Himachal Pradesh H.C : Where no inquiry was conducted by Assessing officer in passing assessment order after accepting revised return filed by assessee, Commissioner was well within his power under section 263 to direct fresh assessment

High Court Of Himachal Pradesh

Virbhadra Singh (HUF) Vs. Pr.CIT

Section 263, 254

Assessment year 2010-2011

Sanjay Karol, Actg CJ. And Sandeep Sharma, J.

IT Appeal No. 4 Of 2017

October 5, 2017

JUDGMENT

Sanjay Karol, ACTG, CJ. – By way of present appeal, so filed under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act), appellant Shri Virbhadra Singh (HUF) (hereinafter referred to as the Assessee), lays challenge to the order dated 8.12.2016 (Annexure A-1), passed by the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal), affirming the order dated 18.3.2014 (Annexure A-2), passed by the Commissioner of Income Tax (hereinafter referred to as the Commissioner), who set aside the order dated 28.3.2013 (Annexure A-4) (Page-276), passed by the Assessing Officer, in accepting the Revised Return filed by the Assessee.

2. Parties agreed for admission of the appeal on the following Substantial Questions of Law, which we are called upon to decide:

“(i) Whether on the facts and in the circumstances of the case, the Tribunal erred in law in upholding the validity of the revisionary order dated 18.03.2014 passed under section 263 of the Act?

(ii) Whether on the facts and in the circumstances of the case, the impugned order of the Tribunal dated 8.12.2016 admitting and considering the additional evidences in gross violation of the procedure laid down in ITAT Rules and in violation of principles of natural justice and fair play, is illegal and bad in law?”

3. The facts, leading to the filing of the instant appeal are as under.

4. The Assessee is regularly assessed to income tax. On 19.7.2010, Assessee filed a Return, declaring net taxable income, for the Financial Year 2009-2010 – Assessment Year 2010-2011 (hereinafter referred to as the relevant year) to be Rs. 7,22,943/- (Page-262). In the said Return, income from the source of agriculture, germane to present proceedings, he disclosed a sum of Rs. 15,00,000/-. Perusal of the Return (Page-265) reveals the Assessee to have also generated income from the source of LIC.

5. Such return was selected for scrutiny assessment through CASS. Hence, on 24.8.2011, statutory notice under Section 143(2) of the Act was issued.

6. However, on 2.3.2012, Assessee filed a Revised Return, declaring his income from the agricultural source (hereinafter referred to as “agricultural source”), enhancing it from Rs. 15,00,000/- to Rs. 2,80,92,500/- (Page-265).

7. Vide order dated 28.3.2013 (Annexure A-4) (Page-276) (hereinafter referred to as the assessment order), the Assessing Officer, in deciding the proceedings for assessment under Section 143(3) of the Act, accepted the income so declared by the Assessee.

8. On 12.2.2013, the Commissioner, by invoking revisional jurisdiction, under Section 263 of the Act, issued notice to the Assessee (Annexure A-5) (Page-282), and after affording opportunity of hearing, vide impugned order dated 18.3.2014 (Annexure A-2) (Page 203), set aside the assessment order, holding it to be erroneous as well as prejudicial to the interest of Revenue and remanded the matter back for fresh assessment in accordance with law.

9. Sometime in the month of May/June, 2014, Assessee laid challenge to the same by filing a statutory appeal before the Tribunal, which stands dismissed vide impugned order dated 8.12.2016 (Annexure A-1) (Page- 70). It is a matter of record that during the course of such proceedings, Revenue placed additional material, which was considered in deciding/dismissing the appeal.

10. Prior thereto, pursuant to the order of remand, the authorized Assessing Officer, vide order dated 31.3.2015 (Page-574) re-assessed the income from the agricultural source, by concluding that:

“14. Finally by the all possible exercises and enquiries, I conclude that most reasonably the orchard would have produced apple crops after setting off the expenses incurred for earning the said agriculture income, the net agriculture income of Rs.15,00,000/- as per the original return of income filed by the assessee on 29.07.2010. I also conclude that the alleged MoU dated 15.06.2008 is a false and fabricated document which was prepared later by the assessee as an afterthought.

15. In view of the above, I treat the income (which has been declared as additional agricultural income in the revised return) of Rs.2,65,82,500/- as income earned from undisclosed sources and add this amount u/s 68 of the Income Tax Act 1961 to the taxable income of the assessee.

16. Further, keeping in view the discussions as above, I am satisfied that the assessee has furnished inaccurate particulars of his income amounting of Rs.2,65,82,550/- and has suppressed his taxable income by Rs.2,65,92,550/- therefore, penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 are being initiated separately.

17. With above remarks the taxable income of the assessee is computed as under:

All figures in INR

Taxable income as declared by the assessee. Rs. 44,67,584/-
Add Income from undisclosed sourced as discussed para 15 Rs. 2,65,92,550/-
Taxable Income Rs. 3,10,60,134/-

(Emphasis supplied)

11. It is a matter of record that now such order of assessment is pending adjudication before the Commissioner of Income Tax (Appeals).

12. However, pursuant to order of re-assessment and pending consideration of said appeal, Assessee filed the instant appeal on 18.1.2017, in which notice was issued on 20.1.2017.

13. Parties insisted on the hearing of the appeal and as such, they have addressed on various issues touching the substantial questions of law.

14. On behalf of the Assessee, Mr.P. Chidambaram, learned Senior Counsel, argued:

(a) View taken by the Assessing Officer was a possible and plausible one. Simply because the Commissioner disagreed with the same, it was not open for him to have exercised his revisional jurisdiction, more so, without satisfying and recording the order being erroneous and prejudicial to the interest of Revenue.

(b) In the alternative, having satisfied about the order being erroneous, rather than remitting the matter, the Commissioner himself, ought to have conducted the inquiry as it was not a case of “no inquiry” but “some inquiry”.

(c) While examining the correctness of jurisdiction exercised by the Commissioner, Tribunal erred in accepting and considering additional evidence placed on record by the Revenue.

(d) Still further, Tribunal erred in accepting such additional evidence, for (a) it was in gross violation of Rule-29 of the Income Tax Rules, 1962, (b) additional evidence was allowed without passing a separate speaking order, (c) no opportunity to rebut the same was afforded to the Assessee, and (d) no opportunity was afforded to the Assessee to cross- examine the person whose statements were accepted by the Tribunal.

15. At this juncture, this Court feels obliged to reproduce the note handed over by Mr. Chidambaram, learned Senior Counsel, termed as “Legal Propositions”, restricting the grounds of challenge and the issues arising for consideration in the present appeal:

“Proposition I: Section 263 of the Income Tax Act, 1961 (“the Act”) permits the CIT to revise the order only if it is:

(a) Erroneous; and

(b) Prejudicial to the interest of Revenue.

If the assessing officer takes a plausible view, the CIT cannot hold that order to be erroneous merely because he disagrees with that view.

In the present case, first condition, viz. order being “erroneous” is not satisfied.

Proposition II: Without prejudice to proposition (I), in a case where the CIT has correctly come to the conclusion that the order is erroneous but there is some enquiry by the assessing officer, then the CIT cannot remit the matter to the assessing officer but he should decide it himself.

Remit is permissible only in a case of no enquiry.

Proposition III: The Appellate Tribunal (ITAT) was obliged to examine the correctness of the exercise of jurisdiction by the CIT under section 263 of the Act; in such a case rule permitting filing of additional evidence does not apply.

In the present case, ITAT erred in permitting the additional evidence while examining the correctness of jurisdiction of the CIT under section 263 of the Act.

Proposition IV: Without prejudice to proposition III, the ITAT erred in permitting new and additional evidence because it was:

(a) in gross violation of Rule 29 of the ITAT Rules;

(b) without passing a separate speaking order allowing the additional evidence;

(c) without granting opportunity to the appellant to rebut the additional evidence or to cross-examine the person making ex-parte statements.”

16. In support, reliance is sought on the following decisions rendered by different Courts of the land: (1) Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) (2) CIT v. Kwality Steel Suppliers Complex [2017] 395 ITR 1/84 taxmann.com 234 (SC) (3) CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.) (4) CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi) (5) ITO v. DG Housing Projects Ltd. [2012] 343 ITR 329/20 taxmann.com 587/[2013] 212 Taxman 132 (Mag.) (Delhi) (6) CIT v. Text Hundered India (P.) Ltd. [2013] 351 ITR 57/[2011] 197 Taxman 128/9 taxmann.com 149 (Delhi) (7) Maruti Udyog Ltd. v. ITAT [2000] 244 ITR 303/111 Taxman 491 (Delhi) and (8) Andaman Timber Industries v. CCE [2015] 281 CTR 241 (SC).

17. In addition, Mr. Vishal Mohan, learned Counsel, has argued that in deciding the appeal, Tribunal ought to have confined consideration only to the material on record, so defined under clause (b) of sub-section (1) of Section 263 of the Act.

18. On the other hand, Mr. Vinay Kuthiala, learned Senior Counsel appearing for the Revenue, with vehemence defends the action inter alia contending that (a) the impugned orders passed are strictly in accordance with law, (b) present appeal merits rejection in limine, for the Assessee, who is forum shopping, is guilty of suppressio veri, expressio falsi (c) similar issues based on similar facts already stand adjudicated by this Court in Virbhadra Singh v. Dy. CIT [2017] 291 CTR 439 (HP) (d) alternate remedy already stands exhausted by the assessee and, as such, cannot be allowed to pursue the present appeal.

19. Reliance is sought on the following reports: (1) K. Venkataramiah v. A. Seetharama Reddy AIR 1963 SC 1526; (2) Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC); (3) Syed Abdul Khader v. Rami Reddy AIR 1979 SC 553; (4) State of Rajasthan v. T.N. Sahani [2001] 10 SCC 619; (5) Thakur V. Hari Prasad v. CIT [1987] 167 ITR 603/32 Taxman 196 (AP); (6) T.M.S. Mohamed Abdul Kader v. CGT [1968] 70 ITR 237 (Mad.); (7) CIT v. Emery Stone Mfg. Co. [1995] 213 ITR 843/83 Taxman 643 (Raj.); (8) Sunanda Ram Deka v. CIT [1994] 210 ITR 988 (Gau.); (9) Amjad Ali Nazir Ali v. CIT [1977] 110 ITR 419 (All.); (10) Addl. CIT v. Radhey Shyam [1980] 123 ITR 125/[1979] 1 Taxman 29 (All.); (11) Sasi Enterprises v. Asstt. CIT [2014] 361 ITR 163/222 Taxman 78/41 taxmann.com 500 (SC) and (12) CIT v. Amitabh Bachhan [2016] 384 ITR 200/240 Taxman 221/69 taxmann.com 170.

20. We shall first deal with the preliminary objections.

21. With vehemence, Mr. Kuthiala, learned Senior Counsel, has highlighted the conduct of the Assessee, who, according to the Revenue, has not only tried to procrastinate the proceedings of assessment but suppressed, misled and mis-stated true facts. Also, an endeavour is made to resort to multiple proceedings and remedies, with a view to confuse the issue and abuse the process of law. Our attention is invited to the fact that in the present appeal, Assessee failed to disclose that against the order of remand dated 18.3.2014, though an appeal was filed but no application seeking stay of the order passed by the Commissioner was filed. For more than one and a half years, hearing of the appeal was allowed to be delayed. In the meanwhile, a fresh order pursuant to remand was passed, against which also an appeal was preferred. Though the appellant could have sought stay of the proceedings but deliberately chose not to do so, for he was forum hunting. By taking a calculated risk, in fact as a gamble, he waited for the authorities to pass an order. Now finding the same not to his liking, he has pursued the appeal, and that too without disclosing such facts. As such, he is guilty of suppressio veri, expressio falsi. Reference is made to Sasi Enterprises (supra).

22. Well, we are not inclined to dismiss the appeal on this count, for we have endeavoured to answer the issues on merit.

23. It is next contended that the grounds raised in the present appeal can be considered and adjudicated in the appeal already preferred by the Assessee, assailing fresh order of assessment (re-assessment) passed by the Assessing Officer. Also we are not inclined to dismiss the appeal on this count.

24. Order passed by the Assessing Officer, being erroneous and prejudicial to the interests of the Revenue, cannot be agitated by the Assessee in the pending proceedings, assailing the order passed pursuant to an order of remand.

25. This Court in Virbhadra Singh (supra) has only considered the legality and propriety of issuance of notices under Sections 147 & 148 of the Act. Hence, findings returned therein cannot be said to be in the nature of res judicata.

26. As such, uninfluenced of the preliminary objections, we proceed to examine the appeal on merits.

27. For adjudicating relevant statutory provisions, Sections 139, 142, 143, 147, 263, 254 of the Act and Rule 29 of the Income Tax Rules, 1962 (hereinafter referred to as the Rules) need to be examined.

28. Section 139 of the Act casts an obligation on every person, specified therein, to furnish return of his income, in a prescribed manner. Law provides (sub- section (5) of Section 139) that wherever an Assessee “discovers any omission or any wrong statement” in an already furnished return, he may furnish a revised return, within the period of limitation prescribed therein.

29. Section 142 of the Act postulates an inquiry before assessment.

30. Assessment is carried out in terms of Section 143.

31. Under Section 147 of the Act, the Assessing Officer, if he has reason to believe that any income chargeable to tax has escaped assessment for the Assessment Year, may subject to all just exceptions, assess or reassess such income.

32. Under Section 263 of the Act, the Commissioner is empowered to call for and examine the record of any proceedings under the Act and on consideration, if the order passed by the Assessing Officer is found to be erroneous, insofar as it is prejudicial to the interest of Revenue, may, after giving the Assessee an opportunity of hearing and making or causing to make such inquiry, as may be deemed necessary, pass any order, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment.

33. Clause (b) of sub-section (1) of Section 263 of the Act itself defines “record” to mean that record shall include and be deemed always to have included all records relating to any proceeding under the Act available at the time of examination by the Principal Commissioner or Commissioner.

34. Further remedy is by way of an appeal to the Tribunal (Sections 253/254) and thereafter an appeal, on a substantial question of law, to the High Court under the provisions of Section 260A of the Act.

Certain Facts

35. It is a matter of record that in relation to three Assessment Years, i.e. 2008, 2009 and 2011, the Assessee and his family members made investments in the policies of Life Insurance Corporation (LIC) worth Rs. 6.18 crores. It is also an undisputed fact that in the relevant year (2009-10), Assessee and his family members made investments in purchase of LIC Policies for an amount, in excess of the income declared from the agricultural source in the relevant year. Following are such investments indicated in a tabulated form:

“Relevant year”

S. No. Name of person Policy No. Date of Purchase Amount
1. Rani Pratibha Singh 153234331 29.05.2009 10,00,000
2. Vikramditya Singh 153234332 29.05.2009 10,00,000
3. Aprajita Kumari 153234335 29.05.2009 10,00,000
4. Virbhadra Singh 153379960 31.12.2009 50,00,000
5. Vikramditya Singh 153596172 26.02.2010 50,00,000
6. Rani Pratibha Singh 153596173 26.02.2010 50,00,000
7. Virbhadra Singh 153597194 27.03.2010 1,00,00,000
8. Rani Pratibha Singh 153596149 26.02.2010 50,00,000
9. Vikramditya Singh 153596174 26.02.2010 50,00,000
3,80,00,000

36. On 19.7.2010, Assessee did not disclose such fact and declared his income from agricultural source to be Rs. 15,00,000/-. In the Revised Return filed on 2.3.2012, such income was declared to be Rs. 2,80,82,500/-.
37. Perusal of t
he order of the Assessing Officer, reveals the Assessee to have taken the following stand- (a) he is owner of agricultural land, i.e. orchard known as Shrikhand Orchard; (b) vide agreement dated 15.6.2008, he appointed Shri Anand Chauhan as his Agent to manage it for a period of three years; (c) consideration being payment of commission @ 2% on net sale proceeds, after deduction of all expenses; (d) said Agent stood authorized to make investments of the sale proceeds in Government securities, mutual funds, schemes of LIC; (e) which was actually so done by him; (f) In the year 2011-12, when accounts were settled, professional advise was sought and (g) since there was no regular assessment and there being a “mistake/defect/omission” in the original return, a revised return was filed within the stipulated period of time.

38. The Assessing Officer has observed that: (a) notices were issued to the Agent who appeared and placed on record documents i.e. (i) his Income Tax Return for the relevant year, (ii) copies of account of gross apple receipts for the relevant year, and (iii) copies of bills of sale proceeds of horticulture produce issued by the vendor, i.e. M/s Universal Apple Association, Parwanoo; also explained the shortfall in the income, in the relevant year, matching it with the investment made in the LIC, to be routed through one Shri M.R. Chauhan (such amount is more than Rs. 1 crore); and (b) information with respect to assessment proceedings of the Agent was sought for verification from his Assessing Officers.

39. Thus, finding the Assessee to have “established that the agriculture income disclosed in the revised return of income” “pertains to the sale proceeds of horticulture” and the same to have “been invested” by the Agent “in LIC policies in the names of members of the HUF, as per the terms and conditions of the M.O.U”, the Assessing Officer accepted the revised return.

40. One additional important fact. Between the date of filing of Revised Return (2.3.2012) and passing of the assessment order (28.3.2013), certain directions were issued by a Superior Officer, i.e. Additional Commissioner, on 1.2.2013 and 7.2.2013, in the capacity of a Supervisory Officer. Also, on 25.10.2012, notices were issued to the Assessee, seeking clarifications.

41. Let us examine what weighed with the Commissioner in finding the Assessing Officer not to have made “effective inquiry” or the “mistake and the omission” that of the Assessee in the original return to be not bonafide, in setting aside the order of assessment.

42. The Commissioner found the order passed by the Assessing Officer to be erroneous as well as prejudicial to the interests of Revenue, inter alia, on the ground that- (a) earning of additional income of Rs. 2.65 crore, so reflected in the Revised Return, was already within the knowledge of the Assessee, (b) it is not a case of bonafide omission, (c) the Assessing Officer failed to inquire from the Assessee, the source of Rs. 1.19 crore, an amount in excess of the income of Rs. 2.65 crore (approximately) from the agricultural source, (d) no inquiry was conducted for ascertaining the authenticity of the bills, vouchers, books of account of the income, (e) inquiry conducted was “invalid”, inasmuch as the Assessing Officer “blindly accepted” the “version of the Assessee’s Agent” and (f) the income appeared to be disproportionately high as compared to the income from the said source in relation to the preceding and the succeeding years.

43. At this juncture, it be only observed that entire sale of horticulture produce of more than Rs. 2.8 crore is in cash. This fact is not disputed.

44. Further, it be kept in mind that the Assessee and his family members appeared to be fully aware of the income from agricultural source, for after all policies were purchased not in the name of the Agent, in an escrow account, for and on behalf of the Assessee, but in the name of the Assessee and his family members. After all, for purchase of such policies of huge amounts, requisite formalities are required to be completed by the applicant (purchaser of the policy). It is not the case of Assessee that anyone of his family members is a minor or that no forms were filled up by the respective purchasers.

45. What is contended is that in relation to the income in question, Assessee was adopting mercantile system of accounting and as such exact amount of income could be ascertained only with the settlement of account, after a period of three years, which was sometime in the month of September, 2011.

46. At this juncture, one fact, which is not disputed, to which our attention is invited by the Revenue, is that in relation to the years preceding and succeeding to the relevant year, income from agricultural source, is marginal, bordering what was originally declared by the Assessee. Income, grossly disproportionate is only with respect to the relevant year.

47. As we have already observed, in the instant case, Assessee did file his return, under Section 139 of the Act. However, only when notice under Section 143(2) was issued, he filed a revised return, in exercise of his right under sub-section (5) of Section 139, which came to be assessed, under Section 143(3) of the Act.

48. The Assessee was satisfied with such assessment and as such did not take recourse to remedies provided under the Act.

49. But however, in exercise of his revisional jurisdiction, the Commissioner initiated proceedings for revising such order. In his wisdom, Commissioner found the order passed by the Assessing Officer to be “erroneous”, for it being “prejudicial to the interests of Revenue”. He did not find the Assessee to have revised his return “on the basis of discovery” or “omission” or “any wrong statement therein”.

50. Hence, we are concerned with the meaning of expressions “erroneous”; “prejudicial to the interests of Revenue”; “discovery”; or “omission”.

51. At this juncture, we may also observe that we are also concerned with the power of the Tribunal. Is it circumscribed to be the one exercised by the Commissioner, restricting it to the “record” so available at the time of examination or is it that the Tribunal can allow any party to adduce additional material, which can be considered for just decision of the appeal.

52. At this point in time, we deem it appropriate to first discuss the law referred to and certain other decisions dealing with the interpretation and application of Sections 139 and 263 of the Act.

Discovery of omission in filing a Revised Return under Section 139(5)

53. A Division Bench of the Allahabad High Court, in Amjad Ali Nazir Ali (supra), has held as under:

“It will be seen that so far as revised returns are concerned, the provisions under the old Act and the new Act are in pari materia. Now, after the decision of the Supreme Court in Commissioner of Income-tax v. S. Raman Chettiar [1965] 55 ITR 630 (SC), there cannot be any doubt that the revised return is also a return under Section 22 of the Indian Income-tax Act. Since the language of Section 139(5) of the new Act is in pari materia, it must be held that the revised return filed under Section 139(5) is a return contemplated by Section 139. But the question is whether the filing of the revised return obliterates the original return. S. Raman Chettiar’s case [1965] 55 ITR 630 (SC) does not throw light on this controversy. In order to answer the question posed, it will be useful to concentrate on the language of Section 139(5) of the Act. It is apparent that a revised return can be filed only where any person discovers any omission or any wrong statement therein. The use of the word “discovers”, in our view, connotes discovery of some omission or wrong statement in the return, of which the assessee was not aware at the time of filing of the original return. It cannot cover a case where the omission or wrong statement contained in the first return is deliberate, for, in that case, it cannot be said that the revised return was filed by the assessee on discovery of any omission or wrong statement, as he would all the time have knowledge of the omission or wrong statement in the original return. This being so, on the language of Section 139(5), an assessee who had deliberately made any omission or wrong statement in his original return cannot avail himself of the advantage given by this subsection of filing a revised return. In cases where an assessee has deliberately omitted particulars of his income or made wrong statement in the return, the revised return filed by him would be outside the pale of section 139(5) of the Act, and it would not be a revised return as contemplated by the Act. Once this position is reached the question of considering the revised return for the purposes of penalty would hardly arise, for, in the eye of law, there would be no revised return as contemplated by Section 139(5). Such a revised return cannot supplant the original return and, for the purposes of penalty, it will be only the original return that will have to be looked into.”

[Emphasis supplied]

54. This view stands reiterated in CIT v. S. Sucha Singh Anand [1984] 149 ITR 143 (Delhi) (Two-Judge Bench). In fact in Sunanda Ram Deka (Two-Judge Bench) (supra), the Court observed that “In our opinion, the further requirement is that this omission or wrong statement in the original return must be due to a bona fide inadvertence or mistake on the part of the assessee.”

55. In Radhey Shyam (supra), the Allahabad High Court, has held that non-disclosure of correct income, due to gross or willful negligence on the part of the Assessee would not entitle him to file revised returns, requiring assessment in accordance with law.

56. In CIT v. Dr. Sajjan Singh Malik [1989] 178 ITR 643/47 Taxman 264, the Punjab & Haryana High Court, in a case where the total income returned by the Assessee was less than 80%, the Court presumed that the Assessee had failed to rebut the presumption that he had failed to disclose the income in accordance with law.

SCOPE OF SECTION 263 OF THE ACT

57. The Apex Court (three-Judge Bench) in Smt. Tara Devi Aggarwal (supra), has clarified that:

“………The words of the section enable the Commissioner to call for and examine the record of any proceeding under the Act and to pass such orders as he deems necessary as the circumstances of the case justify when he considers the order passed was erroneous in so far as it is prejudicial to the interests of the revenue. It is not, as submitted by the learned advocate, prejudicial to the interests of the revenue only if it is found that the assessment for the year was disclosed (sic) on the basis that an income had been earned which is assessable. Even where an income has not been earned and is not assessable, merely because the assessee wants it to be assessed in his or her hands in order to enable someone else who would have been assessed to a larger amount an assessment so made can certainly be erroneous and prejudicial to the interests of the revenue. It so-and we think it is so-the Commissioner under S. 33B has ample jurisdiction to cancel the assessment and may initiate proceedings for assessment under the provisions of the Act against some other assessee who according to the income-tax authorities is liable for the income thereof……….”

[Emphasis supplied]

58. The Apex Court in Kwality Steel Suppliers Complex (supra), while reiterating the aforesaid principle, clarified that in exercise of its revisional jurisdiction, Commissioner must exercise proper application of mind. In the given facts, Court found the view taken by the Assessing Officer to be a plausible one, inasmuch as family business, with the death of one of the partners continued to be carried on by the son of the deceased with his mother being another partner, accepting the book value of the stock-in-trade to be plausible and permissible view.

59. A Division Bench of the Rajasthan High Court, in Emery Stone Mfg. Co. (supra), has observed that simply because facts were disclosed by the Assessee, it would not give immunity from exercise of any revisional jurisdiction, which the Commissioner can exercise in the amplitude of his statutory powers.

60. Mr. Chidambaram, learned Senior Counsel, invites our attention to the decision rendered by the High Court of Bombay in Gabriel India Ltd. (supra), wherein the Court held the term “erroneous” to mean deviating from law. We lay emphasis on portions extracted hereunder:

‘… … … According to the definition, “erroneous” means “involving error’ deviating from the law”. “Erroneous assessment” refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, “erroneous judgment” means “one rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles”.

From the aforesaid definition it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualize a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interest of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.’

61. In CIT v. Vikas Polymers [2012] 341 ITR 537/[2010] 194 Taxman 57 (Delhi), Court reiterated the principle of order of the Commissioner fulfilling the twin test of revising the order passed by the Assessing Officer. It must be erroneous and prejudicial to the interests of Revenue. The Commissioner can call for and examine the record and by giving an opportunity of hearing make such inquiry as is deemed necessary. The Court, by taking into account the decision referred to by the Bombay High Court in Gabriel India Ltd. (supra), observed, “erroneous” to mean an order which is not in accordance with law. There must be material to show that the tax which was exigible has not been imposed and expression “prejudicial to the interests of the Revenue” to mean the orders of assessment under challenge being not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized and cannot be realized. It also reiterated the difference between “lack of inquiry” and “inadequate inquiry”.

62. In fact in subsequent decision the very same High Court (Delhi) in CIT v. Ashok Logani [2012] 347 ITR 22/[2011] 202 Taxman 201/11 taxmann.com 208 (Delhi) (Two-Judge Bench) reiterated the view taken by the High Court of Gujarat in CIT v. Smt. Minalben S. Parikh [1995] 215 ITR 81/79 Taxman 184 (Guj.), as under:—

“The words ‘prejudicial to the interests of the Revenue’ has not been defined. However, giving the ordinary meaning to the words used in the statute, they must mean that the orders under consideration are such as are not in accordance with law and, in consequence whereof, the lawful revenue due to the State has not been realized or cannot be realized. The well settled principle in considering the question as to whether an order is prejudicial to the interests of the Revenue or not is to address oneself to the question whether the legitimate revenue due to the exchequer has been realized or not or can be realized or not if the orders under consideration are allowed to stand. For arriving at this conclusion, it becomes necessary and relevant to consider whether the income in respect of which tax is to be realized has been subjected to tax or not or if it is subjected to tax, whether it has been subjected to tax at the rate at which it could yield the maximum revenue in accordance with law or not. If the income in question has been taxed and legitimate revenue due in respect of that income had been realized, though as a result of an erroneous order having been made in that respect, the Commissioner cannot exercise the powers for revising the order under section 263 merely on the basis that the order under consideration is erroneous. If the material in that regard is available on the record of the assessee concerned the Commissioner cannot exercise his power by ignoring that material which links the income concerned with the tax realization made thereon. The two questions are inter-linked and the authority exercising the powers under section 263 is under an obligation to consider the entire material about existence of income and the tax which is realizable in accordance with law and further what tax has in fact been realized under the assessment order.”

[Emphasis supplied]

63. The ratio and the decision stands reiterated subsequently in CIT v. New Delhi Television Ltd. [2014] 360 ITR 44/220 Taxman 43 (Mag.)/[2013] 39 taxmann.com 135 (Delhi).

64. In Malabar Industrial Co. Ltd. (supra), the Apex Court (two-Judge Bench), clarified that pre-requisite for the Commissioner to suo motu exercise its jurisdiction is that the order of Income Tax Officer is erroneous, insofar as it is prejudicial to the interests of Revenue. The Court laid down twin conditions for the Commissioner to be satisfied – (i) the order sought to be revised is erroneous and (ii) prejudicial to the interests of Revenue. It clarified that the power cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. What is prejudicial to the interests of Revenue is to be understood in its ordinary meaning, for it is of wide import/amplitude and not confined to loss of tax. Every loss of revenue cannot be treated as prejudicial to the interests of revenue. It clarified that when an Assessing Officer adopts one of the courses permissible in law, which has resulted in loss of revenue or where two views are possible, then difference of opinion cannot be treated as erroneous or prejudicial to the interests of Revenue, unless view taken by the Assessing Officer is unsustainable in law. The Court reiterated that where “a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of Revenue”. The principle stands further reiterated in CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC) .

65. Mr. Chidambaram also invites our attention to the decision of Delhi High Court in Sunbeam Auto Ltd. (supra), wherein a distinction is cast between “lack of inquiry” and “inadequate inquiry”, clarifying that only in a case of “lack of inquiry”, would the Commissioner be entitled to exercise its revisional jurisdiction.

66. In DG Housing Projects Ltd. (supra), the Delhi High Court has only held that:

“18. … … …An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law.”

(Also: Commissioner of Income Tax, Mumbai v. Amitabh Bachhan [2016] 11 SCC 748)

67. The Apex Court (two-Judge Bench) in Amitabh Bachhan (supra), has held that:

“22. There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the learned C.I.T. on the basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue.”

[Emphasis supplied]

68. Applying the aforesaid principles, we further proceed to discuss facts.

69. Perusal of order dated 28.3.2013, passed by the Assessing Officer, reveals that the original return filed by the Assessee was selected for scrutiny assessment through CASS and notice under Section 143(2) of the Act issued and served upon the Assessee on 29.8.2011. On 2.3.2012, in exercise of his right under Section 139(5), Assessee filed a revised return. While assessing the same, notices under Section 142(1) and 143(2) were issued to the Assessee, to which he responded by placing on record Memorandum of Understanding (MoU) dated 15.6.2008, appointing his Agent to manage the orchard. Accounts came to be settled in September, 2011. Whereafter, Assessee filed the revised return. To verify correctness of the transaction, Agent appeared and produced on record (a) his income tax return for the relevant year, (b) copies of bills, and (c) copies of vouchers with regard to sale proceeds. Additionally, information from the Officer, assessing the return of the Agent was called, which revealed that a sum of Rs. 2,65,92,500/- was “payable to the assessee” as agricultural income. Based on the said material, Assessing Officer carried out assessment, accepting the income declared in the revised return from agricultural sources to be Rs. 2,80,92,500/-, in place of Rs. 15,00,000/- as declared in the original return.

70. In this backdrop, can it be said that the Assessing Officer conducted any inquiry, as envisaged in law. In our considered view, “no”. On first brush, it appears that the Assessing Officer did conduct “some inquiry” as Mr. Chidambaram, learned Senior Counsel, wants us to believe. Whether such inquiry is “inadequate” or “no inquiry” at all, is what requires consideration.

71. “Inquiry” has to be in accordance with law and that being with proper application of mind. Also, it is not a case of “inadequate inquiry” but in fact “no inquiry” as envisaged in law. The Assessing Officer did not examine as to whether gross mismatch in the income, was on account of any bonafide omission or a mistake. The order is conspicuously silent on this aspect. He does not consider that the receipts of sale proceeds of such income, in its entirety, amounting to Rs. 2,80,92,500/- in the relevant year, were in cash. It is not that the Assessee was not in the know of the investments made in the LIC. Huge investments of a sum of Rs. 3.80 crore (approximately) were made in the names of the Assessee and his family members. Statement of the Agent that excess amount of Rs. 1 crore was routed through one Shri M.R. Sharma, was accepted as gospel truth and no inquiry with regard thereto conducted at all. The Assessing Officer does not record that the Assessee was adopting the mercantile system of accounting.

72. Also, the fact that income from agricultural source was disproportionately high, only in the year in question and neither in the preceding or succeeding years there was such huge income from the orchard. Validity of the return, fulfilling the condition prescribed under Section 139(5) was not examined, more so in the factual backdrop when the revised return came to be filed only after issuance of notice for scrutiny. Also, what took the Assessee more than six months to revise the return was not considered.

73. No doubt, views of the Officer assessing the Agent’s income were solicited, but then such assessment could not be a binding precedent, for the Assessing Officer is obliged to independently inquire correctness of the returns of income declared by the Assessee. What is crucial is that in the return of the Assessee or the Agent, there is no reference of shortfall of Rs. 1 crore, which amount was routed through Shri M.R. Sharma, who also was not called during the course of inquiry.

74. Whether return filed was false or not, which fact was within the knowledge of the Assessee was not examined by the Assessing Officer. Similarly, plea of settlement of accounts after a period of three years was legally tenable or not, was not examined. Whether it was due to bonafide inadvertence or mistake, which fact never came to be disclosed in the original return was also not examined.

75. In fact, contradiction about the source of income, emanating from the order of the Assessing Officer, is writ large. On one hand, investment is accepted to have been made from the agricultural income and the money borrowed in the relevant year, whereas, on the other hand, it is sought to be justified as an agricultural income with respect to Assessment Years 2009-10 and 2010-11.

76. At this juncture, it be also observed that the Assessing Officer failed to take note of the fact that in the original return, even though there is reference of investment in LIC, but there is no disclosure of (a) the investments in question, (b) the fact that the Assessee had entered into an MoU with third party for management of the orchard, (c) there was income from the orchard, (d) agent invested the amount in LIC, (e) Assessee had been adopting the mercantile system of accounting and as such there was no settlement of accounts. All this, despite the Assessee having categorically disclosed therein, that a sum of Rs. 15 lakhs (approx.) was received as compensation for acquisition of land and that there was an income of Rs. 15 lakhs from agricultural source. Significantly, it is not the Assessee’s case that such income was from another agricultural source/land. Perusal of the Return (Page-265) reveals the Assessee to have also generated income from the source of LIC.

77. Thus, the order passed by the Assessing Officer is without application of mind, resulting into loss of revenue, and as such being erroneous and prejudicial to the interest of Revenue.

78. Perusal of order of the Commissioner, reveals that during the course of assessment, Additional Commissioner of Income Tax had issued directions, in the following terms:

“1. Tally the receipts of exact amount of income in hands of the assessee from Sh. Anand Chauhan and exact mode of receipt date wise.

2. Find out the detailed accounts or originally shown agriculture income i.e. Rs.15 lacs with dates of receiving sale proceeds.

3. Find the details of Rs.43,84,396/- income from other sources.

4. Keep in mind the agriculture income shown in immediate proceeding and succeeding year from the years in which the income has been received i.e. A.Y. 2008-09, 2012-13, while examining the genuineness of the revised agriculture income in the year 2010- 11.”

“1. Call for and examine the details of Income/Expenditure Account in view of Col. 4 of M.O.U.

2. Coordinate the proceedings and share the information with ITO, Ward-1, Shimla regarding the investigation made by him in the case of Sh. Anand Chauhan, who as per MOU is looking after the Orchards of M/s Vir Bhadra Singh (HUF).”

79. The said Officer in her report observed the Assessing Officer not to have conducted any independent inquiry, before accepting the return. Presumably, the Assessing Officer “remained passive in his own inquiries and has relied only on the conclusions drawn by ITO, Ward-1, Shimla, in the case of Sh. Anand Chauhan”.

80. Well, the observations of the Additional Commissioner of Income Tax have not weighed with us at all.

81. However, perusal of the order reflects the Commissioner to have carefully gone through the “record”, in correctly concluding that (a) in the given facts and circumstances, discovery of mistake or omission by the Assessee appears to be incorrect (Page- 200), for the assessee was fully aware that there was annual agricultural income being invested in LIC policies, (b) there were huge investments of more than Rs. 3.84 crore in the relevant year, as compared to originally declared income of Rs. 15 lakhs, (c) there was mis-match in the agricultural income and investments made, (d) in the aforesaid backdrop, plea of the assessee adopting mercantile system of accounting was factually incorrect and legally untenable, (e) there was non-compliance of directions issued under Section 144A, (f) assessment was carried out without conducting “essential inquiry” (Page- 230), as directed under Section 144A, (g) assessment was completed in “casual and routine” manner, (h) hence, it is a case of “no inquiry” (Page-232) and the order passed by the Assessing Officer to be erroneous as well as prejudicial to the interests of the Revenue (Page- 237).

Mercantile System of Accounting

82. It cannot be said that the Commissioner erred in appreciating that the system for accounting adopted by the Assessee was on mercantile basis. The issue with regard to accounting of such system is no longer res integra.

83. The Apex Court (four-Judge Bench) in Keshav Mills Ltd. v. CIT AIR 1953 SC 187, has explained the difference between ‘mercantile assessment’ and ‘accounting system’. The Court held as under:

“12. The mercantile system of accounting or what is otherwise known as the double entry system is opposed to the cash system of book keeping under which a record is kept of actual cash receipts and actual cash payments, entries being made only when money is actually collected or disbursed. That system brings into credit what is due, immediately it becomes legally due and before it is actually received and it brings into debit expenditure the amount for which a legal liability has been incurred before it is actually disbursed. The profits or gains of the business which are thus credited are not realised but having been earned are treated as received though in fact there is nothing more than an accrual or arising of the profits at that stage. They are book profits. Receipt being not the sole test of chargeability and profits and gains that have accrued or arisen or are deemed to have accrued or arisen being also liable to be charged for income-tax the assessability of these profits which are thus credited in the books of account arises not because they are received but because they have accrued or arisen.”

(Followed in Commissioner of Income Tax, Chennail v. Bilahari Investment (P) Ltd. [2008] 4 SCC 232)

84. If the method of accounting consistently followed by the Assessee is not emanating from the record, Assessing Officer was duty bound to adopt such appropriate method as may be found fit for determining the issue. [CIT v. British Paints India Ltd. [1991] 188 ITR 44/54 Taxman 499 (SC); Sanjeev Woollen Mills v. CIT [2005] 279 ITR 434/149 Taxman 431 (SC); & Standard Triumph Motor Co. Ltd. v. CIT [1993] 201 ITR 391/67 Taxman 160 (SC).

85. Emphatically, Mr. Chidambaram invites attention to the following reasons adopted by the Commissioner, emphasizing that the Officer passed the order without returning any positive findings, for he was too presumptuous and unsure with regard to the status of inquiries so conducted by the Assessing Officer.

86. In para-10 of the order (Page-248), the Commissioner has observed as under:

“From the above findings, it is hereby concluded that the A.O. has not made the required and essential enquiries as warranted by the facts of the case regarding the agriculture income and source of investment in LIC policy. He has not applied his mind to check whether there can be any possibility or availability of such a huge agriculture income. The A.O. has failed to make proper enquiries in this case and has not applied his mind in the right perspective. This is the case where no relevant enquiries have been carried out. In absence of requisite evidences/proof/explanation regarding the source of huge investment in LIC policies etc. it can’t be held as being invested out of agriculture income. In view of the above circumstances, action of the A.O. in passing assessment order u/s 143(3) on the basis of invalid revised return as well as by accepting ht agriculture income declared by the assessee without any documentary evidences is erroneous as well as prejudicial to the interest of revenue. Even during the proceedings u/s 263, the assessee has not given any material evidence to prove his contention that the investment in LIC policies are from the agriculture income earned from Shrikhand Orchard.”

87. It is true that the Commissioner has loosely used certain expressions, with regard to the manner in which inquiry was conducted by the Assessing Officer, but then perusal of entire order reveals that he was certain about one fact. And that being, the inquiry conducted by the Assessing Officer not to be the one envisaged in law. He is certain that the order does not bear proper and complete application of mind. Commissioner has assigned four reasons (Page 244), while holding that the revised return filed by the Assessee was not bonafide and has further assigned ten reasons (Page-245) for holding the order passed by the Assessing Officer to be erroneous as well as prejudicial to the interests of the Revenue which we find to be totally borne out from the record and based on correct and complete appreciation of factual matrix with proper application of provisions of law.

88. We may only observe that the findings of the Commissioner are based on the “record” as defined in clause (b) of sub-section (1) of Section 263 of the Act.

89. Relying upon Sunbeam Auto Ltd. (supra) Mr. Chidambaram, argued that it is not open for the Commissioner to remit/remand the matter back to the authority. We find said decision to have been rendered in the given facts and circumstances, for the issue in question is no longer res integra in view of the law laid down by the Apex Court in CIT v. Assam Travels Shipping Service, [1993] 199 ITR 1/67 Taxman 269, wherein the Court categorically held that “The expression “as it thinks fit” is wide enough to include the power of remand to the authority competent to make the requisite order in accordance with law in such a case even though the Tribunal itself could not have made the order enhancing the amount of penalty.”

90. Ambit and scope of power exercised by the authorities under Sections 263 and 254 are totally different and distinct. We have already discussed the scope of the former and now proceed to discuss about the latter.

91. The Income Tax Appellate Tribunal is not a Court but is a Tribunal exercising judicial powers. The Tribunal’s powers in dealing with the appeals are of the widest amplitude and have in certain cases held similar to and identical with the powers of an Appellate Court under the Civil Procedure Code. The Tribunal, for the purposes of discharging its functions, is vested with all the powers which are vested in the Income Tax authorities referred to in Section 131 of the Act. Any proceedings before the Tribunal are also deemed to be judicial proceedings within the meaning of Sections 193 and 228 and for the purpose of Section 196 of the Indian Penal Code (45 of 1860). It is also deemed to be a Civil Court for all the purposes of Section 195 and Chapter XXXV of the Code of Criminal Procedure, 1898 (5 of 1898) corresponding to Section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974).

92. The Apex Court in Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (Three-Judge Bench), has held that the power of the Tribunal cannot be circumscribed or controlled by the Rules (Income Tax) which are merely procedural in character. It stands followed in Assam Travels Shipping Service, (supra).

93. In ITO v. M.K. Mohammed Kunhi [1969] 71 ITR 815, the Apex Court (three-Judge Bench), has held that:

‘It is well known that an Income tax Appellate Tribunal is not a court but it exercises judicial powers. The Tribunal’s powers in dealing with appeals are of the widest amplitude and have in some cases been held similar to and identical with the powers of an appellate court under the Civil Procedure Code: see Commissioner of Income tax, Bombay City v. Hazarimal Nagji and Co. [1962] 46 ITR 1168 (Bom.) and New India Assurance Co. Ltd. v. Commissioner of Income-tax, Excess Profits Tax [1957] 31 ITR 844. In Polini v. Gray [1879] 12 Ch.D 438. Appeal to grant stay at page 443:

“It appears to me on principle that the Court ought to possess that jurisdiction, because the principle which underlies all orders for the preservation of property pending litigation is this, that the successful party is to reap the fruits of that litigation, and not obtain merely a barren success. That principle, as it appears to me, applies as much to the Court of first instance before the first trial, and to the Court of Appeal before the second trial, as to the Court of last instance before the hearing of the final appeal.”‘

[Emphasis supplied]

94. The Apex Court (three-Judge Bench) in CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710, has held thus:

‘By the first question the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the Departmental authorities is canvassed. Under sub-section (4) of Section 33 of the Indian Income-tax Act, 1922, the Appellate Tribunal is competent to pass such orders on the appeal “as it thinks fit.” There is nothing in the Income-tax Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the Departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the Departmental authorities and the Tribunal, and indeed they would be under a duty to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him.’

(Also: Shree Hari Chemicals Export Ltd. v. Union of India and another [2006] 1 SCC 396)

95. In National Thermal Power Co. Ltd. v. CIT [1998] 97 Taxman 358, the Apex Court (three-Judge Bench) has held that:

“4. …………Under Section 254 of the Income Tax Act the Appellate tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the tribunal in dealing with the appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the tribunal, it is found that a non- taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of income Tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the tribunal. We fail to see why the tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.

5. In the case of Jute Corpn. of India Ltd. v. CIT [1991] Supp(2) SCC 744, this court, while dealing with the powers of the Appellate Assistant Commissioner observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the appellate authority is vested with all the preliminary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the income Tax Officer. This court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the tribunal also.

6. The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income Tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal [vide e.g. CIT v. Anand Prasad [1981] 128 ITR 388 (Del): CIT v. Karamchand Premchand (P) Ltd. [1969] 74 ITR 254 (Guj) and CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Guj)]. Undoubtedly, the Tribunal will have the discretion a to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider the question of law arising from facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.”

[Emphasis supplied]

96. The Apex Court (two-Judge Bench) in Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1, has held as under:

“The decision in question is that the power of the Tribunal under section 254 of the Income Tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the assessing officer to entertain a claim for deduction otherwise than by filing a revised return…….”

97. Applying these principles we proceed on merits.

98. Perusal of the order passed by the Tribunal reveals that for more than 1½ year, matter was adjourned for one reason or the other. In November, 2016, Revenue filed written submissions, enclosing therewith certain documents, when the appeal was adjourned. Though the authorized representative of the Assessee objected to the filing of written submissions by the Revenue “at such a late stage”, yet it sought time for filing rebuttal thereto, which request was accepted and the matter adjourned for 29.11.2016, on which date, learned counsel appearing for the Assessee objected to the documents being taken on record and accepted for consideration of the appeal. Overruling such objection, Tribunal accepted the documents, as additional evidence and considered the same for deciding the appeal.

99. It is in this backdrop, we proceed to discuss as to whether action of the Tribunal in accepting the documents, as additional evidence, is legally tenable or not.

100. We are in respectful agreement with the finding recorded by the Tribunal that the word “record” so defined in Section 263 of the Act, confines only to the proceedings conducted thereunder.

101. The Tribunal found the additional material sought to be relied upon by the Revenue only to support the view already taken by the Commissioner. Such additional material was germane for deciding the issue in controversy. The Tribunal did take note of Rule-29, permitting production of additional evidence before itself and being satisfied of its necessity to enable it to pass orders. Even in the absence of written application, Tribunal, after recording its satisfaction, accepted the same and took them on record.

102. Additional material adduced, is nothing but what was collected during the course of proceedings pertaining only to the Agent and his submissions/statements during the course of adjudication thereof.

103. The question, which arises for consideration, is as to whether prior to the decision, the authority ought to have passed a separate order, accepting the additional evidence on record.

104. In Text Hundered India (P.) Ltd. (supra), the Delhi High Court held the power of the Tribunal wide enough to admit additional evidence at its discretion for doing substantial justice in the matter. However, party intending to lead evidence before the Tribunal, for the first time, has to show that it was prevented by sufficient cause to do so and that it could have material bearing on the issue for just decision of the case and the ends of justice demands admission thereof. The Court on an undisputed statement held Rule 29 of the Rules, akin to Order 41 Rule 27 of the Code of Civil Procedure, and thus observed:

“13. ……….This can be done even when application is filed by one of the parties to the appeal and it need not to be a suo motu action of the Tribunal. The aforesaid rule is made enabling the Tribunal to admit the additional evidence in its discretion if the Tribunal holds the view that such additional evidence would be necessary to do substantial justice in the matter. It is well settled that the procedure is handmade of justice and justice should not be allowed to be choked only because of some inadvertent error or omission on the part of one of the parties to lead evidence at the appropriate stage. Once it is found that the party intending to lead evidence before the Tribunal for the first time was prevented by sufficient cause to lead such an evidence and that this evidence would have material bearing on the issue which needs to be decided by the Tribunal and ends of justice demand admission of such an evidence, the Tribunal can pass an order to that effect.

14. ………The true test in this behalf, as laid down by the Courts, is whether the Appellate Court is able to pronounce judgment on the materials before it without taking into consideration the additional evidence sought to be adduced. The legitimate occasion, therefore, for exercise of discretion under this rule is not before the Appellate Court hears and examines the case before it, but arises when on examining the evidence as it stands, some inherent lacuna or defect becomes apparent to the Appellate Court coming in its way to pronounce judgment, the expression ‘to enable it to pronounce judgment’ can be invoked. Reference is not to pronounce any judgment or judgment in a particular way, but is to pronounce its judgment satisfactory to the mind of Court delivering it…………..”

105. On this issue, we may take note of a Constitution Bench judgment of the Apex Court in K. Venkataramkiah (supra), wherein power of the Court to take on record additional evidence is discussed. That additional evidence can be allowed to be taken on record, in the interest of justice, if something remains obscure should be filled up so that it can pronounce its judgment in a more satisfactory manner.

106. In T.N. Sahani (supra), the Apex Court (two-Judge Bench), has held that an application for leading additional evidence is to be decided alongwith the appeal.

107. In North Eastern Railway Administration, v. Bhagwan Das [2008] 8 SCC 511, the Apex Court ((two-Judge Bench) further held that the question whether looking into the documents, sought to be filed as additional evidence, would be necessary to pronounce judgment in a more satisfactory manner, has to be considered by the Court at the time of hearing of the appeal on merits. The appellate Court has the power to allow additional evidence not only if it requires such evidence “to enable it to pronounce judgment” but also for “any other substantial cause”. Though the general rule is that ordinarily, the appellate Court should not travel outside the record of the lower court and additional evidence, whether oral or documentary is not admitted, but Section 107 CPC, which carves out an exception to the general rule, enables an appellate court to take additional evidence or to require such evidence to be taken subject to such conditions and limitations as may be prescribed. These conditions are prescribed under Order 41 Rule 27 CPC.

108. A Division Bench of the Madras High Court in T.M.S. Mohamed Abdul Kader (supra), has held the expression “such orders as it deems fit” to be wide enough to call for fresh evidence from the authorities under the Act. To similar effect is the judgment rendered by a Division Bench of Andhra Pradesh High Court, in Thakur V. Hari Prasad (supra).

109. In Thakur V. Hari Prasad (supra), the Court observed that:

“Any material relevant to the point in controversy is evidence. The Supreme Court in D. M. Manasvi v. CIT, held that the findings given in assessment proceedings would be relevant and admissible material in penalty proceedings. Even the statements recorded under section 161, Criminal Procedure Code, during the investigation, though unsigned by the maker thereof, may be relevant evidence. The only inhibition is that it cannot be pressed into service without supplying a copy thereof to the assessee so as to enable him to controvert, if he disputes the correctness of the contents thereof, if need be, by calling the maker for examination tendering his oral evidence. Both the Revenue as well as the assessee have adduced oral and documentary evidence. The statements recorded under section 161, Criminal Procedure Code, of the two prize winners (viz., M. Sriramulu and Shankaraiah), Sri Malakondaiah (District Collector) and Diwakar Setty were supplied, they were examined and cross-examined at length. How far the statements under section 161, Criminal Procedure Code, or evidence can be relied on or accepted or inference to be drawn therefrom in support or against the conclusion of concealment, are matters exclusively for the primary authority and the appellate forum, as fact- finding authorities. Therefore, the procedure adopted by the Appellate Tribunal is one of statutory compliance of section 274(1) but not “filling up gaps in the sense of a criminal trial.” The Act itself makes a distinction in using the phraseology in the relevant provisions for prosecution or penalty, like section 276C(1) – “Wilful attempt to evade tax”, section 276CC – “Wilful failure to furnish particulars”, etc. But under section 271 (1)(c), mere concealment is sufficient to impose penalty. Thus considered, the doctrine of “filling up gaps” does not apply to the penalty proceedings in Chapter XXI but would be applicable to prosecution under the Act.

“………..Though the settled legal principle is that the power of the appellate authority is co- extensive with that of the original authority, the exercise of power by the Appellate Tribunal is not hedged in by any limitation. As seen, the power of the Appellate Tribunal under section 254 is of wide amplitude. Therefore, it is permissible to adopt such procedure conducive to the circumstances of a case so warranted.”

110. In view of the aforesaid decision, we find reliance on Maruti Udyog Ltd. (supra) to be misplaced, also for the reason that it came to be delivered in the attending facts and circumstances and distinguished in Rasiklal M. Parikh v. Asstt. CIT [2017] 391 ITR 395/80 taxmann.com 22 (Bom.).

111. In the instant case, there are no elements of surprise. In fact, the Assessee was fully aware that the Revenue had placed additional material in support of its case. No doubt, Assessee had protested, but then, himself took time to rebut the same. It is not that surreptitiously, such material came to be placed on record or accepted by the Tribunal. The matter was pending for more than 1½ year and written submissions filed. The Chartered Accountant appearing for the Assessee took time to rebut the same. Thus, adequate opportunity was afforded to the Assessee. Enough time (more than a fortnight) was afforded to the Assessee to rebut the same, which, for unexplainable reasons he chose not to do so. And the protest is also not with vehemence. No written application was filed opposing the same. No other remedy was taken recourse to. We find the Tribunal to have extensively dealt with the issue of accepting the documents as additional evidence as also the need for passing an order prior to its decision.

112. Also in the instant case, what prejudice is caused to the Assessee, in accepting the documents as additional evidence, remains unexplained. We find the Tribunal to have decided all these issues in the first part of the order (Pages-78 to 93) and as such do not find any infirmity with the same. Appeal on merits was adjudicated in the second part of the order. It cannot be said that principles of natural justice stand violated.

113. Much reliance is placed on Andaman Timber Industries (supra), to highlight the point of lack of opportunity for cross-examining the witnesses. We do not find the decision to be applicable, for in the instant case statement was that of the Agent of the Assessee, in fact on whose return the Assessee seeks reliance upon.

114. The Tribunal has extensively dealt with the issue of (a) acts of the Assessee in filing the revised return to be not bonafide, for he was already in the know of income and as such omission or wrong statement in the original return cannot be said to be a discovery of fact, for such action was neither bonafide nor genuine (Page-93), (b) the Assessing Officer did not comply with the directions that of the Additional Commissioner of Income Tax, issued under Section 144A (Pages 104 to 111), (c) Assessing Officer did not conduct the inquiry, “verifying the genuineness of agriculture income” which prima facie was found to be false in view of statements dated 13.12.2011, 23.1.2013 and 11.2.2013 that of the Agent, so recorded during the course of proceedings of his assessment of return of income (Pages-111 to 137).

115. The Tribunal found the stand taken by the Assessee to be not correct, also for the reason that (a) the date of agreement, i.e. 17.6.2008, prima facie appeared to be fabricated, for the stamp papers inscribing the same, were printed and dispatched from the Indian Security Press, Nasik, only on 24.9.2008 and 14.3.2009, (b) books of account of expenditure incurred prima facie appeared to be fictitious, (c) the landholding of the Assessee could not have yielded the returns of such huge amount, (d) the Agent had not truly declared his income generated as commission under the said agreement, (e) the Agent was not having sufficient income to have incurred the expenditure (Rs. 69.12 lakhs approximately) (Page-123) so reflected in the books of account, thus believing the plea of the transactions in question being not genuine, if not false.

116. It is in this backdrop, Tribunal found the inquiry conducted by the Assessing Officer not to be in accordance with law (Pages 137 to 148) and the view taken by the Officer not to be a plausible one (Pages 148- 153), holding that since it was a case of “no inquiry”, Commissioner rightly remitted the case back to the Assessing Officer, for carrying out assessment in accordance with law (Pages 153-158).

117. At this juncture, it be also observed that by the very same order, the Tribunal also decided the appeals filed by the Agent (Pages 159 to 200), inter alia, observing as under, to which no challenge is laid:

“An overview of the above features indicates that the agricultural produce was not proved; transportation of the same to UAA was also not proved; bills issued by UAA were not genuine; cash received from UAA shown at Rs.1.00 crore did not appear in their books of account; the expenses claimed were not backed by any vouchers/bills; and all the expenses were claimed to have been incurred on one single day and that too in cash. We fail to comprehend as to how the assessment order accepting the genuineness of carrying out the agricultural operations and earning a huge income in such circumstances can be considered as an order made after proper inquiry as has been canvassed by the assessee… ………..”

118. Thus, in the given facts and circumstances, we hold the Tribunal to have correctly affirmed the order passed by the Commissioner. Also, it cannot be said that the Tribunal erred in accepting the additional evidence placed on record by the Revenue. It also cannot be said that the Tribunal committed any material irregularity and violated any procedure and such action is illegal or bad in law. In fact, we find principles of natural justice and fair play to have been adhered to and fully complied with.

119. We reiterate that sub-section (1) of Section 263 confers sufficient powers upon the Commissioner to decide all issues of law, after recording its satisfaction that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. The power is wide enough to take in its sweep the action of modifying, cancelling or directing fresh assessment, particularly when it is a case of “no inquiry”. We are of the considered view that no inquiry, as envisaged in law, was carried out, hence, question of the Commissioner taking an alternate possible view does not arise. The Assessing Officer cannot be said to have taken a plausible view, as envisaged in law, and the view taken by the Commissioner to be an alternative one. Finding of the Commissioner that the order is erroneous is not on account of his mere disagreement with the view taken by the Assessing Officer. Any inquiry, without application of mind, is nonest. The given facts warranted the Assessing Officer to have conducted complete and proper inquiry and only thereafter, assessed the income so declared by the Assessee. He ought to have considered that the Assessee had sought to revise the return by declaring an income 1872% higher than what was originally returned and that too after action for scrutinizing the return was initiated. All transactions of sale of agricultural produce were in cash. Income declared was (a) disproportionately high only with respect to the relevant year and never in the preceding or succeeding years, (b) investment of huge amount of Rs. 3.8 crore was carried out by the Assessee himself, be from whatever source and there was no reference thereof in the original return. As such, omission or wrong statement cannot be said to be bonafide. Prima facie returns, being invalid, ought to have been rejected.

120. The case in hand being that of no inquiry, and the amplitude of the powers of the Commissioner being wide enough to pass “such order” as the circumstances of the case justify, including (a) cancelling the assessment, (b) modifying the order of assessment, (c) directing fresh assessment, as such, the Commissioner was well within his right to pass an appropriate order of remission.

121. Scope of the Tribunal to examine correctness of the exercise of jurisdiction by the Commissioner is wide enough and not limited and restricted to the record as defined under clause (b) of sub-section (1) of Section 263 of the Act. In any case, even this definition is inclusive. It includes all records relating to any proceedings under the Act, be that of the Assessee or a third party, available at the time of examination by the Commissioner. The record need not pertain to the proceedings of the Assessee alone, be it for the relevant year or assessments pertaining to other years. It can also pertain to any other assessee. In fact, record of any proceedings under this Act available at the time of examination can be considered. Such record need not be placed by the parties. He has power to call for and examine the record of “any proceedings under this Act”.

122. As is evident, definition of word “record”, inclusive in nature, is restricted to and confined only to the exercise of power by the Commissioner and would not relate to the amplitude of the power exercisable by the Tribunal “to pass such orders” “as it deems fit”.

123. We are unable to persuade ourselves to accept the submission made by Mr. Vishal Mohan, that the jurisdictional issue of the Tribunal is confined only to the record of the Commissioner, not only in view of our discussion supra, but also in view of law laid by the Apex Court (three-Judge Bench) in National Thermal Power Co. Ltd. (supra).

124. Relying upon Syed Abdul Khader (supra) (Two- Judge Bench), Mr. Kuthiala contends that the Agent cannot be treated to be a one under the provisions of the Indian Contract Act, 1872. We leave this issue open to be examined by the fact finding authority.

125. Substantial questions of law are answered accordingly. Present appeal, devoid of any merit, is dismissed. Pending application(s), if any, also stand disposed of accordingly.

[Citation : 400 ITR 530]