K.Sudhakar Reddy, Hyderabad V. ACIT, Hyderabad

ITA 624/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66435 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 28-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPT
• Assessee Lawyers: PAUL D J RATNAM
• Keywords: Revised return
• Section: 40A(3); 143(3); 263; 63; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 624/HYD/2010 ASSESSMENT YEAR : 2005-06 SHRI K. SUDHAKAR REDDY, APPELLANT HYDERABAD. (PAN AJZPK3073B) VS. ASST. INCOME-TAX OFFICER, RESPONDENT CIRCLE 4(1), HYDERABAD APPELLANT BY : SHRI PAUL D.J. RATNAM RESPONDENT BY : SMT. AMISHA S. GUPT DATE OF HEARING : 17/10/2012 DATE OF PRONOUNCEMENT : 07/11/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF CIT-IV, HYDERABAD DATED 13/06/2008, PASSED U/S 2 63 OF THE ACT, FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS AN INDIVIDUAL RUNNING INSTITUTES IN THE NAME AND STYLE OF I) SUBHODAYA INSTITUTE OF INSURANCE EDUCATION AND TRAINING AND I I) IT ASSOCIATES, FILED HIS RETURN OF INCOME ORIGINALLY ON 17/10/2005 FOR THE YEAR UNDER CONSIDERATION ADMITTING LOSS OF RS. 21,80,940 /-. ON 22/11/2007, THE ASSESSEE FILED A REVISED RETURN ADM ITTING A LOSS OF 2 ITA NO. 624/HYD/2010 SRI K. SUDHAKAR REDDY RS. 21,31,786/-. THE RETURN OF INCOME WAS PROCESSED U/S 143(1) ON 13/07/2006 AND REFUND OF RS. 2,41,947/- WAS ISSUED. SUBSEQUENTLY, THE RETURN WAS SELECTED FOR SCRUTINY. AFTER ISSUIN G THE STATUTORY NOTICES, THE AO COMPLETED ASSESSMENT U/S 143(3) OF THE ACT, DISALLOWING A SUM OF RS. 2,62,825/- U/S 40A(3) OF T HE ACT AND ADDED THE SAME TO INCOME OF THE ASSESSEE. 3. THEREAFTER, THE CIT ISSUED NOTICE U/S 263 OF THE ACT ON 15/02/2010 HOLDING THAT THE ASSESSMENT ORDER DATED 28/12/2007 PASSED BY THE AO WAS BOTH ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE IN SO FAR AS THE ASSESSEE DID NOT OFFER TO TAX THE PROFESSIONAL RECEIPTS OF RS. 7,36,555/- AND THE AO HAD OMITTED TO EXAMINE THE MATERIAL POINTS AND ALLOWED THE ASSESSEES CLAIM. 4. BEFORE THE CIT, THE ASSESSEE DURING THE COURSE O F HEARING, THAT THE AMOUNT OF RS. 7,36,555/- IN FACT BELONGED TO TH E NEXT ASSESSMENT YEAR AND WAS OFFERED TO TAX AS SUCH. FUR THER, IT WAS EXPLAINED THAT THOUGH BY MISTAKE THIS AMOUNT WAS SH OWN IN THE LEDGER ACCOUNT AS RECEIVABLE AND THEN DELETED BY WA Y OF A JOURNAL ENTRY SETTING RIGHT THE MISTAKE, IT WAS RIGHT BY NO T SHOWN AS RECEIVABLE IN THE BALANCE SHEET OF THE RELEVANT AY 2005-06. 5. THE CIT AFTER EXAMINING THE RECEIPTS FOR THE SUB SEQUENT YEAR AY 2006-07 AND ALSO EXAMINING THE COURSE DETAILS & FEE STRUCTURE FURNISHED BY THE ASSESSEE DURING THE ASSESSMENT PRO CEEDINGS BEFORE THE AO AND ALSO STATING THAT THE METHOD OF ACCOUNTI NG OF THE ASSESSEE IS MERCANTILE, REJECTED THE EXPLANATION OF THE ASSESSEE AND 3 ITA NO. 624/HYD/2010 SRI K. SUDHAKAR REDDY CONSEQUENTLY DIRECTED THE AO TO BRING TO TAX THE AB OVE SUM OF RS. 7,36,555/-. 6. FURTHER, DURING THE COURSE OF HEARING, THE CIT A SKED THE ASSESSEE TO EXPLAIN THE DEBIT ENTRY OF RS. 20 LAKHS IN THE CASH BOOK ON 22/02/2004. THE ASSESSEE, IN REPLY, WAS UNABLE T O ANSWER IMMEDIATELY, BUT, LATER ON PRODUCED A LETTER FROM L IC HOUSING FINANCE IN SUPPORT OF A LOAN OF RS. 40 LAKHS. THE C IT STATING THAT THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE WITH RESPECT TO THE SAID LOAN DIRECTED THE AO TO EXAMINE CASH DEPOSIT OF RS. 20 L AKHS AND IF NOT SATISFIED WITH THE ASSESSEES EXPLANATION TO BRING THE SAME TO TAX. 7. FURTHER, DURING THE COURSE OF HEARING, THE CIT N OTICED THAT THE ASSESSEE HAD STARTED TRAINING CENTRE AT MUMBAI AND DID NOT SHOW ANY RECEIPTS FROM THE CENTRE. HE, THEREFORE, DIRECT ED THE AO TO BRING TO TAX THE RECEIPTS, IF ANY, EARNED BY THE AS SESSEE AFTER EXAMINATION. 8. AGGRIEVED, BY THE ORDER OF THE CIT, THE ASSESSEE IS IN APPEAL BEFORE US ON THREE COUNTS, NAMELY, I) BRINGING TO T AX THE PROFESSIONAL RECEIPTS OF RS. 7,36,555/-, II) BRINGI NG TO TAX CASH CREDIT OF RS. 20 LAKHS, IF THE EXPLANATION OF THE A SSESSEE IS UNSATISFACTORY, AND III) BRINGING TO TAX, RECEIPTS, IF ANY, FROM MUMBAI TRAINING INSTITUTE. 9. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SHRI PAUL D.J. RATNAM BROUGHT TO OUR NOTICE WITH RESPECT TO CASH C REDIT OF RS. 20 LAKHS AND RECEIPTS FROM THE MUMBAI TRAINING INSTITU TE, THAT THE CIT WHILE EXAMINING THE BOOKS OF ACCOUNT DURING THE COU RSE OF HEARING 4 ITA NO. 624/HYD/2010 SRI K. SUDHAKAR REDDY MENTIONED ABOUT THE SAID TWO ISSUES AND FINALLY IN THE ORDER PASSED U/S 263, THE CIT GAVE CERTAIN DIRECTIONS TO THE AO. IN THIS CONNECTION, THE LEARNED COUNSEL FOR THE ASSESSEE PO INTED OUT THAT THE CIT WHEN HE ASSUMED JURISDICTION U/S 263 AND IS SUED NOTICE ON 15/02/2010, THESE TWO ISSUES WERE NOT UNDER CONSIDE RATION, BUT, THE ONLY ISSUE IN THE NOTICE WAS THE PROFESSIONAL RECEIPTS OF RS. 7,36,555/-. THE LEARNED COUNSEL FOR THE ASSESSEE, T HEREFORE, CONTENDED THAT THE MATERIAL RELATING TO THE SAID TW O ISSUES WERE NOT AVAILABLE BEFORE THE CIT WHILE EXAMINING THE RECORD , THEREFORE, THE LEARNED CIT IS NOT ENTITLED TO EXERCISE JURISDICTIO N U/S 263 IN RELATION TO THE SAID TWO ISSUES. FOR THIS PROPOSITION, THE L EARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE ITAT, HYDERABAD IN THE CASE OF M/S AP BEVERAGES CORPORATION VS. DY. CIT IN ITA NO. 395/HYD/06, DATED 23/07/2009. 10. ON THE OTHER HAND, THE LEARNED DR COULD NOT DEF END THE ORDER OF THE CIT. 11. AFTER HEARING THE ARGUMENTS OF BOTH THE PARTIES AND PERUSING THE RECORD, WE ARE OF THE VIEW THAT THE CIT WHILE A CTING U/S 263 TRAVELED BEYOND THE SHOW CAUSE NOTICE ISSUED BY HIM , AS THE CIT HAS TO CONFINE HIMSELF TO THE ISSUES MENTIONED IN T HE SHOW CAUSE NOTICE. IN THIS CONNECTION, THE JURISDICTIONAL CO- ORDINATE BENCH IN THE CASE OF AP BEVERAGES CORPORATION (SUPRA) HELD A S FOLLOWS: IT IS AN ADMITTED FACT THAT WHEN THE NOTICE WAS FIR ST ISSUED UNDER S. 263 ON 10/10/2005, IT WAS SO ISSUED FOR RE ASONS NOTED IN PARA 3 ABOVE, WHICH HAVE NOTHING TO DO WIT H DISALLOWANCE IN RESPECT OF SPORTS PRIVILEGE FEE UND ER THE AP EXCISE ACT. IT WAS ONLY IN THE FURTHER NOTICE DATED 02/02/2006 ISSUED BY THE CIT U/S 263, THAT THE ASSESSEE WAS CA LLED UPON TO OFFER OBJECTIONS, IF ANY, AGAINST DISALLOWANCE O F RS. 5.90 5 ITA NO. 624/HYD/2010 SRI K. SUDHAKAR REDDY CRORES DEDUCTED BELOW THE LINE AS PRIOR YEAR EXPENS ES. THUS, AT THE TIME WHEN THE CIT WAS PERUSING THE RECORDS AND ISSUED NOTICE U/S 263 OF THE ACT, THE ISSUE RELATING TO DI SALLOWANCE IN RESPECT OF SPORTS PRIVILEGE FEE WAS NOT THE MATERIA L/RECORD THAT PROMPTED THE INITIATION OF PROCEEDINGS U/S 263 OF T HE ACT. AS PER CLAUSE (B0 OF SUB-SECTION (1) OF S. 263, THE CI T MAY EXAMINE THE RECORD RELATING TO ANY PROCEEDINGS UNDE R THE ACT, AVAILABLE AT THE TIME OF EXAMINATION BY HIM. THAT B EING SO, WE SEE SOME FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE MATERIAL RELATING TO SPORTS PRIVILEGE FEE, IN RELAT ION TO WHICH NOTICE U/S 263 WAS ISSUED ONLY SUBSEQUENTLY ON 02/0 2/2006, WAS NOT BEFORE THE CIT WHILE EXAMINING THE RECORD, AND AS SUCH EXERCISE OF JURISDICTION U/S 263 IN RELATION T O THAT ISSUE IS NOT VALID. 12. FURTHER, THE ITAT, CHENNAI B BENCH IN THE CA SE OF SSI LTD. VS. DCIT, [2004] 85 TTJ (CHENNAI) 1049, HELD AS UND ER:- JUST AS THE RECORDING OF REASONS IS THE VERY BASIS FOR ASSUMPTION OF JURISDICTION U/S 147, IN RESPECT OF A PROCEEDING U/S 263, THE BEDROCK ON WHICH THE ENTIRE PROCEEDING RESTS IS THE SHOW-CAUSE NOTICE AND SO THE PROCEEDING U/S 263 HAS TO BE STRICTLY CONFINED TO THE NOTICE ISSUED INVOKING THE JURISDICTION U/S 263 FOR THE REASONS STATED THEREIN. HENCE, WHET HER THE IMPUGNED ASSESSMENT ORDER IS ERRONEOUS AND PREJUDIC IAL TO THE INTERESTS OF THE REVENUE HAD TO BE JUDGED ONLY WITH REFERENCE TO THE REASONS STATED THEREIN. ADMITTEDLY, IN THE S HOW-CAUSE NOTICE, THERE IS NO MENTION THAT THE INCREASE CAUSE D BY EXCHANGE FLUCTUATION WAS OF A REVENUE NATURE AND SO HAD TO BE TAXED AS INCOME. THE LETTER DT. 21 ST JAN., 2004 WAS NOT SIGNED BY THE CIT HIMSELF BUT BY SOME OTHER OFFER ON HIS B EHALF WHICH SHOWED THAT IT WAS ONLY A LETTER AND NOT SHOW CAUSE NOTICE AND THIS MISTAKE WAS NOT CURABLE ONE AS ENUMERATED IN S . 292B. THE QUESTION AS TO WHETHER THE INCREASE DUE TO THE EXCHANGE FLUCTUATION WAS REVENUE IN NATURE WAS NOT EVEN IN T HE OF THE CIT WHEN HE HAD ISSUED THE NOTICE. HENCE, AS THIS I SSUE WAS NOT PART OF THE SHOW-CAUSE NOTICE DT. 22 ND DEC., 2003, IT IS IMPERMISSIBLE TO EXPAND THE SAID NOTICE BY RESORT T O LETTERS AS HEREIN DONE, FOR IF THAT BE SO, THEN THERE WOULD BE NO END TO THE PROCEEDING AND IT WILL GO ON GETTING EXPANDED A ND EXPANDED WHICH IS NOT PERMISSIBLE UNDER LAW. THE LA W DOES NOT PERMIT EXPANDING PROCEEDINGS U/S 263 AFTER ITS INIT IATION BEYOND WHAT IS STATED IN THE NOTICE ITSELF. HAVING FAILED TO 6 ITA NO. 624/HYD/2010 SRI K. SUDHAKAR REDDY SPECIFY THIS ITEM IN THE SHOW-CAUSE NOTICE, THE SAM E COULD NOT BE ADDED BY ISSUE OF LETTER DT. 21 ST JAN., 2004 AND SO THE SAME COULD NOT HAVE BEEN CONSIDERED IN THE PROCEEDINGS U /S 263. FINALLY, THE BENCH CONCLUDED THAT PROCEEDING U/S 26 3 HAS TO BE STRICTLY CONFINED TO THE NOTICE ISSUED INVOKING THE JURISDICTION UNDER THAT SECTION FOR THE REASONS STATED THEREIN; LAW DOES NOT PERMIT EXPANDING PROCEEDINGS U/S 263 AFTER ITS INIT IATION BEYOND WHAT IS STATED IN THE NOTICE ITSELF. 13. IN VIEW OF THE ABOVE DISCUSSION, THE ORDER OF C IT U/S 263 IS SET ASIDE, ON THE ISSUE OF BRINGING TO TAX OF RS. 20 LA KHS ON ACCOUNT OF CASH CREDIT AND TO TAX RECEIPTS, IF ANY, FROM MUMBA I TRAINING INSTITUTE, AND THE SAME IS TREATED AS INVALID ON TH ESE COUNTS. 14. WITH RESPECT TO THE ORDER OF THE CIT PASSED U/S 263 TO BRING TO TAX OF RS. 7,36,555/- ON ACCOUNT OF PROFESSIONAL RE CEIPTS, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE OFFERED TO TAX THE RECEIPTS OF R$S. 7,36,555/- RIGH TLY FOR THE AY 2006-07, AS FROM THE LEDGER A/C OF PROFESSIONAL & CONSULTATION FEES FOR THE PERIOD 01/04/2004 TO 31/03/2005 (AY 2005-06 ), THE LAST ENTRY DATED 31/03/2005 READS AS BEING CONSULTATION CHARGES RECEIVABLE RS. 7,36,555/- (BY JOURNAL ENTRY NO. 230 ). IT IS FURTHER SUBMITTED THAT THERE IS ANOTHER ACCOUNT BY THE SAME NAME PROFESSIONAL & CONSULTATION FEES WITH A SINGLE CO NTRA ENTRY DATED 31/03/2005 NULLIFYING THIS AMOUNT OF RS. 7,36,555/- ( BY THE SAME JOURNAL ENTRY NO. 230). IT IS, THEREFORE, SUBMITTED THAT CONSEQUENTLY THE ASSESSEE NEITHER OFFERED THIS AMOUNT TO TAX FOR THE AY 2005-06 NOR SHOWN IN THE BALANCE SHEET AS RECEIVABLE AND RIGHTLY SO. HE EXPLAINED THE REASON FOR CONTRA ENTRY WAS THAT THE ABOVE AMOUNT WAS RECEIVED IN THE FY 2005-06 (AY 2006-07 AS EVIDE NT FROM THE TDS CERTIFICATES WHICH ARE AS FOLLOWS: 7 ITA NO. 624/HYD/2010 SRI K. SUDHAKAR REDDY DATE OF TDS CERTIFICATE AMOUNT (IN RS) 11/05/2005 27,550 04/04/2005 1,44,690 08/04/2005 1,10,160 11/04/2005 77,955 13/04/2005 1,17,120 22/04/2005 2,59,230 TOTAL 7,36,555 ====== 15. IT IS SUBMITTED THAT AS THE ENTIRE SUM OF RS. 7 36,555/- IS RECEIVED IN FY 2005-06, THE SAME IS OFFERED TO TAX IN THE AY 2006- 07 WHICH WAS SPECIFICALLY EXAMINED BY THE AO AND AC CEPTED AS SUCH BY HIM AS EVIDENT IN THE ASSESSMENT ORDER DATED 19/ 12/2008 ITSELF, WHICH IS EXTRACTED AS UNDER: THE ASSESSEE ADMITTED RECEIPTS IN SUBHODH INSTITUTE OF INSURANCE EDUCATION AND TRAINING AT RS. 41,26,780/- (INCLUDING OUTSTANDING RECEIPTS OF RS. 7,36,555/-. 16. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CL ARIFIED THAT THE METHOD OF ACCOUNTING APPLIES IS MERCANTILE AND TH E ASSESSEE ADMITTED THE INCOME AS AND WHEN INVOICES ARE RAISED AGAINST THE CLIENTS AND IN CASE NO SUCH INVOICES ARE RAISED, TH E INCOME IS ADMITTED AS AND WHEN THE AMOUNTS ARE ACTUALLY RECEI VED. HE POINTED OUT THAT IN RESPECT OF THE ABOVE SUM OF RS. 7,36,55 5/-, NO INVOICES RAISED AND THEREFORE THE INCOME WAS ADMITTED AS AND WHEN THE AMOUNTS WERE RECEIVED WHICH WAS FY 2005-06 (AY 2006 -07 AS EVIDENCED BY THE TDS CERTIFICATES. 17. THE LEARNED COUNSEL MENTIONED THAT IT IS IN FAC T DETRIMENTAL TO THE ASSESSEES INTERESTS TO POSTPONE OFFER OF INCOM E TO THE SUBSEQUENT YEAR FOR THE SIMPLE REASON THAT THE ASSE SSEE CLAIMED A BUSINESS LOSS OF RS. 21,31,786/- IN THE RETURN OF I NCOME FILED BY HIM FOR THE RELEVANT AY 2005-06, WHICH WOULD HAVE OBVIO USLY ABSORBED 8 ITA NO. 624/HYD/2010 SRI K. SUDHAKAR REDDY THE INCOME OF RS. 7,36,555/- WITHOUT LEAVING ANY TA X LIABILITY AND FURTHER WITH AN ADVANTAGE IN TERMS OF TIME PERIOD F OR C/F OF BUSINESS LOSSES. 18. FINALLY, THE LEARNED COUNSEL FOR THE ASSESSEE EARNESTLY PRAYED THAT THE ADDITION OF RS. 7,36,555/- DIRECTED BY THE CIT U/S 263 BE SET ASIDE AND ORDERED TO BE DELETED. THE LEARNED CO UNSEL FOR THE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE DE LHI HIGH COURT IN THE CASE OF JINDAL DRILLING AND INDUSTRIES LTD. VS. CIT [2008]301 ITR 304 (DELHI). 19. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHO RITIES BELOW. WE FIND FROM THE ASSESSMENT ORDER DATED 09/12/2008 FOR AY 2006-07, A SUM OF RS. 7,36,555/- WAS OFFERED TO TAX BY THE ASS ESSEE AND ASSESSED AS SUCH BY THE AO. THE CIT PASSED THE ORDE R U/S 263 DIRECTING THE AO TO BRING TO TAX THE SAID SUM OF RS . 7,36,555/- FOR THE AY 2005-06, WHICH IS THE YEAR UNDER CONSIDERATI ON. IN THIS CASE, THERE IS NO DISPUTE THAT THE ASSESSEE IS FOLL OWING MERCANTILE ACCOUNTING SYSTEM AND IF THE IMPUGNED AMOUNT OF RS. 7,36,555/- IS ACCRUED DURING THE YEAR UNDER CONSIDERATION, THE SA ME IS TO BE OFFERED TO TAX. THUS, THE ASSESSING OFFICER IS DIRE CTED TO EXAMINE WHETHER THIS RECEIPT OF RS. 7,36,555/- IS ACCRUED T O THE ASSESSEE OR NOT IN THE YEAR UNDER CONSIDERATION AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. THUS, THIS GROUND IS ALLOWED F OR STATISTICAL PURPOSES. 9 ITA NO. 624/HYD/2010 SRI K. SUDHAKAR REDDY 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 07/11/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAY ARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 7 TH NOVEMBER, 2012 KV COPY TO:- 1) SRI K. SUDHAKAR REDDY, C/O B. NARSING RAO & CO., CA S. NO. 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD 500 001. 2) ACIT, CIRCLE 4(1), HYDERABAD 3) THE CIT-IV, HYDERABAD 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.