S.Murugan, CHENNAI V. ITO, CHENNAI

ITA 610/CHNY/2011

• Counselvise Citation: 61021714 RSA 2011
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR I VIJAYAKUMAR
• Assessee Lawyers: B SURESH
• Keywords: Principle of natural justice; Source of fund; Set aside; Audi alteram partem
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO. 610/MDS/2011 (ASSESSMENT YEAR : 2006-07 ) SHRI S.MURUGAN , NORTH MADA STREET VADAPALANI CHENNAI 600 026 VS THE INCOME TAX OFFICER BUSINESS WARD IV(3) CHENNAI [PAN AAGPM 1449M] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.SURESH, CA RESPONDENT BY : DR.I.VIJAYAKUMAR, CIT/DR DATE OF HEARING : 04-10-2011 DATE OF PRONOUNCEMENT : 10-10-2011 O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE, FOR ASSESSMENT YEAR 2006-07, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT, CHENNAI VI, DATED 23.3.2011 PASSED U/S 263 OF THE ACT. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT AS P ER THE AIR INFORMATION RECEIVED BY THE DEPARTMENT, IT WAS FOUN D THAT THE ASSESSEE HAD SOLD A PROPERTY IN THE YEAR UNDER REFE RENCE FOR A TOTAL ITA 610/2011 :- 2 -: CONSIDERATION OF ` 34 LAKHS. ENQUIRIES MADE BY THE ASSESSING OFFIC ER REVEALED THAT THE PROPERTY HAD BEEN PURCHASED AND S OLD IN ASSESSEES NAME, THUS THE INCOME ARISING FROM SUCH TRANSACTION IS REQUIRED TO BE TAXED IN ASSESSEES HANDS. AS PER THE LD. CIT, THE ASSESSING OFFICER HAS ACCEPTED ASSESSEES CONTENTION REGARDING THE EX ISTENCE OF AOP, WITHOUT VERIFYING THE FACTS PERTAINING TO THE ENTIR E TRANSACTION, THEREFORE, HE PROPOSED TO REVISE THE ASSESSMENT ORD ER DATED 31.12.2008 HOLDING IT TO BE ERRONEOUS AS WELL AS PR EJUDICIAL TO THE INTERESTS OF THE REVENUE IN SO FAR AS THIS ASPECT O F INCOME IS CONCERNED. AS AGAINST THE SHOW CAUSE NOTICE, THE A SSESSEE REPLIED AS UNDER: 1. IT IS NOT CORRECT TO STATE THAT THE A.O HAS NOT ENQUIRED INTO THE ISSUE OF EXISTENCE OF AOP. THE ASSESSEE R EFERS TO THE FACT THAT SWORN STATEMENT WAS RECORDED FROM SOM E OF THE MEMBERS OF THE AOP AND ALSO FROM THE ASSESSEE O N THIS POINT. THE ASSESSEE ALSO REFERS TO THE JOINT AFFIDAVIT BY MEMBERS DATED 11.12.2008 FILED BEFORE THE A.O. 2. THE SECOND CONTENTION RAISED IS THAT THE RETUR N OF INCOME OF AOP HAS BEEN FILED ON 29.12.2008 JUST BEF ORE THE ORDER WAS PASSED AND TAX WAS ALSO PAID SUBSEQUE NTLY ON AOPS LIABILITY. IT IS ARGUED THEREFORE, THAT SINCE TWO VIEWS ARE PO SSIBLE ON THE FACTS INVESTIGATED BY THE A.O, REVISION U/S 263 IS NOT POSSIBLE IN VIEW OF THE CASE LAWS ON THE SUBJECT SO ME OF WHICH WERE CITED. BY THE LAST SUBMISSION DATED 7.2 .2011, ADDITIONAL CONTENTION IS RAISED THAT SOME ADDITIONS HAVE BEEN MADE WHICH SHOULD NOT HAVE BEEN MADE AS THE CA SE IS A LIMITED SCRUTINY OF AIR INFORMATION IN VIEW OF THE BOARDS CIRCULAR DATED 8.9.2010. FURTHER, THE ASSE SSEE IS ALSO OBJECTING TO CHARGING OF INTEREST. ITA 610/2011 :- 3 -: 3. AFTER CONSIDERING THIS REPLY, ALBEIT THE LD. CIT H AS ACCEPTED THAT THE ASSESSING OFFICER HAS VERILY EXAMINED THIS ISSUE, YET HE HAS CONCLUDED THAT THE ASSESSING OFFICER DID NOT ENQUIR E INTO THE EXISTENCE OF AOP. WHILE SETTING ASIDE THE ASSESSMENT ORDER O N THIS ISSUE, HE HAS FURTHER OPINED THAT THE ASSESSING OFFICER NEEDS TO EXAMINE THE SOURCE OF INVESTMENTS MADE ALLEGEDLY BY DIFFERENT MEMBERS OF ALLEGED AOP, IN THIS PROPERTY. AGGRIEVED, THE ASSESSEE HAS RAIS ED THE FOLLOWING GROUNDS: 1.1 THE ORDER U/S 263 OF THE IT ACT, 1961 OF THE COMMISSIONER OF INCOME-TAX, CHENNAI VI PASSED WITHO UT JURISDICTION, IS ERRONEOUS, CONTRARY TO LAW AND FAC TS OF THE CASE, AND IS AGAINST THE PRINCIPLES OF EQUITY AND NATURAL JUSTICE AND HENCE LIABLE TO BE SET ASIDE AT THE THRESHOLD ITSEL F. 1.2 THE HON'BLE COMMISSIONER OF INCOME-TAX FAILED T O NOTE THAT THE ASSESSMENT ORDER WHICH IS THE SUBJECT MATT ER OF REVISION U/S 263 WAS ONLY A LIMITED SCRUTINY CASE SELECTED ON THE BASIS OF SALE OF PROPERTY AND THUS, AS PER THE INSTRUCTIONS OF THE CBDT 'THE SCRUTINY OF SUCH CASES WOULD BE LI MITED ONLY TO THE ASPECTS OF INFORMATION RECEIVED THROUGH AIR' (ANNUAL INFORMATION REPORT) AND HENCE THE DEPARTMENT CANNOT GO INTO ANY OTHER QUESTION INCLUDING THE SOURCE OF FUNDS FO R ~ PURCHASE IN AS MUCH AS THE INFORMATION ABOUT THE PU RCHASE WAS NOT THERE IN THE AIR. 1.3 THE HON'BLE CIT OUGHT TO HAVE APPRECIATED THAT THE QUESTION OF EXISTENCE OF THE AOP WAS CRITICALLY EXA MINED BY THE AO AFTER GOING INTO THE PROS AND CONS OF THE IS SUE AND ARRIVED AT THE CONCLUSION THAT THE AMOUNT OF CAPITA L GAIN OF RS.L,68,313 PROPOSED EARLIER IN THE COMMUNICATION D ATED 16.12.2008 CANNOT BE VALIDLY ASSESSED IN THE HANDS OF THE APPELLANT. THE HON'BLE CIT FAILED TO NOTE THAT SUCH A DECISION WAS TAKEN BY THE AO AFTER EXTENSIVE INVESTIGATION T AKING INTO ACCOUNT THE SWORN STATEMENTS ON OATH RECORDED FROM THE PRINCIPLE MEMBER AND OTHER MEMBERS, DECLARATION BY ALL THE MEMBERS, AFFIDAVITS FILED BY ALL THE MEMBERS OF THE AOP, PERUSING VARIOUS DOCUMENTS ETC. AND SO ON, WHICH AR E INDICATION OF APPLYING THE MIND AND HENCE THE COMMI SSIONER LACKS JURISDICTION IN INTERFERING WITH THE DECISION OF THE AO. ITA 610/2011 :- 4 -: 2.1 THE HON'BLE CIT OUGHT TO HAVE NOTED THE DECISIO N IN CIT VS. ARVIND JEWELLERS 259 ITR 502 (GUJ) IN WHICH IT WAS HELD THAT 'SINCE THE MATERIAL WAS THERE ON RECORD AND TH E SAID MATERIAL WAS CONSIDERED BY THE ITO AND A PARTICULAR VIEW WAS TAKEN, THE MERE FACT THAT A DIFFERENT VIEW CAN BE T AKEN SHOULD NOT BE THE BASIS FOR AN ACTION U/S 263 OF THE ACT AND IT CANNOT BE HELD TO BE JUSTIFIED.' ALSO PAUL MATHEWS & SONS 263 ITR 101 (KER) - GIRDHARILAL 258 ITR 231 (RAJ) MANGILAL DIDWANIA 286 ITR 126 (RAJ) . 2.2 THE HON'BLE CIT OUGHT NOT TO HAVE REFRAINED FRO M APPLYING HIS MIND ON THE DECISION IN MALABAR INDUSTRIAL CO.L TD VS CIT 243 ITR 83 THOUGH BROUGHT TO HIS NOTICE VIS-A.-VIS THE COPY OF AN APPELLATE ORDER IN ITA NO.729/MDS/2008 DATED 2.1 .2009 OF THE D BENCH OF THE HON ITAT, CHENNAI WHICH WAS ALSO SUPPLIED FOR RECORD PURPOSES IN WHICH THIS DECISION WAS APPLIED WHICH IS A VIOLATION OF THE PRINCIPLES OF N ATURAL JUSTICE. 2.3 THE HON'BLE COMMISSIONER OUGHT TO HAVE TAKEN NO TE OF THE FACT THAT THE TRANSACTION OF SALE EFFECTED IN T HE NAME OF HE APPELLANT REALLY BELONGED TO AN AOP K. VASU, RAMAYE E & 4 OTHERS IN WHICH THE APPELLANT WAS ONLY A MEMBER WIT H EQUAL SHARE AND THAT THE AOP HAS OFFERED THE INCOME IN TH E TRANSACTION AND PAID TAXES THEREON. AN ASSESSMENT OF THE SAME INCOME CANNOT BE MADE ON ANOTHER ENTITY WITHOU T CANCELING THE ASSESSMENT OF THE FORMER AS IT WOULD AMOUNT TO TAXING THE SAME INCOME TWICE - CIT VS. NUTHERN (P) LTD 284 ITR 396 (GUJ). 2.4 THE COMMISSIONER FAILED TO NOTE THAT AS THINGS STAND AT PRESENT THERE IS NO LOSS OF REVENUE IN AS MUCH AS T HE SAME INCOME HAS ALREADY BEEN ASSESSED IN THE HANDS OF TH E AOP AS THE RATE OF TAX FOR BOTH THE INDIVIDUAL AND AOP IS THE SAME. 3. FOR THE ABOVE AND FOR SUCH OTHER GROUNDS THAT M AY BE BROUGHT AT THE TIME OF HEARING THE ORDER OF THE CIT MAY BE QUASHED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE P ERUSED THE ENTIRE MATERIAL AVAILABLE ON RECORD. REGARDIN G LACK OF JURISDICTION, ITA 610/2011 :- 5 -: THE LD.AR WAS NOT SERIOUS AND HE DID NOT PRESS THIS ISSUE, HENCE, GROUNDS ON JURISDICTION STAND DISMISSED AS NOT PRES SED. 5. ON MERITS, IT WAS ARGUED THAT THE ORDER IS NEITHER ERRONEOUS NOR CAN BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE WHEN IT HAS BEEN FRAMED CORRECTLY BY FOLLOWING THE PROVI SIONS OF THE ACT. 6. WE HAVE HEARD BOTH SIDES IN DETAIL. WE HAVE ALSO P ERUSED CAREFULLY THE ENTIRE EVIDENCES AVAILABLE ON RECORD. IT IS TRITE THAT AN ORDER CAN BE REVISED ONLY AND ONLY IF TWIN CONDITIO NS OF ERROR IN THE ORDER AND PREJUDICE CAUSED TO THE REVENUE CO-EXI ST. 7. THE SUBJECT OF REVISION UNDER SECTION 263 HAS BEE N VASTLY EXAMINED AND ANALYZED BY VARIOUS COURTS INCLUDING T HAT OF HONBLE APEX COURT. THE REVISIONAL POWER CONFERRED ON THE CIT VIDE SECTION 263 IS OF VIDE AMPLITUDE. IT ENABLES THE CIT TO CA LL FOR AND EXAMINE THE RECORDS OF ANY PROCEEDING UNDER THE ACT. IT EM POWERS THE CIT TO MAKE OR CAUSE TO BE MADE SUCH AN ENQUIRY AS HE DEEM S NECESSARY IN ORDER TO FIND OUT IF ANY ORDER PASSED BY ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE ONLY LIMITATION ON HIS POWERS IS THAT HE MUST HAVE SOME MATERIAL(S) WHICH WOULD ENABLE HIM TO FORM A PRIMA FACIE OPINION THAT THE ORDER PASSED ITA 610/2011 :- 6 -: BY THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. ONCE HE COMES TO THE ABOV E CONCLUSION ON THE BASIS OF THE MATERIAL THAT THE ORDER OF THE A SSESSING OFFICER IS ERRONEOUS AND ALSO PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE CIT IS EMPOWERED TO PASS AN ORDER AS THE CIRCUMSTANCES OF THE CASE MAY WARRANT. HE MAY PASS AN ORDER ENHANCING THE ASSESS MENT OR HE MAY MODIFY THE ASSESSMENT. HE IS ALSO EMPOWERED TO CAN CEL THE ASSESSMENT AND DIRECT TO FRAME A FRESH ASSESSMENT. HE IS EMPOWERED TO TAKE RECOURSE TO ANY OF THE THREE COURSES INDICA TED IN SECTION 263. SO, IT IS CLEAR THAT THE CIT DOES NOT HAVE UNFETTER ED AND UNCHEQURED DISCRETION TO REVISE AN ORDER. THE CIT IS REQUIRED TO EXERCISE REVISIONAL POWER WITHIN THE BOUNDS OF THE LAW AND HAS TO SATIS FY THE NEED OF FAIRNESS IN ADMINISTRATIVE ACTION AND FAIR PLAY WIT H DUE RESPECT TO THE PRINCIPLE OF AUDI ALTERAM PARTEM AS ENVISAGED IN TH E CONSTITUTION OF INDIA AS WELL AS IN SECTION 263. AN ORDER CAN BE TREATED AS ERRONEOUS IF IT WAS PASSED IN UTTER IGNORANCE OR IN VIOLATION OF ANY LAW; OR PASSED WITHOUT TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS OR BY TAKING INTO CONSIDERATION IRRELEVANT FACTS. THE PREJUDICE TH AT IS CONTEMPLATED UNDER SECTION 263 IS THE PREJUDICE TO THE INCOME TA X ADMINISTRATION AS A WHOLE. THE REVISION HAS TO BE DONE FOR THE PURPO SE OF SETTING RIGHT DISTORTIONS AND PREJUDICES CAUSED TO THE REVENUE IN THE ABOVE CONTEXT. THE FUNDAMENTAL PRINCIPLES WHICH EMERGE FROM THE SE VERAL CASES ITA 610/2011 :- 7 -: REGARDING THE POWERS OF THE CIT UNDER SECTION 263 M AY BE SUMMARIZED BELOW: (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDE R OF THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO T HE INTERESTS OF THE REVENUE. BOTH THE CONDITIONS MUS T BE FULFILLED. (II) SECTION 263 CANNOT BE INVOKED TO CORRECT EAC H AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ONLY WHEN AN ORDER IS ERRONEOUS, THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORR ECT APPLICATION OF LAW WILL SUFFICE FOR THE REQUIREME NT OR ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND, SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORD ER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE AND IF THE ASSESSING OF FICER HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LA W OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VIEW UNDER WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOU S ORDER, UNLESS THE VIEW TAKEN BY THE ASSESSING OFFIC ER IS UNSUSTAINABLE UNDER THE LAW. ITA 610/2011 :- 8 -: (VI) IF WHILE MAKING THE ASSESSMENT, THE ASSE SSING OFFICER EXAMINES THE ACCOUNTS, MAKES ENQUIRIES, APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINES THE INCOME, THE CIT, WHILE EXERCISING HI S POWER UNDER SECTION 263, IS NOT PERMITTED TO SUBSTI TUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIM ATED BY THE ASSESSING OFFICER. (VII) THE ASSESSING OFFICER EXERCISE QUASI-JUDICIA L POWER VESTED IN HIM AND IF HE EXERCISE SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVES AS A CONCLUSION, SU CH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEEL SATISFIED WITH THE CONCLUSION. (VIII) THE CIT, BEFORE EXERCISING HIS JURISDICTION UNDER SECTION 263, MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION. (IX) IF THE ASSESSING OFFICER HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANAT ION BE A LETTER IN WRITING AND THE ASSESSING OFFICER AL LOWED THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION O F THE ASSESSEE, THE DECISION OF THE ASSESSING OFFICER CAN NOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGAR D. ITA 610/2011 :- 9 -: 8. REVERTING TO THE FACTS OF THIS CASE, IT WAS FOUND F OR CERTAIN THAT THE ASSESSING OFFICER HAS EXAMINED ALL THE ASP ECTS OF THIS ISSUE AND U/S 263 OF THE ACT, AN ORDER CAN BE REVISED IF AND ONLY IF THE TWIN CONDITIONS STATED ABOVE CO-EXIST IN A GIVEN CASE. IN THIS CASE, THE ASSESSING OFFICER HAS EXAMINED THE ISSUE FROM ALL A NGLES, THEREFORE, THE ORDER CANNOT BE SAID TO BE ERRONEOUS ON ACCOUNT OF NON- APPLICATION OF MIND, AND HENCE, ONE OF THE TWIN CON DITIONS PRECEDENT TO REVISE AN ORDER IS MISSING. RESULTANTLY, THE AS SESSMENT ORDER IN QUESTION CANNOT BE REVISED. THE ASSESSEE SUCCEEDS ON MERITS. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED ON MERITS BUT STANDS DISMISSED ON LEGAL GRO UNDS. ORDER PRONOUNCED IN THE OPEN COURT O N 10.10.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 10 TH OCTOBER, 2011 RD COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR