M/s Hill Crest foods, Solan V. Pr. CIT, Shimla

ITA 805/CHANDI/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5359 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 11-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GULSHAN RAI
• Assessee Lawyers: RAJEEV SAHAI
• Keywords: Bogus purchase; Income from undisclosed sources; Revenue expenditure
• Section: 40A(3); 143(3); 263; 63; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH A, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.805/CHD/2017 (ASSESSMENT YEAR : 2012-13) M/S HILLCREST FOODS, VS. THE PR.COMMISSIONER OF INCOME TAX, PLOT NO.12, SECTOR-3, SHIMLA. PARWANOO, DISTT. SOLAN (HP). PAN: AAEFH2773F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAJEEV SAHAI RESPONDENT BY : SHRI GULSHAN RAI, DR DATE OF HEARING : 10.10.2017 DATE OF PRONOUNCEMENT : 08.01 .2018 ORDER PER ANNAPURNA GUPTA, A.M. : THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER OF LD. PR. COMMISSIONER OF INCOME TAX, SH IMLA (HEREINAFTER REFERRED TO AS PR.CIT) DATED 1.3.201 7,PASSED U/S 263 OF THE INCOME TAX ACT,1961(IN SHORT THE AC T) RELATING TO ASSESSMENT YEAR 2012-13. 2. BRIEFLY STATED, THE ASSESSEE IS ENGAGED IN THE B USINESS OF FROZEN FOODS PROCESSING AND PRESERVATION, AND PA CKAGING OF FRUITS AND VEGETABLES. IT HAS TWO UNITS BOTH IN PARWANOO AND HAD CLAIMED DEDUCTION U/S 80 IC OF THE ACT. THE IMPUGNED YEAR WAS THE SIXTH YEAR OF COMMENCEMENT OF COMMERCIAL PRODUCTION/MANUFACTURING. INCOME RETURNE D TO TAX FOR THE IMPUGNED ASSESSMENT YEAR WAS ASSESSED U /S 2 143(3) OF THE ACT AND ONE OF THE ADDITIONS MADE WAS ON ACCOUNT OF HOLDING CASH PURCHASES MADE BY THE ASSES SEE, TO THE TUNE OF RS.3,72,38,244/-, AS BOGUS AND THEREAFT ER TREATING THE PROFIT ATTRIBUTABLE TO THE SAME AS INC OME FROM UNDISCLOSED SOURCES, NOT ELIGIBLE FOR DEDUCTION U/ S 80 IC OF THE ACT. 3. THE LD. PR. CIT SET ASIDE THE ORDER OF THE ASSES SING OFFICER AND DIRECTED HIM TO PASS A FRESH ORDER SINC E HE FOUND THE ORDER ERRONEOUS SO AS TO CAUSE PREJUDICE TO THE REVENUE, ON ACCOUNT OF THE FACT THAT DESPITE GIVING A CATEGORICAL FINDING IN THE ORDER THAT THE ASSESSEE HAD VIOLATED PROVISIONS OF SECTION 40A(3) OF THE ACT BY MAKING CASH PAYMENTS ON ACCOUNT OF THE PURCHASES OF RS.3,72,38,244/-,IN EXCESS OF THE SPECIFIED LIMITS, AND DISALLOWING THE SAID SUM, THE ASSESSING OFFICER HAD MADE DISALLOWANCE ONLY OF RS.83,82,787/-, BY TREATING TH E SAID PURCHASES AS BOGUS AND DISALLOWING ONLY THE NET PRO FIT ATTRIBUTABLE TO IT. SHOW CAUSE NOTICE WAS ISSUED T O THE ASSESSEE BY THE LD. PR. CIT, IN RESPONSE TO WHICH T HE ASSESSEE FILED HIS REPLY WHICH IS REPRODUCED IN PAR A 3 OF THE ORDER OF THE LD. PR. CIT. THE MAIN CONTENTIONS RAI SED BY THE ASSESSEE BEFORE THE LD. PR. CIT WERE THAT THE I SSUE WAS SUBJECT MATTER OF APPEAL BEFORE THE CIT(APPEALS) AN D, THEREFORE, WAS NOT AMENABLE TO REVISION U/S 263 OF THE ACT. IT WAS ALSO CONTENDED THAT IDENTICAL DISALLOWANCE H AD BEEN MADE BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 20 10-11 ALSO WHICH HAD BEEN CONFIRMED BY THE CIT(APPEALS) I N 3 APPEAL AND FURTHER THAT IN ASSESSMENT YEAR 2011-12 NO SUCH DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF CASH PURCHASES MADE BY THE ASSESSEE. IT WAS ALSO CONTENDED THAT THE ASSESSING OFFICER HAD APPLI ED HIS MIND TO THE ISSUE AND TAKEN A POSSIBLE VIEW AND, TH EREFORE, ALSO THE SAID ORDER COULD NOT BE HELD TO BE ERRONEO US MERELY BECAUSE ANOTHER VIEW WAS POSSIBLE. THE LD. CIT (AP PEALS) REJECTED ALL THE CONTENTIONS RAISED BY THE ASSESSEE AND SET ASIDE THE ORDER OF THE ASSESSING OFFICER HOLDING IT TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE, & DIRECTING HIM TO PASS ASSESSMENT ORDER A FRESH. 4. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US, RAISING FOLLOWING GROUNDS: 1. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME-TAX, SH IMLA HAS ERRED IN PASSING AN ORDER U/S. 263 OF I.T. ACT, 1961 C ANCELLING THE ASSESSMENT ORDERPASSEDU/S.143(3) OF THE I.T. ACT , 1961 DT.31.03.2015 HOLDING THE SAME AS ERRONEOUS AND PRE JUDICIAL TO THE INTEREST OF THE REVENUE. 2. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME-TAX, SH IMLA HAS ERRED IN HOLDING THE A.O. HIMSELF IN THE ASSESSMENT ORDER HAS HELD THAT PURCHASES MADE TO THE EXTENT OF RS.3,72,7 8,244/- ARE MADE IN CASH IN VIOLATION OF SECTION 40A(3) OF T HE ACT R.W.R. 6DD(E) OF THE INCOME TAX RULES, 1962 BUT M ADE AN ADDITION/DISALLOWANCE OF RS.83,82,744/-, THEREBY NOT MAKING FURTHER DISALLOWANCE/ADDITION OF RS.2,88,95,457/- (I.E. RS.3,72,78,244/- (-) 83,82,744/-) WHICH MAKES THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER ER RONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVEN UE, THEREFORE AMENABLE TO THE PROVISION OF SEC.263 OF TH E ACT. 3. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME-TAX, SHIMLA HAS ERRED IN NOT APPRECIATING THE FACT THAT NO DISALLOW ANCE U/S 40A(3)OF THE ACT WAS MADE BY THE ASSESSING OFFICER SINCE THERE WAS NO PAYMENT MADE IN VIOLATION THEREOF. IN F ACT THE ASSESSING OFFICER HAS NOT IDENTIFIED ANY PAYMENT OR AGGREGATE OF PAYMENT MADE TO A PERSON IN A DAY OTHER WISE THAN BY ACCOUNT PAYEE CHEQUE OR ACCOUNT PAYEE DRAFT DRAWN ON BANK EXCEEDING RS. 20,000/- 4. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME-TAX, SH IMLA HAS ERRED IN IGNORING THE FACT THAT THE ASSESSING OFFIC ER HAS 4 APPLIED HIS MIND IN RESPECT OF CASH PURCHASES AND F ELT THAT THE ADDITION MADE SOLELY U/S 40A(3) MAY NOT BE SUSTA INED, DUE TO INHERENT INFIRMITY, THEREFORE, HE CHOSE OTHE R COURSE OF ACTION BY CONSIDERING THE ENTIRE PURCHASES FOR CONF IRMING PROFITS IN THE SAME MANNER AS DONE IN A.Y. 2010-11 AND CONFIRMED BY CIT(A). THEREFORE, THE ASS ESSMENT ORDER DID NOT SUFFER FROM ANY LACK OF ENQUIRY AND NO N APPLICATION OF MIND. 5. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME-TAX, SH IMLA HAS ERRED IN HOLDING THAT THE A.O. HAS FAILED TO APPLY THE PROVISION OF SEC.40A(3) THE ACT, AS NECESSITATED UND ER THE FACTS AND CIRCUMSTANCES DISCUSSED UNDER THE ASSESSM ENT ORDER. THEREFORE, DUE TO WRONG APPLICATION OR INTERP RETATION OF THE SAID PROVISION OF THE ACT, IT IS EVIDENT THAT T HE ORDER PASSED BY THE A.O. IS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE WITHIN THE MEANING OF THE PR OVISION OF SECTION 263 OF THE ACT. 6. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME-TAX, SH IMLA HAS ERRED IN HOLDING THAT THE A.O. HAS COMPLETELY MISPLA CED OR MISUNDERSTOOD THE PROVISION OF SEC.40A(3) THE ACT, WHILE COMPUTING THE DISALLOWANCE/ADDITION MADE AFTER CATEGORICALLY HOLDING THAT PURCHASES MADE TO THE TUNE OF RS.3,72,78,244/-ARE IN CONTRAVENTION OF THE PROVISION OF 40A(3) THE ACT R.W.R.6DD(E) OF THE INCOME TAX RULES, 1962. 7. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME-TAX, SH IMLA HAS ERRED IN HOLDING THAT THE CBDT CIRCULAR NO. 37/2016 D ATED 02/11/2016 IS NOT RELEVANT IN THE CASE OF THE ASSESSEE. 8. THAT APPELLANT CRAVES LEAVE TO ADD, ALTLER, AMEND OR MODIFY ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HE ARING OF APPEAL. 5. THE ASSESSEE IN THE PRESENT APPEAL HAS CHALLENGE D THE ASSUMPTION OF JURISDICTION BY THE LD. PR. CIT U/S 2 63 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) 6. DURING THE COURSE OF HEARING BEFORE US, THE LD. COUNSEL FOR ASSESSEE RAISED THE FOLLOWING ARGUMENTS AGAINST THE ORDER PASSED BY THE LD. PR. CIT: A) THE ISSUE OF DISALLOWANCE MADE ON ACCOUNT OF CAS H PURCHASES BY THE ASSESSING OFFICER WAS BEFORE THE LD.CIT(APPEALS) AND PENDING ADJUDICATION OF THE SAM E, THE LD.PR.CIT COULD NOT HAVE EXERCISED HIS POWERS OF RE VISION ON THE SAID ISSUE; B) THAT IN ANY CASE, THE ASSESSMENT ORDER WAS NOT ERRONEOUS SINCE THE ASSESSING OFFICER HAD INVESTIGA TED THE ISSUE, THOROUGHLY APPLIED HIS MIND TO IT AND TAKEN A POSSIBLE VIEW ON THE ISSUE.THAT HAVING FOUND THE PU RCHASES 5 TO BE BOTH BOGUS AND THE PAYMENT MADE IN LIEU THERE OF FOUND TO BE MADE IN VIOLATION OF SECTION 40A(3) OF THE ACT,HE MADE DISALLOWANCE HOLDING THE SAME TO BE BOGUS AS H ELD IN THE PRECEDING YEAR ALSO AND CONFIRMED BY THE CIT(A) . C) IN ANY CASE, THERE WAS NO VIOLATION OF THE PROVI SIONS OF SECTION 40A(3) OF THE ACT SINCE THE ASSESSEE WAS EXEMPTED BY VIRTUE OF RULE 6DD(E) OF THE ACT. 7. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF THE LD. PR. CIT. 8. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTIE S. THE FIRST CONTENTION RAISED BY THE LD. COUNSEL FOR ASSESSEE WAS THAT THE ISSUE OF ADDITION MADE ON ACCOUNT O F BOGUS PURCHASES WAS UNDER ACTIVE CONSIDERATION OF THE CIT (A) SINCE THE ASSESSEE HAD FILED AN APPEAL AGAINST THE ORDER OF THE AO. LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT IN SUCH A SITUATION, THE LD. PR. CIT COULD NOT HAVE ASSUMED JURISDICTION TO REVISE THE ORDER ON THE SAME ISSUE. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE APEX COUR T IN THE CASE OF CIT VS. ARBUDA MILLS LTD., 231 ITR 50 (SC). THE LD. COUNSEL FOR ASSESSEE STATED THAT THOUGH THE ADDITIO N HAD BEEN MADE ON ACCOUNT OF NET PROFIT PERTAINING TO TH E SAID ALLEGED CASH PURCHASES, BUT SINCE THE ISSUE OF DISA LLOWANCE U/S 40A(3) OF THE ACT HAD ALSO BEEN DEALT WITH BY T HE ASSESSING OFFICER IN THE ORDER, THE SAME WAS VERY M UCH OPEN BEFORE THE LD.CIT(APPEALS) WHO WHILE ADJUDICAT ING THE ISSUE COULD WELL WITHIN HIS POWERS SET ASIDE THE O RDER OF THE ASSESSING OFFICER AND UPHOLD THE DISALLOWANCE M ADE U/S 40A(3) OF THE ACT. THE LD. COUNSEL FOR ASSESSEE, T HEREFORE, STATED THAT SINCE THE LD.CIT(APPEALS) WAS SEIZED WI TH THE ISSUE, THE LD. PR. CIT COULD NOT HAVE EXERCISED HIS REVISIONARY POWERS ON THE SAME ISSUE. 6 9. THE LD. DR, ON THE OTHER HAND, DREW OUR ATTENTIO N TO THE ORDER OF THE HON'BLE APEX COURT IN THE CASE OF EIMCO K.C.P. LTD. 242 ITR 659 DATED 25.2.2000, POINTING O UT THEREFROM THAT THE APEX COURT HAS CATEGORICALLY HEL D THAT NOTICE U/S 263 OF THE ACT CAN BE ISSUED EVEN ON A P OINT WHICH WAS DIRECTLY IN APPEAL BEFORE THE APPELLATE AUTHORITIES. 9. THE LD. COUNSEL FOR ASSESSEE COUNTERED BY STATI NG THAT THOUGH THE HON'BLE APEX COURT DID HOLD SO BUT AT TH E SAME TIME THE CASE LAWS RELIED UPON BY THE HON'BLE APEX COURT WHILE RENDERING THE AFORESAID JUDGMENT WERE DISTING UISHABLE FROM THE FACTS OF THE PRESENT CASE, AND THEREFORE, THE DECISION OF THE HON'BLE APEX COURT WOULD NOT APPLY TO THE PRESENT CASE. DETAILED SUBMISSIONS IN THIS REGARD WERE FILED IN WRITING BEFORE US VIDE SUBMISSIONS DATED 16.10.2017. THE LD. COUNSEL FOR ASSESSEE AFTER REF ERRING TO THE DISTINGUISHING FACTS IN THE CASE LAWS RELIED UP ON BY THE HON'BLE SUPREME COURT WHILE RENDERING THE JUDGMENT IN THE CASE OF EIMCO K.C.P. LTD. (SUPRA) STATED THAT FOLLO WING DISTINGUISHING FACTS EMERGED IN THE CASE OF HON'BLE APEX COURT: 1) THE ISSUE IN THE CASES REFERRED TO BY THE HON'BL E SUPREME COURT PERTAINED TO YEARS PRIOR TO AMENDMENT TO SECTION 263 OF THE ACT BY INSERTION OF EXPLANATION EFFECTIVE FROM 1.6.1998 AND SINCE THE HON'BLE APEX COURT HAD SUBSEQUENT TO THE AMENDMENT RENDERED ITS JUDGMENT I N THE CASE OF ARBUDA MILLS LTD. (SUPRA) AND JAI KUMAR B. PATIL, 263 ITR 469 LAYING DOWN THAT CIT CAN INITIATE 263 O NLY IN RESPECT OF ISSUES UNJUDGED BY THE CIT(APPEALS), THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF E IMCO K.C.P. LTD. (SUPRA) WOULD NOT APPLY TO THE PRESENT CASE WHERE THE MATTER WAS UNDER ACTIVE CONSIDERATION OF THE CIT(APPEALS). 7 2) THE DECISION RENDERED IN THE CASE OF EIMCO K.C.P . LTD. (SUPRA) WAS DISTINGUISHABLE SINCE THE APPELLAT E POWERS WERE EXERCISED IN THE SAID CASE BY THE APPEL LATE ASSISTANT COMMISSIONER, WHILE IN THE PRESENT CASE B OTH CIT(APPEALS) AND CIT ARE COORDINATE AUTHORITY OF SA ME RANK AND STATUS AND POWER OF ONE COULD NOT BE UNDER MINED BY THE OTHER AND ALSO THERE COULD NOT BE TWO SEPARA TE CONSIDERATIONS TO THE SAME SUBJECT MATTER AT A GIVE N TIME ONE BY THE CIT IN HIS ORDER U/S 263 AND THE OTHER B Y THE CIT(APPEALS). 3) THAT THE PR.CIT COULD NOT TAKE RECOURSE TO SECTI ON 263 ON A FUNDAMENTAL ASPECT OF TRANSACTION ON WHICH A VIEW WAS TAKEN AND ACCEPTED BY REVENUE FOR OTHER YE ARS AS IT WOULD BE AGAINST THE PRINCIPLE OF CONSISTENC Y. THIS FACTUAL POSITION WAS NOT THERE IN THE CASE OF EIMCO K.C.P. LTD. (SUPRA) AND SINCE THE SAME IS THERE IN THE PRE SENT CASE WHEREIN IDENTICAL ISSUE WAS DEALT WITH BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2010-11, HAS B EEN DECIDED IN APPEAL BY HE CIT(APPEALS) AND, THEREFORE , FOR ALL PURPOSES THE ISSUE HAS BEEN DEALT WITH BY THE CIT(APPEALS) THOUGH IN A PRECEDING YEAR AND THE PR. CIT, THEREFORE, CANNOT NOW EXERCISE HIS REVISIONARY POWE R ON THE SAME ISSUE. 11. WE HAVE HEARD BOTH THE PARTIES. WE FIND MERIT IN THE CONTENTION OF THE LD. DR. THE QUESTION REGARDING TH E EXERCISE OF REVISIONARY POWERS ON AN ISSUE WHICH IS UNDER ACTIVE CONSIDERATION IN APPEAL BEFORE THE CIT(A) ,I S NO LONGER RES INTEGRA SINCE THE HONBLE APEX COURT HAS HELD THAT THE CIT CAN VERY WELL DO SO, IN ITS DECISION I N EIMCO K.C.P.LTD.(SUPRA). THE HONBLE COURT IN THE SAID DE CISION HELD SO AS UNDER: AT THE INSTANCE OF THE REVENUE, THE FOLLOWING TWO QUESTIONS WERE REFERRED TO THE HIGH COURT UNDER S. 256(1) OF THE ACT : '(1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT COULD INTERFERE, ACTING UNDER S. 263 OF THE IT ACT, 1961, WITH THE ORDER OF THE ITO ON A POINT WHICH WAS DIRECTLY IN APPEAL BEF ORE THE AAC ? (2) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE SUM OF RS. 2,35,000 PAID BY THE ASSESSEE-COMPANY TO THE FO REIGN COLLABORATOR CONSTITUTE REVENUE EXPENDITURE ?' BOTH THE QUESTIONS WERE ANSWERED IN FAVOUR OF THE R EVENUE AND AGAINST THE ASSESSEE BY THE HIGH COURT IN THE IMPUGNED ORDE R. 3. MR. M UTTAM REDDY LEARNED COUNSEL APPEARING FOR TH E APPELLANT, DID NOT SERIOUSLY CANVASS THE CORRECTNESS OF THE IMPUGNED O RDER IN REGARD TO THE FIRST QUESTION AND IN OUR VIEW RIGHTLY. HAVING REGA RD TO S. 263 OF THE IT ACT AND THE DECISION OF THIS COURT IN CIT VS. AMRITLAL BHOGILAL & CO. (1958) 34 ITR 130 (SC) : TC 57R.456 AND JUDGMENTS OF HIGH COU RTS OF ASSAM IN RAMLAL ONKARMAL VS. CIT (1962) 44 ITR 578 (ASSAM) : TC 57R.474 AND OF 8 KERALA IN KELPUNJ ENTERPRISES VS. CIT 1976 CTR (KER ) 285 : (1977) 108 ITR 294 (KER) : TC 57R.483 WHICH WE APPROVE, WE CONFIRM THE ANSWER TO THE FIRST QUESTION RECORDED BY THE HIGH COURT.' 12. THE AFORESAID DECISION SQUARELY APPLIES TO THE FACTS OF THE PRESENT CASE SINCE ADMITTEDLY THE ISSUE OF BOGU S PURCHASES WAS UNDER CONSIDERATION OF THE CIT(A) WHE N THE LD.PR.CIT INITIATED PROCEEDINGS U/S 263 OF THE ACT. THEREFORE WE REJECT THE CONTENTION OF THE LD.COUNSE L FOR THE ASSESSEE THAT THE LD.PR.CIT COULD NOT HAVE EXERCISE D HIS POWERS U/S 263 IN THE FACTS OF THE PRESENT CASE. 13. THE DISTINCTIONS POINTED OUT BY THE LD.COUNSEL FOR THE ASSESSEE, WE FIND, DO NOT HELP THE ASSESSEES CASE. FIRSTLY THE LD.COUNSEL FOR THE ASSESSEE HAS POINTED OUT DISTINGUISHING FACTS IN THE CASE LAWS RELIED UPON B Y THE APEX COURT WHILE RENDERING THE IMPUGNED JUDGEMENT. NO DISTINGUISHING FACTS IN THE CASE ITSELF WAS POINTED OUT .IN FACT WE FIND THAT THE LD.COUNSEL HAS ADMITTED TO TH E PROPOSITION LAID DOWN BY THE APEX COURT THAT EVEN O N ISSUES UNDER CONSIDERATION BY THE CIT(A) ,REVISIONARY POWE RS CAN BE EXERCISED U/S 263.THEREFORE THOSE DISTINCTIONS , WE HOLD ,MERIT NO CONSIDERATION . 14. THE NEXT DISTINCTION POINTED OUT BY THE LD.COU NSEL FOR THE ASSESSEE WAS THAT EXPLANATION 2 TO SECTION 263 ,WHICH SPECIFIES WHEN AN ORDER CAN BE DEEMED ERRONEOUS AND WHICH WAS INSERTED W.E.F 01/06/15, DID NOT EXIST AND WAS THEREFORE NOT CONSIDERED BY THE APEX COURT.WE FAIL TO UNDERSTAND HOW IT HELPS THE ASSESSEES CASE. NO CLAR ITY ON THE ABOVE SUBMISSION WAS BROUGHT BEFORE US AND THER EFORE WE REJECT THIS CONTENTION OF THE LD.COUNSEL FOR THE ASSESSE. 9 THE RELIANCE PLACED BY THE LD.COUNSEL FOR THE ASSES SEE ON THE DECISION OF THE APEX COURT IN THE CASE OF ARBUD A MILLS LTD. (SUPRA) AND THE DISTINCTION POINTED OUT BY LD. COUNSEL FOR THE ASSESSEE THAT THE DECISIONS RELIED UPON BY THE APEX COURT WHILE RENDERING ITS JUDGEMENT RELATED TO YEAR S PRIOR TO INSERTION OF EXPLANATION 1 TO SECTION 263, IS ALSO WE FIND OF NO ASSISTANCE TO THE ASSESSEE ,SINCE AS PER THE EXP LANATION 1 TO SECTION 263 & THE PROPOSITION LAID DOWN IN THE SAID CASE THE CIT CANNOT EXERCISE HIS REVISIONARY POWERS ON ISSUES WHICH HAVE BEEN DECIDED IN APPEAL BY THE CIT (A), WHILE IN THE FACTS OF THE PRESENT CASE THE ISSUE HA S NOT BEEN DECIDED BUT IS ADMITTEDLY UNDER THE ACTIVE CONSIDER ATION OF THE CIT(A). 15. THE CONTENTION OF THE LD.COUNSEL FOR THE ASSE SSEE THAT IN THE CASE OF EIMCO K.C.P. LTD. (SUPRA) APPEL LATE POWERS WERE EXERCISED BY AN OFFICER SUBORDINATE TO THE RANK OF COMMISSIONER, BUT IN THE SAID CASE THEY HAVE BEE N EXERCISED BY A COORDINATE AUTHORITY AND THUS THE SA ID LAW WOULD NOT APPLY TO THE FACTS OF THE PRESENT CASE, I S ALSO OF NO CONSEQUENCE SINCE THE BASIS FOR LAYING DOWN THE PROPOSITION WAS THE WIDE AND UNLIMITED POWERS GIVEN BY SECTION 263 IN CONTRADISTINCTION TO THE POWERS OF T HE COMMISSIONER TO REVISE ANY OTHER ORDERS OF ANY SUBO RDINATE AUTHORITY U/S 264 OF THE ACT. THE COURTS HELD THAT WHILE SECTION 263 DEALS WITH POWER OF THE COMMISSIONER TO REVISE ANY ORDER OF THE INCOME TAX OFFICER,SECTION 264 WAS WIDER SINCE THE COMMISSIONER HAD THE POWER TO DEAL WITH A N ORDER OF ANY SUBORDINATE AUTHORITY AND HE NEED NOT BE SAT ISFIED 10 THAT THE ORDER IS PREJUDICIAL TO THE INTEREST OF TH E REVENUE. THE COURTS FOUND THAT AT THE SAME TIME THERE WERE LIMITATIONS IN THE POWER CONFERRED BY SECTION 264 W HEREIN THE SAME COULD NOT BE EXERCISED ON ORDERS PENDING I N APPEAL BEFORE THE APPELLATE AUTHORITY,WHICH RESTRIC TION WAS NOT THERE U/S 263.THE COURTS THEREFORE HELD THAT TH E INTENTION OF THE LEGISLATURE WAS OBVIOUS WHICH WAS THAT THE POWER U/S 263 IS NOT INHIBITED BY PENDENCY OF APPE AL BEFORE APPELLATE AUTHORITY. THUS THE DISTINCTION POINTED OUT BY THE LD.COUNSEL FOR THE ASSESSEE ,WE HOLD, ME RITS NO CONSIDERATION AND IS THEREFORE REJECTED. THE DISTIN CTION SOUGHT TO BE MADE BY THE LD.COUNSEL FOR THE ASSESSE E THAT IN THE IMPUGNED CASE THE VIEW TAKEN BY THE AO HAD B EEN CONFIRMED IN APPEAL BY THE CIT(A) THOUGH IN THE PRE CEDING YEAR ,WHICH WAS NOT THE FACT IN THE CASE OF EIMCO(SUPRA),ALSO WE FIND DESERVES NO CONSIDERATION , SINCE WE FIND THAT THE PR.CIT HAD CLEARLY POINTED OUT THA T THE FACTS OF THE CASE IN THE PRECEDING YEAR WERE NOT ID ENTICAL TO THE IMPUGNED YEAR AS NO DISALLOWANCE U/S 40A(3) HAD BEEN MADE IN THAT YEAR. THIS FACT WAS NOT CONTROVERTED B Y THE LD.COUNSEL FOR THE ASSESSEE AND IN ANY CASE WAS VER Y MUCH EVIDENT FROM THE ASSESSMENT ORDER FOR THE PRECEDING YEAR ,COPY OF WHICH WAS FILED BEFORE US. THEREFORE IN TH E ABSENCE OF IDENTITY OF FACTS IN THE TWO YEARS IT CANNOT BE SAID THAT THE ISSUE STOOD DECIDED IN APPEAL AND HENCE THE FA CTS OF THE PRESENT CASE WERE DISTINGUISHABLE FROM THE FAC TS IN THE HONBLE APEX COURT DECISION. 11 16. IN VIEW OF THE ABOVE, WE DISMISS THE ARGUMENT OF THE ASSESSEE THAT SINCE THE ISSUE WAS SUBJECT MATTER OF APPEAL BEFORE THE LD. CIT(APPEALS), THE LD. PR. CIT COULD NOT HAVE EXERCISED HIS REVISIONARY POWERS U/S 263 ON THE SAM E ISSUE. 17. THE NEXT CONTENTION RAISED BY THE LD. COUNSEL F OR ASSESSEE BEFORE US WAS THAT THE ASSESSING OFFICERS ORDER DID NOT SUFFER FROM ANY LACK OF ENQUIRY AND NON APP LICATION OF MIND. THAT THE ASSESSING OFFICER WAS CONSCIOUS O F ALL FACTS AND INFORMATION AND CHOSE ONE OF THE POSSIBLE VIEWS IN LAW BY OPTING TO FOLLOW THE SAME COURSE OF ACTION A S WAS DONE BY THE ASSESSING OFFICER IN THE CASE OF THE AS SESSEE FOR ASSESSMENT YEAR 2010-11 WHICH WAS CONFIRMED BY THE LD. CIT (APPEALS) ALSO. IN THIS REGARD, THE LD. COUNSE L FOR ASSESSEE DREW OUR ATTENTION TO THE ASSESSMENT ORDER AND POINTED OUT FROM PARA 4 OF THE SAID ORDER, WHICH DE ALT WITH THE IMPUGNED DISALLOWANCE, THAT THE ASSESSING OFFIC ER HAD INITIALLY FOUND THAT THE ASSESSEE HAD BEEN UNABLE T O PRODUCE THE PURCHASE BILLS AND WAS ALSO NOT ABLE TO GIVE THE NAMES AND ADDRESSES OF THE PARTIES FROM WHOM THE CA SH PURCHASES HAD BEEN MADE AND NO OTHER EVIDENCE OF TH E PROOF OF PURCHASES WAS ALSO BROUGHT BY THE ASSESSEE . THE LD. COUNSEL FOR ASSESSEE THEREAFTER POINTED OUT THA T THEN THE ASSESSING OFFICER WENT ON TO DEAL WITH THE ASPE CT OF THE ASSESSEE HAVING VIOLATED THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND FINALLY IN PARA 6 HELD THAT IN VIEW OF THE CONTRAVENTION OF SECTION 40A(3) THE PURCHASES TO TH E TUNE OF RS.3,72,38,244/- WERE NOT ELIGIBLE AS EXPENSES AND WERE, THEREFORE DISALLOWED. THEREAFTER, THE LD. COUNSEL FOR 12 ASSESSEE POINTED OUT THAT, THE ASSESSING OFFICER HE LD THE PURCHASES AS BOGUS AND TREATED THE PROFITS ATTRIBUT ABLE TO THE SAME AS INCOME FROM UNDISCLOSED SOURCES ON WHIC H NO DEDUCTION U/S 80IC WAS HELD TO BE ALLOWABLE TO THE ASSESSEE. LD.COUNSEL FOR THE ASSESSEE STATED THAT IT IS EVIDENT FROM THE ABOVE THAT THE ASSESSING OFFICER H AD FOUND THE PURCHASES TO BE BOGUS IN THE ABSENCE OF ANY EVI DENCE HAVING FILED BEFORE IT AND AT THE SAME TIME HAD FOU ND THAT THE ASSESSEE HAD VIOLATED THE PROVISIONS OF SECTION 40A(3) OF THE ACT HAVING MADE ALL PAYMENTS IN CASH AND WITH BOTH THE SITUATIONS BEFORE HIM HE FOLLOWED THE COURSE O F TREATING THE PURCHASES AS BOGUS AND DISALLOWING THE PROFITS AND TREATING THE PROFITS EARNED THEREON AS INCOME FROM OTHER SOURCES, NOT ENTITLED TO DEDUCTION U/S 80IC OF THE ACT, FOLLOWING HIS ORDER IN ASSESSMENT YEAR 2010-11 IN T HE CASE OF ASSESSEE WHICH WAS AFFIRMED BY THE LD.CIT(APPEAL S) ALSO. LD.COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO T HE COPIES OF THE ASSESSMENT ORDER FOR A.Y 2010-11 PLACED AT P APER BOOK PAGE NO.15-19. THE LD. COUNSEL FOR ASSESSEE, THEREFORE, STATED THAT THE ASSESSING OFFICER HAD TA KEN A POSSIBLE VIEW ON THE ISSUE AND, THEREFORE, ALSO THE ORDER COULD NOT BE HELD TO BE ERRONEOUS. RELIANCE WAS PL ACED ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS. GREENWORLD CORPORATION, 181 TAXMAN 111. 18. THE LD. DR, ON THE OTHER HAND RELIED UPON THE F INDINGS OF THE LD. PR. CIT IN THIS REGARD AT PARA 6 OF THE ORDER AND POINTED OUT THEREFROM THAT THIS CONTENTION OF THE L D. COUNSEL FOR ASSESSEE WAS INCORRECT SINCE HAVING FOU ND THE 13 ASSESSEE TO HAVE VIOLATED THE PROVISIONS OF SECTION 40A(3) THE ENTIRE CASH PURCHASES WERE DISALLOWABLE AND NOT ONLY A PORTION OF IT AS DONE BY THE ASSESSING OFFICER. TH E LD. DR POINTED OUT THAT THE ASSESSING OFFICER HAD FAILED T O COMPLY WITH THE PROVISIONS OF SECTION 40A(3) WHICH HE FOUN D CATEGORICALLY THE ASSESSEE TO HAVE VIOLATED AND, TH EREFORE, THE ORDER WAS ERRONEOUS SO AS TO CAUSE PREJUDICE TO THE REVENUE. 19. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTI ES. UNDOUBTEDLY THERE WERE TWO FINDINGS OF THE AO VIS A VIS THE CASH PURCHASES. ONE THAT THEY WERE NOT EVIDENCED BY ANY BILLS OR ANY DETAILS DISCLOSING THE IDENTITY OF THE PARTIES FROM WHOM THE PURCHASES WERE MADE OR ANY OTHER EVIDENCES AND THE OTHER THAT THEIR PAYMENT EXCEEDED THE LIMITS SPECIFIED FOR CASH PAYMENTS U/S 40A (3) OF T HE ACT. THUS THE AO FOUND THE PURCHASES TO BE BOTH BOGUS AN D IN VIOLATION OF SECTION 40A(3) OF THE ACT. BY ULTIMATE LY MAKING DISALLOWANCE BY HOLDING THE PURCHASES BOGUS, WE FIN D, THAT THE AO HAS COMMITTED NO ERROR BUT HAS TAKEN THE COR RECT COURSE OF ACTION AS PER LAW SINCE ANY EXPENSE FOUND TO BE BOGUS CANNOT THEREAFTER FALL WITHIN THE PURVIEW OF SECTION 40A(3) OF THE ACT. SECTION 40A(3) MAKES DISALLOWANC E OF EXPENSES INCURRED IN CASH BEYOND THE LIMITS SPECIFI ED. FOR THE PROVISION TO COME INTO OPERATION THE INCURRENCE OF AN EXPENDITURE IN THE FIRST PLACE IS AN ESSENTIAL PRER EQUISITE. WHEN AN EXPENSE IS FOUND TO BE BOGUS, IT IMPLIES TH AT NO EXPENDITURE HAS ACTUALLY BEEN INCURRED. THUS IN SUC H CIRCUMSTANCES 40A(3) CANNOT BE MADE APPLICABLE. THE 14 ASSESSING OFFICER, WE HOLD, HAS, THEREFORE, ADOPTED THE RIGHT COURSE OF ACTION IN THE PRESENT CASE BY MAKING DISA LLOWANCE ON ACCOUNT OF THE FACT OF BOGUS PURCHASES. FOR THI S REASON WE HOLD THAT THERE IS NO ERROR IN THE ORDER OF THE ASSESSING OFFICER. IN THE ABSENCE OF THE SAME, WE HOLD THAT THE ASSUMPTION OF JURISDICTION OF THE LD. PR. CIT TO FR AME ASSESSMENT U/S 263 OF THE ACT IS INVALID. THE ORDER PASSED BY THE LD. PR. CIT IS THEREFORE SET ASIDE. 20. SINCE WE HAVE SET ASIDE THE ORDER OF THE PR.CIT FOR THE ABOVE REASON WE DO NOT FIND IT NECESSARY TO DEAL WI TH THE REMAINING CONTENTIONS OF THE LD.COUNSEL FOR THE ASS ESSEE RAISED IN GROUND NO.3 & 7 BEFORE US. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 8 TH JANUARY, 2018 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH 15