B USINESS INCOME OF THE YEAR AND HAD ALSO NOT DECLARED THE ADDITIONAL INCOME, WHICH WAS ADMITTED DURING THE COURSE OF SURVEY. 7. THE ASSESSING OFFICER IN THE FIRST PARA MENTIONS THAT THE CASE WAS SELECTED FOR SCRUTINY UNDER THE EXISTING SCRUTINY NORMS THROU GH CASS. NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED BY THE DCIT, CIRCLE (1), SANGLI ON 18.09.2008. THE JURISDICTION OF THE CASE WAS VESTED WITH THE JOINT COMMISSIONER OF INCOME TAX, RANGE - 1, SANGLI BY THE COMMISSIONER OF INCOME TAX - I, KOLHAPUR VID E ORDER DATED 18.02.2010. THEREAFTER, NOTICES WERE ISSUED TO THE ASSESSEE UNDER SECTION 143(2) AND 142(1) OF THE ACT. THE ASSESSEE PARTICIPATED IN THE ASSESSMENT PROCEEDINGS AND PRODUCED THE BOOKS OF ACCOUNT FOR VERIFICATION ALONG WITH OTHER DETAILS. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, VIDE SUBMISSIONS DATED 14.05.2010, THE ASSESSEE OBJECTED TO THE SCRUTINY ASSESSMENT FOR THE YEAR STATING THAT SINCE IT HAD DULY OFFERED THE ADDITIONAL INCOME DECLARED DURING THE COURSE OF SURVEY AND NO BOOKS WERE IMPOUNDED DURING THE COURSE OF SURVEY, THE CBDT VIDE PRESS RELEASE HAD EXEMPTED FROM SCRUTINY OF CASES ON WHICH SURVEY ACTION WAS CONDUCTED SUBJECT TO FULFILLMENT OF CONDITIONS. IT WAS ALSO BROUGHT TO THE KNOWLEDGE OF JCIT THAT EARLIER LETTER WAS FILED BE FORE THE DCIT. IN THE SAID LETTER, THE ASSESSEE EXPLAINED THAT IT HAD NOT RETRACTED FROM ITS EARLIER DECLARATION AND SINCE THE CBDT HAD RELAXED THE SCRUTINY NORMS AND EXEMPTED THE PERSONS FROM SCRUTINY, IF CERTAIN CONDITIONS WERE FULFILLED, THEN AS THE AS SESSEE HAD FULFILLED THE CONDITIONS, THE CASE OF ASSESSEE COULD NOT BE PICKED UP FOR SCRUTINY. THE ASSESSING OFFICER VIDE PARA 3.2 OBSERVES THAT THE FACTS STATED BY THE ASSESSEE IN THE SAID SUBMISSIONS WERE ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 6 TOTALLY DISTORTED AS THE AMOUNT DISCLOSED IN SUR VEY WAS RS.45,93,467/ - AS ADDITIONAL INCOME OVER AND ABOVE THE REGULAR INCOME DECLARED IN THE RETURN OF INCOME. AS PER THE ASSESSING OFFICER, THE ASSESSEE HAD NOT DECLARED FULL ADDITIONAL INCOME AND SINCE IT HAD NOT COMPLIED WITH THE CBDT NORMS, THEREFORE THE REQUIRED CONDITIONS FOR NOT BEING SELECTED FOR SCRUTINY UNDER SECTION 143(3) OF THE ACT WERE NOT COMPLIED WITH. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD DECLARED THE INCOME FROM BUSINESS AT ONLY RS. 11,62,084/ - WHICH WAS FAR BELOW THE AMOUNT DECLARED AS ADDITIONAL INCOME I.E. RS. 45,93,467/ - . FURTHER, THE RETURNED INCOME WAS ENHANCED DUE TO OTHER ADDITIONS AND DISALLOWANCES MADE ON ACCOUNT OF VIOLATION OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, WHICH IN NO CIRCUMSTANCES COULD BE CONSTRUED AS BUSINESS INCOME OF THE YEAR. THE ASSESSING OFFICER HELD THAT WHERE THE ASSESSEE HAD FAILED TO COMPLY WITH THE NORMS FIXED BY THE BOARD, THE CASE WAS RIGHTLY SELECTED FOR SCRUTINY. 8. THE CIT(A) OBSERVED THAT THE ASSESSEES CASE WAS SELECTED FOR SCRUTI NY UNDER CASS AND IT ALSO OBSERVED THAT THE PRESS RELEASE DID NOT MENTION THAT THE CASES WHERE THE AFORESAID THREE CONDITIONS HAD BEEN FULFILLED WOULD NOT BE SELECTED FOR REGULAR ASSESSMENT UNDER CASS. THE CIT(A) FURTHER OBSERVED THAT THE CONTENTION OF AS SESSEE WOULD HAVE BEEN ACCEPTABLE HAD THE CASE BEEN SELECTED MANUALLY FOR SCRUTINY. THE CIT(A) ALSO OBSERVED THAT THREE CONDITIONS MENTIONED IN THE PRESS RELEASE HAVE NOT BEEN FULFILLED BY THE ASSESSEE SIMULTANEOUSLY AND HENCE, THE CASE WOULD BE LIABLE TO BE PICKED UP FOR REGULAR ASSESSMENT. 9. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A) AND THE FIRST ISSUE RAISED BY THE ASSESSEE IS THE JURISDICTIONAL ISSUE AGAINST THE VALIDITY OF ASSESSMENT ORDER MADE IN THE CASE. ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 7 10. THE LEARNED AUTHORIZED R EPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ASSESSEE WAS ENGAGED IN ROAD CONSTRUCTION AND BUILDING OF PROJECTS. HE POINTED OUT THAT DURING THE COURSE OF SURVEY ON 30.01.2008 , THE ASSESSEE HAD MADE A DECLARATION OF RS.33,18,000/ - + RS.12 LAKHS + RS .13,467/ - WHICH WAS INCLUDED IN THE RETURN OF INCOME FILED BY THE ASSESSEE. HE FURTHER STATED THAT THE CASE OF ASSESSEE WAS PICKED UP FOR SCRUTINY. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BROUGHT TO OUR ATTENTION , THE APPLICATION MADE UNDE R THE RIGHT TO INFORMATION ACT , AS TO THE BASIS FOR SELECTION OF CASE OF THE ASSESSEE FOR THE RELEVANT YEAR UNDER SCRUTINY. IT WAS SPECIFICALLY ASKED WHETHER THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. IN REPLY, THE CENTRAL PUBLIC INFORMATION OFFICER STATED THAT THE CASE OF ASSESSEE WAS NOT SELECTED FOR SCRUTINY UNDER CASS. FURTHER, THE ASSESSEE HAS ASKED AS TO WHY ITS CASE WAS SELECTED FOR SCRUTINY SINCE IT WAS COVERED BY RELAXED SCRUTINY NORMS. IN ANSWER, IT WAS POINTED OUT THAT THE CASE WAS SELECT ED FOR SCRUTINY, IN VIEW OF GUIDELINES FOR SELECTION OF SCRUTINY ISSUE DURING FINANCIAL YEAR 2010 - 11 ; COPIES OF RTI APPLICATION AND THE REPLY ARE PLACED AT PAGES 20 TO 22 OF THE PAPER BOOK. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER REFERRED TO THE CRITERIA OF GUIDELINES FOR INCOME - TAX SCRUTINY, COPY OF WHICH IS PLACED AT PAGE 23 AND 24 OF THE PAPER BOOK AND REITERATED THAT IN THE CASE OF ASSESSEE, SURVEY WAS CARRIED OUT AND CRITERIA WAS FIXED FOR NOT PICKING UP THE CASE UNDER SCRUTINY AND TH E ASSESSEE CLEARLY FULFILS THE SAME. HE FURTHER POINTED OUT THAT IN CASE THE CRITERIA IS NOT MET WITH, THEN AS PER CLAUSE (G), THE ASSESSING OFFICER CAN SELECT ANY RETURN FOR SCRUTINY AFTER RECORDING REASONS AND AFTER OBTAINING THE APPROVAL OF CCIT/ DGIT. IN THIS REGARD, HE POINTED OUT THAT NO SUCH APPROVAL WAS RECEIVED FROM THE CCIT. OUR ATTENTION WAS DRAWN TO THE LETTER DATED 13.05.2013 ISSUED FROM THE OFFICE OF ACIT, CIRCLE (1), SANGLI, WHEREIN THE ASSESSING OFFICER INFORMED THE ASSESSEE THAT THERE WAS NO RECORD TO SHOW THAT PREVIOUS APPROVAL OF CCIT WAS OBTAINED TO SELECT THE CASES ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 8 MANUALLY FOR SCRUTINY FOR ASSESSMENT YEAR 2008 - 09 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE STRESSED THAT WHERE THE SELECTION WAS NOT THROUGH CASS BUT WAS MAN UALLY MADE, THEN THE PREVIOUS APPROVAL OF THE CCIT WAS COMPULSORY. REFERRING TO THE ORDER OF CIT(A), THE ASSESSEE POINTED OUT THAT THE CIT(A) STATES THAT THE CASE OF ASSESSEE WAS SELECTED THROUGH CASS AND ALSO MENTIONS THAT THE CONTENTION OF ASSESSEE WOUL D HAVE BEEN ACCEPTABLE HAD THE CASE BEEN MANUALLY SELECTED FOR SCRUTINY. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HYDERABAD BENCH OF TRIBUNAL IN SMT. NAYANA P. DEDHIA V S. ACIT (2003) 86 I TD 398 (HYD) FOR THE PROPOSITION OF BINDING NATURE OF CBDT CIRCULARS UPON THE IT AUTHORITIES. HE FURTHER POINTED OUT THAT THE SAID DECISION HAS BEEN APPROVED BY THE HONBLE HIGH COURT OF ANDHRA PRADESH IN CIT VS. SMT. NAYANA P. DEDHIA (2004) 270 ITR 572 ( AP). FURTHER, HE REFERRED TO THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN CIT VS. BEST PLASTICS (P) LTD. (2007) 295 ITR 256 (DEL) FOR THE PROPOSITION THAT WHERE THE GUIDELINES ARE LAID DOWN FOR SELECTION OF CASES FOR SCRUTINY AND IF THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY IN VIOLATION OF CBDT INSTRUCTIONS, THEN THE ASSESSMENT ORDER HAS TO BE SET ASIDE. HE FURTHER REFERRED TO THE DECISION OF HONBLE BOMBAY HIGH COURT IN BOMBAY CLOTH SYNDICATE VS. CIT (1995) 214 ITR 210 (BOM) FOR THE PROPOSITION THAT THE CBDT INSTRUCTIONS WERE BINDING. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, POINTED OUT THAT AS PER THE GUIDELINES OF CBDT, THE CASES COULD BE SELECTED, MAY BE NOT THROUGH CASS. OUR ATTENTION WAS D RAWN TO THE ORDER OF ASSESSING OFFICER, WHEREIN HE HAS ELABORATELY DEALT WITH THE ISSUE THAT INCOME INCREASED DURING THE YEAR ONLY BECAUSE OF NOTIONAL DISALLOWANCE OF EXPENSES UNDER SECTION 40(A)(IA) OF THE ACT AND NOT BECAUSE OF DECLARATION OF ADDITIONAL INCOME BY THE ASSESSEE. HE STRESSES THAT THE CASE WAS SELECTED UNDER NORMAL SCRUTINY PROCEEDINGS AND EXCESS EXPENDITURE OF BAD DEBTS CLAIMED BY THE ASSESSEE WERE ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 9 DISALLOWED BY THE ASSESSING OFFICER. HE THEN WENT INTO MERITS OF THE CASE. IT WAS ALSO STRE SSED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE THAT THE DECLARED INCOME IN THE HANDS OF ASSESSEE MEANS THE BOOK PROFIT. 12. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN REJOINDER POINTED OUT THAT IN THE CASE OF ASSESSEE, HE D ECLARED ADDITIONAL INCOME DURING THE COURSE OF SURVEY. HE FURTHER POINTED OUT THAT THE DETAILS OF EXPENSES WERE COMPARED BY THE ASSESSING OFFICER. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE PRELIMINARY ISSUE RAISED IN THE PRESEN T APPEAL BY WAY OF GROUND OF APPEAL NO.5 IS AGAINST THE VALIDITY OF ASSESSMENT MADE IN THE HANDS OF ASSESSEE. THE ASSESSEE CLAIMS THAT THE CASE OF ASSESSEE WAS NOT SELECTED FOR SCRUTINY UNDER CASS BUT WAS SELECTED MANUALLY. FOR SELECTION OF ANY RETURN FO R SCRUTINY MANUALLY BY THE ASSESSING OFFICER, THE REQUIREMENT OF GUIDELINES ISSUED FOR THIS PURPOSE FOR RELEVANT ASSESSMENT YEAR WAS THAT THE SAME SHOULD BE AFTER OBTAINING APPROVAL OF THE CCIT / DGIT. SINCE NO SUCH APPROVAL WAS RECEIVED FROM THE CCIT / D GIT, THE ASSESSING OFFICER HAD NO JURISDICTION TO PROCEED WITH THE SCRUTINY ASSESSMENT IN THE CASE OF ASSESSEE. THE ASSESSEE HAD RAISED THE ISSUE BEFORE THE ASSESSING OFFICER AND CIT(A) BUT THE FACET OF ARGUMENT BEFORE THE AUTHORITIES BELOW WAS THAT THE C ASE OF ASSESSEE COULD NOT BE SELECTED FOR SCRUTINY UNDER CASS SINCE IN THE CASE OF SURVEY, CERTAIN CONDITIONS WERE LAID DOWN AND THE ASSESSEE HAVING FULFILLED THE SAID CONDITIONS, THEN NO SCRUTINY COULD TAKES PLACE IN THE HANDS OF ASSESSEE. 14. IN THE FAC TS OF THE CASE, SURVEY UNDER SECTION 133A OF THE ACT WAS CARRIED OUT AT THE PREMISES OF ASSESSEE ON 30.01.2008 . DURING THE COURSE OF SURVEY, THE ASSESSEE MADE DECLARATION OF ADDITIONAL INCOME OF RS. 45,93,4 6 7/ - WHICH WAS ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 10 OFFERED AS ADDITIONAL INCOME OVER A ND ABOVE THE INCOME TO BE RETURNED FOR THE YEAR UNDER CONSIDERATION. THE ASSESSEE CLAIMS THAT IT HAD DISCLOSED THE SAID ADDITIONAL INCOME IN ITS RETURN OF INCOME WHEREIN THE RETURN WAS FILED DECLARING INCOME OF RS.81,64,598/ - . HOWEVER, THE PERUSAL OF COM PUTATION OF INCOME REFLECTED THAT NET PROFIT SHOWN IN PROFIT & LOSS ACCOUNT WAS RS. 11,62,084/ - AND CERTAIN DISALLOWANCES WERE MADE ON ACCOUNT OF PERSONAL EXPENSES, CAPITAL EXPENSES AND DISALLOWANCES UNDER SECTION 40(A)(IA) OF THE ACT AT RS. 68,31,574/ - AND OTHER DISALLOWANCES AND THE INCOME WAS AGGREGATELY SHOWN AT RS. 85,69,672/ - THE ASSESSING OFFICER AND CIT(A) THUS, WERE OF THE VIEW THAT THE ASSESSEE HAD NOT INCLUDED THE ADDITIONAL INCOME OF RS.45,93,467/ - , WHERE IT HAD DECLARED THE BUSINESS INCOME AT ONL Y RS. 11,62,084/ - , THOUGH IT HAD FILED THE RETURN OF INCOME DECLARING INCOME OF RS. 81,64,590/ - . THE CASE OF AUTHORITIES BELOW IS THAT THE ASSESSEE HAD NOT FULFILLED THE CONDITIONS LAID DOWN IN THE GUIDELINES FOR TAKING UP THE CASE FOR SCRUTINY ASSESSMENT Y EAR UNDER CONSIDERATION AND HENCE, THERE WAS NO MERIT IN THE CLAIM OF ASSESSEE THAT IT HAD FULFILLED THE CONDITIONS LAID DOWN IN GUIDELINES. THE WHOLE GAMUT OF ARGUMENTS AND DISCUSSION IN THE ORDERS OF ASSESSING OFFICER AND CIT(A) IS ON THIS ACCOUNT THAT THE ASSESSEE HAD NOT FULFILLED THE CONDITIONS RELATING TO SURVEY CASES FOR FINANCIAL YEAR AND THE CASE OF THE ASSESSEE COULD BE PICKED UP FOR SCRUTINY. THE ASSESSMENT ORDER WAS PASSED ON 09.09.2010 AND THE APPELLATE ORDER WAS PASSED ON 04.01.2012. THE AS SESSEE THEREAFTER MOVED AN APPLICATION UNDER THE RIGHT TO INFORMATION ACT, WHEREIN A SPECIFIC QUESTION ASKED WAS WITH REGARD TO SELECTION OF SCRUTINY AND OTHER RELEVANT INFORMATION RELATING TO ASSESSMENT YEAR 2008 - 09. THE SPECIFIC QUESTION ASKED BY THE AS SESSEE WAS WHETHER ITS CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND IN CASE IT WAS NOT SELECTED UNDER CASS AND WHY THE SAME WAS PICKED UP FOR SCRUTINY. THE ASSESSEE ALSO ASKED THAT UNDER WHICH NORMS THE CASE WAS SELECTED FOR SCRUTINY AND WHETHER RE LAXATI ON IN SELECTION OF CASES I N WHICH SURVEY ACTION WAS CARRIED OUT ON FULFILLING THE CRITERIA WAS AVAILABLE IN THE SAID NORMS OR NOT. IN ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 11 REPLY, IT WAS STATED THAT THE GUIDELINES / INSTRUCTIONS WERE FOLLOWED AND SINCE THE GUIDELINES WERE CONFIDENTIAL IN NATUR E, THE COPY OF SAME COULD NOT BE PROVIDED. IN REPLY TO THE NEXT QUESTION WHETHER THE CASE WAS SELECTED UNDER CASS, THE CATEGORICAL ANSWER WAS NO. THE SAID RTI REPLY FURTHER STATED THAT THE CASE WAS SELECTED FOR SCRUTINY IN VIEW OF THE GUIDELINES CONTAI NED IN F.NO. 225/93/2009/ITA.II. 15. THE SAID GUIDELINES FOR SELECTION OF SCRUTINY WERE PUBLISHED AND IT WAS POINTED OUT THAT THE SAID GUIDELINES WERE ONLY FOR THE USE OF OFFICERS OF INCOME TAX DEPARTMENT AND THE SAME COULD NOT BE DISCLOSED EVEN UNDER TH E RTI ACT, 2005. THE SAID APPLICATION UNDER THE RTI ACT AND THE ORDER UNDER THE RTI ACT ARE PLACED AT PAGES 20 TO 22 OF THE PAPER BOOK. THE ASSESSEE HAS ALSO PLACED THE COPY OF GUIDELINES ISSUED FOR SCRUTINY , COPY OF WHICH IS PLACED AT PAGE 23 OF PAPER B OOK. THE SAID GUIDELINES WERE FOR USE OF INCOME TAX DEPARTMENT, WHEREIN SELECTION CRITERIA WAS PROVIDED WHICH WAS APPLICABLE TO ALL INCOME TAX RETURNS AT ALL STATIONS. THE GUIDELINES VIS - - VIS SURVEY CASES ARE PROVIDED THEREIN AND VIDE CLAUSE (G), IT IS PROVIDED THAT THE ASSESSING OFFICER MAY SELECT ANY RETURN FOR SCRUTINY AFTER RECORDING REASONS AND AFTER OBTAINING THE APPROVAL OF CCIT / DGIT. THE CASES UNDER THIS CATEGORY SHOULD BE SELECTED, IF THERE ARE COMPELLING REASONS AND CASES NOT SELECTED UNDER CASS. THESE CASES ARE WA TCH ED BY THE CCIT / C IT FOR THE QUALITY OF ASSESSMENT. THE SAID GUIDELINES ARE AS PER F.NO.225/93/2009/ITA.II . THE REPLY UNDER RTI ALSO REFERS TO THE SAID GUIDELINES AND ADMITTEDLY, THESE GUIDELINES WERE USED TO SELECT THE CASE O F ASSESSEE FOR SCRUTINY. FURTHER, THE ASSESSEE ALSO FILED ON RECORD LETTER DATED 13.05.2013 ISSUED BY THE ACIT, CIRCLE (1), SANGLI, WHEREIN IN REPLY TO THE LETTER OF ASSESSEE, IT HAS BEEN INFORMED THAT THERE IS NO RECORD TO SHOW THAT PREVIOUS APPROVAL OF CCIT / DGIT WAS OBTAINED TO SELECT THE CASE MANUALLY FOR SCRUTINY FOR ASSESSMENT YEAR 2008 - 09. SO, TAKING INTO CONSIDERATION THE SAID CORRESPONDENCE WHICH HA S COME INTO EXISTENCE AFTER THE ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 12 DATE OF PASSING OF ASSESSMENT ORDER AND APPELLATE ORDER, THE FIRST THING TO BE TAKEN NOTE OF IS THAT THE CASE OF ASSESSEE WAS NOT SELECTED FOR SCRUTINY IN CASS WHICH IS THE REPLY GIVEN IN ANSWER TO RTI QUERY AS PER LETTER DATED 12.04.2012. THE SECOND ASPECT IS THAT THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY IN VIEW OF THE GUIDELINES CONTAINED IN F.NO.225/93/2009/ITA.II . THE ASSESSEE HAS PLACED THE COPY OF SAID GUIDELINES ON RECORD AT PAGE 23 OF THE PAPER BOOK, WHEREIN IT IS PROVIDED THAT THE CASE OF ANY ASSESSEE MAY BE SELECTED FOR SCRUTINY AFTER RECORDING REASONS A ND AFTER OBTAINING THE APPROVAL OF CCIT / DGIT. IN OTHER WORDS, THE CASE OF ASSESSEE COULD BE PICKED UP FOR SCRUTINY MANUALLY BUT THE SAME HAD TO BE AFTER RECORDING REASONS FOR SUCH AN ACTION AND AFTER OBTAINING THE APPROVAL OF CCIT / DGIT. HOWEVER, THE ASSESSING OFFICER VIDE LETTER DATED 13.05.2013 HAS CATEGORICALLY MENTIONED THAT NO PREVIOUS APPROVAL OF CCIT WAS OBTAINED TO SELECT THE CASE MANUALLY FOR SCRUTINY FOR ASSESSMENT YEAR 2008 - 09 . IN THE ABOVE CIRCUMSTANCES, WHERE THE ORDER HAS BEEN PASSED AGA INST THE NORMS LAID DOWN BY THE CBDT VIDE ITS GUIDELINES WHICH WERE BINDING UPON THE ASSESSING OFFICER, THEN THE ORDER PASSED BY THE ASSESSING OFFICER IS BAD IN LAW. THE INSTRUCTION S ISSUED BY THE CBDT ARE TO BE STRICTLY FOLLOWED BY THE AUTHORITIES I.E. A SSESSING OFFICER AND IN THE ABSENCE OF THE SAME, THE ASSESSMENT ORDER PASSED IN THE CASE IS ANNUL LED . S UCH IS THE PROPOSITION LAID DOWN BY THE HONBLE HIGH COURT OF ANDHRA PRADESH IN CIT VS. SMT. NAYANA P. DEDHIA (SUPRA) AND THE HONBLE HIGH COURT OF DELH I IN CIT VS. BEST PLASTICS (P) LTD. (SUPRA). IN VIEW THEREOF, WE HOLD THAT WHERE THE ASSESSING OFFICER HAS FAILED TO FOLLOW THE GUIDELINES ISSUED FOR SELECTING THE CASES FOR SCRUTINY AND IN THE FACTS OF THE PRESENT CASE, WHERE THE CASE WAS SELECTED MANUAL LY FOR SCRUTINY , BUT NO PREVIOUS APPROVAL OF CCIT WAS OBTAINED, THEN THE ASSESSING OFFICER LACKS JURISDICTION TO CARRY OUT THE SCRUTINY ASSESSMENT IN THE PRESENT CASE AND ACCORDINGLY, ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS BAD IN LAW. HENCE, WE HOLD SO. SINCE THE ASSESSMENT ORDER IS HELD TO BE BAD IN LAW, THE ISSUE ON MERITS BECOMES ACADEMIC ITA NO . 458 / PN /201 2 ITA NO. 605 /PN/201 2 M/S. S F CHOUGULE 13 AND THE GROUNDS OF APPEAL RAISED BY BOTH THE ASSESSEE AND THE REVENUE IN THEIR RESPECTIVE APPEALS ARE INFRUCTUOUS. THE APPEAL OF ASSESSEE IS THUS, ALLOWED AND THE APPEAL OF REVENUE IS DISMISSED. 1 6 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED AND THE APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNC ED ON THIS 21 ST DAY OF DECEM BER , 201 6 . SD/ - SD/ - ( ANIL CHATURVEDI ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; D ATED : 21 ST DECEM BER , 201 6 . GCVSR GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE A PPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE C I T (A), KOLHAPUR ; 4. / THE C I T - I / II, KOLHAPUR / CIT (CENTRAL), PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FIL E . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE