TaxTMI 
TaxTMI 
2016 (12) TMI 1646
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....nd Sh. Sudhir Sehgal argued the appeals of Sh. Anand Chauhan. Sh. Ravi Sarangal, CIT-DR, argued the appeals of both the assessees on behalf of the Revenue. VIRBHADRA SINGH (HUF) - (A.Y. 2010-11) 2. Briefly stated, the facts of the case are that the assessee filed original return of income on 29.7.2010 declaring total income of Rs. 44,67,584/- plus agricultural income of Rs. 15 lac. Notice dated 24.8.2011 u/s 143(2) for scrutiny assessment was served on the assessee. The assessee filed revised return on 2.3.2012 declaring total income of Rs. 44,67,584/- plus agricultural income of Rs. 2,80,92,500/-. Assessment in this case was completed u/s 143(3) of the Act on 28.3.2013 at the income declared in the revised return. The ld. CIT, on perusal of records, observed that the assessment was completed in a routine and casual manner without making any effective inquiry. Notice u/s 263 was issued. After entertaining objections and replies from the assessee, the ld. CIT came to hold that the Assessing officer passed an erroneous order prejudicial to the interests of the Revenue, inter alia, on the ground that the revision of return was wrongly accepted; accounting principles were wrongly....
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.... failed to enquire from the assessee about the source of Rs. 1.19 crores invested in LIC policies over and above the additional income declared in the revised return. vii. A.O. had blindly accepted the agricultural income of the assessee by relying upon the statement of Mr. Anand Chauhan as well as MOU between the assessee and Mr. Anand Chauhan for maintaining the Orchards belonging to the assessee without making any enquiry about the bills, vouchers, books of accounts and their authenticity in relation to agriculture income declared by the assessee. So A.O. relied upon the self made internal documents between the assessee and his agent Mr. Anand Chauhan. Since the benefit of agriculture income was claimed by the assessee so onus was on the assessee to establish the earning of agriculture income with the help of genuine bills, vouchers, documents, books of accounts and their authenticity. The assessee cannot save himself by simply stating that records were maintained by his agent/manager. viii. A.O. has not applied his own mind but blindly accepted the findings of ITO, Ward-1, Shimla in the case of Mr. Anand Chauhan, in relation to agriculture income declared by t....
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....ned to 29.11.2016. I. EVIDENCE IN APPEAL i. Evidence in appeal against the order u/s 263 5.1. Shri Ajay Vohra, Sr. Advocate, appeared for the assessee on 29.11.2016 and objected to certain portions of the written submissions of the ld. DR and the accompanying additional evidence fortifying such written submissions. Shri Vohra submitted that the discussion made from the middle of page 19 onwards of the written submissions filed by the Revenue refers to certain events and documents pertaining to the period posterior to the passing of the impugned order by the ld. CIT and, hence, the same should not be taken into consideration. The sum and substance of his submissions was that the parties can rely only on such evidence before the tribunal which was considered by the CIT and nothing beyond that. This preliminary objection was raised by the ld. AR on the strength of the definition of the term 'Record' given in Explanation 1(b) to Section 263(1) of the Act. The ld. AR also relied on the judgment in CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC) to bolster this submission. This was vehemently opposed by the ld. DR. 5.2. Since this is a preliminary objection raised ....
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....y such record as was available with the Assessing officer. He can also look into other material which comes to his knowledge even though it was not earlier existing or existing but not considered by the Assessing officer. The crux of the matter is that the CIT can take cognizance of anything available before him at the time of his examination in terms of section 263. Thus it is plain that the definition of the term `record' has been given in the context of the exercise of power by the CIT. Placement of the definition of the term `record' in section 263 and which is only : `for the purposes of this sub-section' leaves nothing to doubt that it is confined only to the revisionary power to be exercised by the CIT u/s 263(1) of the Act. This provision has neither been placed nor referred to in Chapter XX-B dealing with `Appeals to the Appellate tribunal'. It has no relation with the right of the parties to rely on evidence during the appellate proceedings before the tribunal and such right to file additional evidence is not circumvented by this provision. 5.4. The reliance of the ld. AR on the case of Max India (supra) is misplaced. In that case, the AO interpreted the word `profits'....
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....id. Repelling such contention, the Hon'ble Apex Court held that power of the CIT under section 263 must be exercised on the basis of the material that was available to him when he exercised the power. At that time, the issue whether power subsidy was capital receipt had been concluded against the Revenue by the jurisdictional High Court of the assessee and the fact that the Supreme Court had subsequently reversed the decision of the High Court, would not justify the CIT in treating the AO's decision as erroneous. 5.6. It is patent that the position prevailing in this case is more or less similar to what was there in the case of Max India (supra). In both the cases, the AO decided the issue before him in favour of the assessee by relying on a possible legal view, with which the CIT did not agree on the basis of a contrary possible view. In both the cases, the issue was debatable at the time of passing the orders by the AO as well as CIT. Whereas in Max India (supra), there came a later retrospective amendment upsetting the view of the AO, in G. M Mittal (supra), the AO's view was frustrated by a later judgment of the Hon'ble Apex Court. In both the cases, the Hon'ble Summit Court....
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....l evidence by the Department. It was also submitted that there was no compliance by the ld. DR of Rule 29 of the ITAT Rules, 1963. 6.2. In order to deal with this contention, we deem it necessary to refer to rule 29 of the ITAT Rules, 1963, with the caption : `Production of additional evidence before the Tribunal'. It provides that : `The parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal, but if the Tribunal requires any document to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or, if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced.' A bare perusal of the Rule exposes that the parties are not entitled to produce additional evidence before the Tribunal. The same can be filed if the Tribunal, inter alia, requires "to ena....
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....of discretion under this rule is not before the Appellate Court which 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'. From the above judgment it is manifest that additional evidence can be admitted on the request by the appearing parties and also at the suo motu discretion of the tribunal, if it considers necessary to entertain the additional evidence for enabling it to pass order or for any other substantial cause. The additional evidence sought to be relied by the ld. DR, to the extent it does not set up a new case and is in support of the broader reasons noted by the ld. CIT in holding the assessment order to be erroneous and prejudicial to the interest of the revenue, is, ergo, admitted. iii. Whether any separate order is required before admitting additional evidence. 7.1. The ld. AR pressed into service the judgment in Maruti Udyog Ltd. vs. ITAT & Ors. (2000) 244 ITR 303 (Del) to contend that if the tribunal was inclined to accept the additional evidence, then, it must first pass a separate order indicating the re....
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.... assessee but not disclosed in the original return, was a clear indicator that the revised return did not satisfy the conditions of section 139(5) of the Act inasmuch as it amounted to the earlier intentional non-disclosure of the correct income. 9.2. This was opposed by the ld. AR on the premise that in mercantile system of accounting, income is offered on accrual basis. He submitted that in the facts of the instant case, the assessee could have shown the agricultural income either at the end of the third year on final settlement of account with Sh. Anand Chauhan, who was managing its Shrikhand Orchards, Damrali or on the basis of its accrual on year to year basis. He stated that the assessee initially opted for the first course of action, being an intention to disclose income at the end of the third year, but later on resorted to the second course of action, being disclosure of income on year to year basis. He submitted that both the courses have the legal backing and hence the ld. CIT himself erred in dislodging the mercantile system of accounting rightly followed by the assessee at the time of filing the original return of income. This was strongly opposed by the ld. DR. ....
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....rom the orchard." Clauses (1) and (2) of the MOU read as under :- "1. That in consideration of the commission hereinbefore agreed upon to be paid by the First Party to the Second party on the net proceeds of the apple orchard, the second party shall manage & look after in all respect, the orchard of the First Party known as "Shrikhand Orchard" situated at Village Damrali, Chak Shyarla-Varshol, Taklech, Tehsil Rampur Bushahr, Distt. Shimla, H.P. 2. That the Second Party shall bear all the expenses of managing this apple orchard, which includes the use of spray, pesticides, incidental & ancillary acts required to be done in growing the apple crop and for obtaining better yield from the orchard, to harvest the crop, grading & packaging the same and sell the apples in the market, to receive the proceeds/income from selling the apples, to invest the proceeds so obtained from the sale of apples in Government securities, Mutual Funds, in schemes of LIC or to invest the money in the products of Scheduled Banks by ensuring the safe & better returns." 9.5. Clause 5 of the MOU, which is also relevant for our purpose, reads as under:- "That the commission hereby a....
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....d as a principal of Sh. Chauhan. Any work done by an agent in such capacity is considered as having been done for and on behalf of his principal. A principal cannot claim that the activities done by his agent are separate activities done by the agent in his individual capacity. These are considered as the activities of the principal only. The argument of the ld. AR that the income should be treated to have accrued to the assessee at the end of the three-year period in September, 2011 misses wood from tree. When Sh. Anand Chauhan was earning income from such transactions during the period of three years on behalf of the assessee alone, the argument that the income accrued to the assessee only when the account was settled with his agent in September, 2011, becomes wholly untenable. Under no circumstance can be assessee claim that the Sh. Chauhan earned income during the three years on his own behalf and the income accrued to the assessee only at the end of the third year. The contention, if given a logical conclusion, will have the effect of obliterating the relationship between an agent and a principal, which is an absurd proposition. Thus, it follows that the income so accrued in t....
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....return was filed declaring additional agricultural income of Rs. 2.65 crore and odd from Shrikand Orchard, Damrali. 9.11. Relevant portion of sub-section (5) of section 139 provides that : `If any person, having furnished a return under sub-section (1), .... discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier'. A bare perusal of this provision indicates that only if the assessee discovers any omission or wrong statement in the return earlier filed by him, that he can furnish a revised return. In other words, if the omission or wrong statement was known to the assessee at the time of filing the earlier return, then it will not fall within the ambit of the term `discovered', so as enable the assessee to obtain the benefit of this provision. Thus it is apparent that the assessee's such plea of getting knowledge of the agricultural income on settlement of account with Sh. Anand Chauhan in September, 2011, does not fall within the pale of the word `discovers' in section sub-section (5) of section 139....
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....l, 4 of MOD ii) To coordinate the proceedings and share the information with ITO Ward-1, Shimla regarding the investigation made by him in the case of Shri Anand Chauhan , who, as per, MOU is looking after the Orchard of M/S Virbhadra Singh (HUF)'. 10.3. Further directions were given by the Addtl. CIT on 7.2.2013, which are as under:- "I. To tally the receipts of exact amount of income in hands of the assessee from Sh. Anand Chauhan and exact mode of receipt date wise. II. To find out the detailed accounts of originally shown agriculture income i.e. Rs. 15 Lacs with dates of receiving sale proceeds. III. To find the details of Rs. 43,84,396/- income from other sources. IV. To keep in mind the agriculture income shown in immediate preceding and succeeding year from the years in which the income has been revised i.e. A.Y. 2008-09, 2012-13 while examining the genuineness of the revised agriculture income in the year 2010-11. 10.4. The Assessing officer partly complied with the directions of the Addl. CIT issued u/s 144A seeking certain information from the assessee. Vide reply dated 18.2.2013, the assessee reiterated its earlier submi....
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....s earning marginal income in the years prior to the AY 2009-10 and after the A.Y. 2011-12, i.e. the period anterior to and posterior to the date of the MOU. When the details of agricultural income for earlier years, as directed to be examined by the Addl. CIT u/s 144A, were available with the AO himself, it was his bounden duty to follow the directions given by the Addl. CIT. 10.7. The Assessing officer accepted the assessee's contention about earning of manifold net agricultural income of Rs. 2.65 crore by the assessee during the period relevant to the assessment year under consideration without any verification. It is further relevant to note that Shrikhand Orchards, Damrali, is spread over 105 bighas of land. Shri Anand Chauhan, in his statement recorded by his Assessing officer, a copy of which has been placed by the assessee in the paper book before us as was also available to the AO while finalizing assessment of the assessee, admitted that his father has orchards spread over 80-85 bighas and income therefrom was between Rs. 15-20 lac. Such a huge difference in the agricultural income earned from the farm of Shri Anand Chauhan's family and Shrikhand Orchards, Damrali, shou....
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....iscussed this issue on pages 5 and 6 of his order, but, accepted the assessee's explanation without any verification that agricultural income received during the years 2008-09 to 2009-10 was Rs. 4,79,92,500/- and the amount invested in LIC policies during the current year amounted to Rs. 3.80 crore, meaning thereby that the differential amount of Rs. 1.65 crore (Rs.3.80 crore invested in the previous year relevant to the assessment year under consideration (-) net agricultural income of Rs. 2.65 crore for such year) was invested in the current year from the sale proceeds of the preceding year. This fact was held by the ld. CIT to have been laid to rest quietly by the AO. 11.2. It is significant to note the statement of Shri Anand Chauhan dated 11.2.2013 recorded by ITO, Ward-3, Shimla, which has been placed by the ld. AR on page 106 onwards of his paper book. In response to question as to where the cash realised from UAA was kept which was obviously not deposited on several occasions for months together, Shri Chauhan stated that he was keeping the amount at his house only. When asked as to why such amount was not immediately invested in LIC policies as per the MOU, he stated tha....
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..... The ld. CIT started his revisionary order on the very premise that the assessment was completed in a routine and casual manner practically without making any effective enquiry. This has been recorded on page 1, para 2 of the order. Even in notice issued u/s 263, whose relevant part has been reproduced on pages 2 to 6 of the impugned order, the ld. CIT noticed on page 4 that while framing the assessment, the AO simply relied on the assessment framed by ITO, Ward-1, Shimla in the case of Shri Anand Chauhan. Proper and independent inquiry should have been made by the AO himself rather than relying on the assessment framed by the AO, Ward-1, Shimla in the case of Shri Anand Chauhan. He further noticed that: "AO blindly accepted the quantum of agricultural produce as held by the ITO, Ward-1, Shimla, without going into the details knowing well that the entire fact of increased agricultural income will culminate in the case of his assessee." The AO was found not to have noticed that the agricultural income shown prior to the period of agreement and after the agreement was very low and has increased manifolds in the revised return. He opined that: "the Assessing Officer has failed to enq....
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....ssions made by the assessee without any material evidence. In such circumstances, the unexplained investments in the purchase of LIC policies should have been deeply enquired into and verified to arrive at the correct conclusion which he has failed." Then, he recorded on page 36 of the impugned order that the assessee: "has failed to file any explanation supported by cogent evidence regarding the quantum and genuineness of agricultural income either before the Assessing officer or before the undersigned." While summarising his discussion, as extracted above, the ld.CIT noticed that the Assessing officer blindly accepted the agricultural income and vide points 7 and 8 held that the AO did not inquire into : `The mode of transport by which the apple crops taken to the market and its freight paid'; and `Actual expenditure on fertilizers, pestisizers, spray etc. relating to agricultural income'. In the penultimate page of the impugned order, the ld.CIT concluded that: "the Assessing officer has not made the required and essential enquiries as warranted by the facts of the case regarding the agricultural income and source of investment in LIC policies. He has not applied his mind to che....
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.... shows that he did not have any resources for incurring huge expenses on behalf of the assessee. On a pointed query, the ld. AR initially stated that his family had huge income from agricultural and he incurred these expenses from such income. It can be noticed from the second statement recorded on 23.1.2013, copy placed by the ld. AR, that Shri Chauhan admitted, in response to the question about the income of his family from apple orchards and his share in that, by stating that the apple orchards and land belonging to his family were in the name of his father only who was retaining the entire income therefrom. Only at the time of some urgent necessity, his father was helping him and he did not have any separate share in that income. 13.4. It is an admitted position that Sh. Chauhan was given commission at the rate of 2% of net proceeds only at the end of third year on expiry of the MOU. This shows that Shri Chauhan was not paid any commission during the period of three years and he was to meet all the expenses of grading, packing, freight and pesticides, etc. either from his own resources or from sale of crop during the intervening period. 13.5. Page No.117 of the assessee's....
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....s of Rs. 19.60 lac from its Sarahan farm, a sum of Rs. 4.60 lac was incurred for meeting routine expenses at Damrali. A copy of the details of expenses incurred is available at page 100 of the Departmental paper book. This page starts with Shrikhand Orchards (Regd.). Below that, there is a mention of `Damrali/Sarahan'. The word 'Damrali' has been crossed and only `Sarahan' remains. This shows that the agricultural expenses of Rs. 4.60 lac were claimed to have been incurred by the assessee in respect of Shrikhand Orchards, Sarahan and no amount was incurred by the assessee in respect of Damrali orchards, maintained by Shri Anand Chauhan. This position is in contrast to the MOU which explicitly provides that the assessee will incur expenses of regular nature such as salaries, etc. and Shri Chauhan will incur expenses like freight, packaging and pesticides, etc. On a query from the Bench about the source of incurring of expenditure in respect of Damrali Orchards, it was stated that a total sum of Rs. 4.60 lac was incurred in respect of both the orchards at Damrali and Sarahan, which position is contrary to what the assessee itself filed during the course of his assessment proceedings.....
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....arose during the course of further proceedings in the hands of Sh. Anand Chauhan. 14.2. The ld. AR seriously objected to entertaining such additional evidence by contending that Sh. Anand Chauhan is a different assessee and hence the material gathered in his case should be excluded at the threshold. The ld. DR vehemently contended that Sh. Anand Chauhan's case is integrated with the assessee's case. He also placed on record a copy of the letter dated 7.11.2016 filed by the assessee itself before the Bench mentioning that the assessee's case and Sh. Anand Chauhan's case are inter-connected and, hence, be taken up together. 14.3. We are not persuaded to accept this objection raised on behalf of the assessee. In ordinary circumstances, when there are two distinct assessees, the proceedings in the case of one can have no bearing on the proceedings in the case of the other. However, now we are confronted with a situation in which the entire proceedings in the case of Shri Anand Chauhan for the three years under consideration deal primarily and solely with the transactions carried out by him for and on behalf of the assessee. There is no shred of his separate and independent transa....
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....at Damarali. It was contended that when the assessee entered into the MOU with Sh. Anand Chauhan for the supervision of his full orchard at Damrali, how he could enter into a different agreement with Sh. Bishambhar Dass for the same orchard or its part for the same period or a part of that. 15.4. Referring to the consequential assessment order, the ld. DR pointed out that the aspect of transport of apples by vehicles from Shrikhand Orchards to Parvanoo was also examined. It was pointed out that one Shri Dinesh Kumar Sood claimed that his tippers were used for transport of apples during the apple season of financial year 2008-09 to 2010-11. That was found to be incorrect because the Parvano mandi was not operative in financial year 2008-09 due to the ongoing four-laning of Chandigarh to Parvano highway. Details of vehicle claimed to have been used for transport of apples were provided by Shri Chunni Lal, representative of UAA. Examination of such details revealed that the vehicles, on verification, turned out to be oil tankers, scooters, motor cycle and Maruti 800 cars. Certain numbers as claimed to have been used for transport of assessee's apples were not even allotted by the R....
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.... dated 18.10.2009. The bill dated 15.10.2009 should have a number prior to that issued on 18.10.2009, whereas it was the converse case. The ld. DR submitted that though the Assessing officer called for the assessment records of Shri Anand Chauhan by co-coordinating with his Assessing officer, but, failed to note such glaring inconsistencies which ought to have struck him. 15.7. The ld. DR also referred to inquiries with fruit merchants who were reported to have paid advance to Shri Anand Chauhan against the sale of the assessee's apple crop. Such inquiry divulged that as against the statement of account of Shri Anand Chauhan that he received a sum of Rs. 1 crore in cash during May, 2010 as advance from UAA, there were no corresponding entries of cash payment in the books of UAA. It further transpired that Shri Chunni Lal on behalf of UAA claimed to have paid cash by 13 different firms across the country through him. Further inquiries were conducted from these 13 firms which divulged that either such firms were not existing/not traceable or they had not paid any amount. 15.8. In the light of the above submissions, the ld. DR contended that it was a case of fictitious sales of ....
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....y the Addl.CIT u/s 144A; not correctly examining the difference between the amount of agricultural income and the amount invested in LIC; and failing to notice the factual matrix discussed above emanating from the evidence on record, filed by the assessee and the ld. DR, in our considered opinion, rendered the assessment order erroneous and prejudicial to the interests of the Revenue.&& VI. LEGAL PROPOSITIONS i) Whether the AO conducted adequate inquiry ? 18.1. The ld. AR submitted that the Assessing officer made proper inquiry in this case. To buttress this submission, he invited our attention towards page 9 of the assessee's paper book, which is a copy of notice dated 25.10.2012 issued by the Assessing officer u/s 143(2) of the Act and another notice on page 10 of the paper book seeking necessary details for the purposes of completion of assessment. He referred to page 13 of the paper book, which is a reply furnished by the assessee to the Assessing officer's notice. It was pointed out that the Assessing officer inquired about the increase in the agricultural income in the revised return and appropriate reply was given submitting various details as called for by him incl....
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....nary order in the circumstances as are prevailing before us. 18.3. Having regard to the detailed discussion made above on the factual position obtaining in this case, even de hors the additional evidence filed by the ld. DR, it is evident that the Assessing officer, albeit, sought certain details from the assessee, Shri Anand Chauhan and the Assessing officer of Shri Anand Chauhan, but, remained dormant on the same. Such details were simply placed on record without further probe, which was prima facie warranted in the circumstances. He ought to have scrutinized the extent and genuineness of the alleged agricultural income shown by the assessee, which was not only huge in comparison with the income shown by the assessee in the periods prior to and later than the period covered by the MOU, but also the income earned by the family of Shri Anand Chauhan from their own separate orchard. The alleged sales to UAA also raised severe doubts coupled with the fact that there was no evidence of incurring expenses on transportation, packing and insecticides, etc. Apart from that, the entire arrangement with Shri Anand Chauhan, under which he was supposedly given an authority to manage Shrikh....
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....cause the power u/s 263 can be invoked only in cases of lack of inquiry and not inadequate inquiry. We partly agree with the contention that where an inquiry is conducted by the AO and he gets satisfied with the genuineness of the transaction, then the CIT cannot intervene through revision for coming to a conclusion that the assessment order passed by the AO was erroneous and prejudicial to the interests of the Revenue. The crux of the matter is that the AO should conduct inquiry to satisfy himself about the genuineness of transactions. Scope of the term `inquiry' can be diverse in different circumstances. There can be no straitjacket formula to positively conclude as to the conducting or non-conducting of an `inquiry' by the AO. While, in some cases, collection of necessary material by the AO may give an inference about conducting an `inquiry', in others, mere obtaining and placing the documents on record may not be equalized with conducting an inquiry. It depends upon the facts and circumstances of each case. Where the facts are just ordinary and prima facie there is nothing untoward the recorded transaction, the obtaining of the documents and the application of mind thereon, wit....
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....hat would not by itself give occasion to the ld. CIT to pass order u/s 263 of the Act." Setting aside the order passed by the Tribunal, the Hon'ble High Court laid down that : "CIT had reasons to hold that credit worthiness of the alleged lenders was not enquired into." It further went on to hold that a mere examination of the bank passbook, Profit & loss account and Balance sheet was not enough. When the requisite inquiry was not made, the Hon'ble High Court held that, the assessment order was to be treated as erroneous and prejudicial to the interests of the Revenue. It also set aside the view of the Tribunal on inadequate enquiry by holding that: "If the relevant enquiry was not made, it may in appropriate cases amount to no enquiry and may also be a case of non-application of mind." It further observed that the question of inadequate enquiry should be understood in its proper perspective and: "if it can be shown that the inadequate enquiry led the AO or may have led into assumption of incorrect facts, that could make the order erroneous and prejudicial to the interests of the revenue." Setting a bad trend has also been held to be prejudicial to the Revenue. Similar view has bee....
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....SC). In fact, the ld. DR also relied on this judgment to buttress his point. 19.2. Since both the sides have heavily banked on this judgment, let us examine the facts of the case. The assessee therein entered into an agreement for sale of the estate of rubber plantation. The agreement provided for payment of the consideration in instalments. The purchaser could not adhere to the schedule and, on his request, the parties agreed to the extension of time for payment of instalments on the condition of his paying compensation/damages for loss of agricultural income. The purchaser paid this amount. In the annexure to the return, the assessee noted it as a compensation for loss of agricultural income which was accepted by the Assessing officer. The CIT invoked his revisionary power calling upon the assessee to explain as to why this amount of compensation/damages be not treated as income chargeable to tax under the head 'Income from other sources' as against 'Exempt agricultural income' claimed by the assessee and accepted by the Assessing officer. After considering the reply, the CIT set aside the assessment order. The Tribunal dismissed the assessee's appeal. When the matter finally ....
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....ection 263 will be rendered redundant. In fact, it is only when the AO takes one view on the matter, which is legally sustainable at that point of time, that the power of CIT u/s 263 is ousted. Taking a wrong view on a matter or blindly accepting the case without any application of mind, do not fall within the realm of the AO taking a possible view so as to forbid the CIT from exercising revisionary power. 19.4. We find that the facts and the ratio decidendi of Max India Ltd. (supra) are nowhere close to the facts prevailing in the instant case. It is not the case that the AO took a possible view, which the ld. CIT substituted with his own view. Rather, we are confronted with a situation in which the AO remained passive and did not either obtain the relevant information or did not act on the material as was there before him, which ex facie required thorough verification. So, this is a case of not taking a view at all and not that of taking a possible view on the matter. The Hon'ble Supreme Court in the above case has held that where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to t....
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.... CIT to expressly point out where the AO went wrong on merits. But in a case, where no inquiry has been conducted at all or the so-called inquiry conducted by the AO is as good as no enquiry, as is the case under consideration, in such circumstances, the CIT simply needs to point out those relevant aspects of assessment, which the AO lost sight of, but were required to be properly probed. In such cases, the assessment order is set aside with the direction to the AO for looking into the matter afresh and then deciding the issue properly. There can be no way for the CIT to tell erroneous approach of the AO on merits in such circumstances because the view of the AO on merits is not available. Requiring the CIT to indicate where the AO went wrong on merits in `no inquiry cases', is like requiring an impossible thing to be done. It is axiomatic that the law does not require an impossible to be complied with. We are reminded of the legal maxim, `Lex neminem cogit ad vana seu impossiblia', which means that the law compels no one to do impossible things. When we approach the facts of the case under consideration, it becomes manifest that the extent of inquiry conducted by the AO, being as ....
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....revisional jurisdiction on the ground that the ITO had not made sufficient enquiries before granting registration to the firm and it was not necessary for the CIT to have himself made enquiries before cancelling assessment." In our considered opinion, this judgment is an answer to the contention put forth on behalf of the assessee that the CIT must initially indicate the mistake in the assessment order on merits by making proper enquiry at his end before cancelling assessment under section 263. This judgment makes it palpable that the very fact that the ITO "had not made sufficient enquiries before granting registration to the firm" was considered as sufficient enough to clothe the CIT with the power to revise the assessment order and it was not considered necessary in such circumstances: "for the CIT to have himself made enquiries before cancelling the assessment." Similar view has been taken by the Hon'ble Supreme Court in the case of Rampyari Devi Saraogi vs. CIT (1968) 67 ITR 84 (SC) holding that an assessment made by the AO "in undue haste without making any enquiry" would render an assessment order erroneous and prejudicial to the interests of the revenue. Similar view has be....
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.... apart from commission to the assessee. He, therefore, made disallowance of Rs. 14,93,613/- apart from some other small disallowance of Rs. 25,000/- in relation to LIC business and determined total income at Rs. 18,58,700/-. 23. The Ld. CIT, on perusal of record, noticed that the Assessing officer simply relied upon the commission issued u/s 131 to the ITO, Rampur for the A.Y. 2009-10 and did not inquire about the "genuineness of apple crop in Shrikhand Orchards under MOU arrangement." He further noticed that the Assessing officer restricted his enquiry limits to find out the ownership of land at Shrikhand Orchards, Damrali measuring 105 bighas and number of apple trees on that, but, failed to inquire the variety of apples along with its market rate; why such huge crop sale was made in cash; actual yield of apple from the above orchard; and the time period in which apple crop ripens and is taken to the market. He further held that the Assessing officer accepted the claim of sale proceeds without requiring the assessee to lead evidence to justify the quantum of apple yield on the above land. He still further observed that the Assessing officer sought directions from the Addl. CIT....
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....re the assessee has invested the over and above funds for purchasing the LIC policies worth Rs. 3,84,92,500/- when the agriculture income was Rs. 2,65,92,500/- meaning thereby the unexplained source of Rs. 1.19 crores. iii. The assessee claimed that in the previous year i.e. A.Y. 2009-10, he had sold apple crop worth 89 lac to the visiting traders of which no evidence was obtained by the A.O. by accepting this contention of the assessee without any documentary evidence and also the version of the assessee that there was cash in hand of the previous year to make the A.O. failed to arrive at the right conclusion that this unexplained source of Rs. 1.19 crore is to be fixed in the A.Y. 2010-11. iv. The A.O. has failed to comply the directions of the Addl. Commissioner of Income Tax, Shimla Range, Shimla u/s 144A of the Income Tax, 1961 as discussed in above paras and more particularly to ascertain the quantum of the agriculture apple crop from other major producers of the same areas as well as from Horticulture Department and other relevant agencies regarding per tree yield and rate." 24. In the light of the foregoing discussion, the ld. CIT held the assessment or....
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....ion, the so-called inquiry made by the Assessing officer is nothing short of a mere sightless acceptance of the assessee's version without any verification. In other words, this is as good as `no inquiry' conducted by the Assessing officer in the given facts and circumstances. We have made elaborate discussion above on this aspect in our order passed in the case of Virbhadra Singh (HUF) for the same assessment year. Since the transactions under challenge in the case of the assessee are, in fact, the transactions of Virbhadra Singh (HUF), we do not wish to repeat the same here once again and adopt them as such. 28. Apart from the above, we are inclined to uphold the impugned order on the following further reasons. i. The assessee kept on asking the Assessing officer to call Virbhadra Singh (HUF) and make necessary inquiries about the transactions concerning Shrikhand Orchards, Damrali, which the Assessing officer did not. He simply accepted the assessee's point of view on all the transactions pertaining to Virbhadra Singh (HUF) without even bothering to take any confirmation from it. ii. The assessee stated before the Assessing officer in his statement, which is available o....
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....d required investigation, which the AO did not. v. As regards the genuineness of agricultural income shown by the assessee from Shrikhand Orchards, Damrali under the MOU arrangement, the Assessing officer mentioned in his Office note annexed to the assessment order that in the assessment of the assessee for the A.Y. 2009-10, the Assessing officer issued commission to the ITO, Rampur, Bushahr, Shimla in order to verify the area under orchard land holding and number of total apple trees. He left this aspect from consideration for the year under consideration by observing : "therefore, verification of these facts, again, was not required. Further, sale of apple crop to M/s Universal Apple Associates is verifiable from sale bills as well as books of account." This shows that the Assessing officer simply relied on the proceedings for the A.Y. 2009-10 for holding the agricultural income of the current year to be genuine. No verification was made for the transactions of the current year. He further held that sale to UAA was verifiable from sale bills. We have noticed in an earlier para about the veracity of sale bills issued by UAA. These bills were although available with the Assessin....
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....t from the above, it is noticed that the Assessing officer simply ignored some of the vital directions given by the Addl.CIT u/s 144A which are otherwise binding on the Assessing officer in terms of the mandate of the provision, as we have noted above in the case of Virbhadra Singh (HUF). Some of such directions and the action/inaction of the Assessing officer taken on them, as noted in the impugned order, are as under:- "a) To find out the circumstances under which the cash transactions were made. Nothing is on record to show that there were compelling circumstances under which under which cash transaction i.e. cash deposits on account of alleged sale proceeds of apple crop were made. b) To find out whether any of them, i.e. the assessee and the beneficiary is having any bank account at the place of transaction. This point has not been verified by the A.O. c) To ask for details of average production and income per tree in case of other major producers of apple in the same area by issuing commission to ITO, Rampur. No such action has been taken by the A.O. except for relying upon the report of ITO, Rampur recorded by other A.O. during th....
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....f the Act. The assessee earned income by means of commission from LIC. The case was selected for scrutiny. The assessment order was passed u/s 143(3) on 23.12.2011 making a disallowance of Rs. 11,568/- out of certain expenses incurred during the course of conducting his LIC business. Another disallowance of Rs. 29,496/- was made towards interest claimed by the assessee as deduction at Rs. 42,412/-. Thus, as against the returned income of Rs. 1,83,700/-, the total income was computed at Rs. 2.24 lac. The Ld.CIT, on perusal of records noticed that the assessment was completed in a very casual manner practically without making any effective enquiry. Show cause notice was issued u/s 263 on the ground that the Assessing officer had called for details of bank accounts maintained with PNB, Sanjauli, Shimla and HDFC and the assessee was required to explain the transactions made in these accounts. The assessee initially did not furnish any details about his PNB account. Thereafter, the assessee, vide his letter dated 21.10.2011 stated that the PNB account was a joint account with his other family members and only the agricultural income of the joint family was deposited in the same. However....
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....h Ram Sharma. On enquiry from the Branch Manager, LIC, Sanjauli, it was revealed that no LIC policy in the name of Sh. Sadh Ram Sharma was issued against the amount of Rs. 5,00,000/-. Thus, the contention of the assessee that a sum of Rs. 5 lakh was deposited into his bank account by one Sh. Sadh Ram Sharma turned out fake. The A.O. did not take this issue into consideration while completing the assessment u/s 143(3). In the backdrop of the above factors and certain others as noted in the impugned order, the Ld.CIT came to hold that no proper inquiry was conducted before finalising the assessment u/s 143(3). He summarised his view on page 32 to 34 of the impugned order as under:- "i. The assessee has claimed in his initial reply dated 12.11.2011 that cash Account belongs to joint family version by giving a copy of MOU & submitted that cash deposits are from sale of agriculture produce on behalf of Sh. Virbhadra Singh (HUF). The A.O. accepted the reply of the assessee blindly without verifying the reasons for change of his earlier explanation and further more without even obtaining any confirmation/explanation from Sh. Virbhadra Singh in respect to generation of huge cash i....
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....PNB pertained to the assessee himself or to any other person. The assessee is aggrieved against this order. 34. We have heard the rival submissions and perused the relevant material on record. Before proceeding further, we want to record that Sh. Sudhir Sehgal, the ld. AR raised all the preliminary objections about the scope of evidence, additional evidence and passing of separate order before admission of addition evidence, as were raised in the case of Virbhadra Singh (HUF). For the reasons given in our order passed above in the case of Virbhadra Singh (HUF), such objections are repelled. 35. On merits, it is found that there is no discussion worth the name in the one and a half paged assessment order about the assessee managing Shrikhand Orchards, Damrali on behalf of Virbhadra Singh (HUF). We agree with the contention advanced by the Ld. AR that merely because there is no discussion in the assessment order about the relevant issues cannot per se be decisive of non-application of mind by the Assessing officer. However, there should be some material on record to indicate that the Assessing officer did conduct appropriate enquiries and investigated the matter before finalisi....
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....ly later on, when cornered, he admitted that he was maintaining this on behalf of Virbhadra Singh (HUF). These developments should have instigated the Assessing officer to conduct proper inquiry about the vacillating stand of the assessee. ii. The assessee submitted that the entries in the bank account were on behalf of Virbhadra Singh (HUF) and he was simply managing the affairs of Shrikhand Orchards, Damrali on a commission @ 2% of net sale proceeds. The Assessing officer simply accepted the assessee's version without even bothering to inquire this matter from Virbhadra Singh (HUF). What to talk of making an inquiry from Virbhadra Singh (HUF) for ascertaining if the assessee's contention that the bank deposit pertained to it, the Assessing officer did not even consider it prudent to ask for confirmation on this issue from Virbhadra Singh (HUF). iii. During the course of assessment proceedings, the assessee submitted that a sum of Rs. 5 lac was deposited in his HDFC bank account on 20.11.2008 by one Shri Sadh Ram Sharma for purchase of LIC policy and he issued a cheque in favour of LIC of India dated 26.11.2008 for issuance of LIC policy in the name of Shri Sadh ....
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....ng with variety and its prevalent market rates. v. The assessee contended before the Assessing officer that he made sales of Rs. 1,50,03,596/- to UAA and crop worth Rs. 89,80,000/- was sold to other visiting traders at the orchard itself. As against this, the assessee has recorded all the sales in his books as having been made to UAA. If the assessee actually made sale of crop to UAA for a sum of Rs. 2.39 crore, then, the issue that where the sale of Rs. 89.80 lac made to other visiting traders was recorded, was not verified by the Assessing officer. If such sale made to other visiting traders was not recorded in the books of account, the AO ought to have caused investigation and made necessary addition. This shows that the Assessing officer did not conduct any inquiry about the alleged sale of apple crop made by the assessee on behalf Virbhadra Singh (HUF). The Ld. AR has candidly admitted that the Assessing officer did not enquire from UAA about the amount of sales made to them. 37. The above factors, most of which have been discussed by the Ld.CIT to hold that the Assessing officer blindly accepted the assessee's version and failed to conduct proper inquiry and some ....
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....at the same was for entire Shrikhand Orchards, Damrali or a part of it. He also asked the assessee to produce the books of account along with supporting bills and vouchers in respect of expenses incurred by the assessee in the management of Shrikhand Orchards, Damrali. The assessee stated that no record of expenses was available because the same was destroyed after the settlement of account with Virbhadra Singh (HUF). Similarly, names of persons to whom huge labour and freight charges, etc., were paid, were also not furnished. He further noticed that the cash book also did not contain details of payments properly. Then, he required the assessee to produce the original MOU dated 15.6.2008 for verification. The assessee failed to produce the same till the passing of the assessment order. The Assessing officer launched certain inquiries with the Regional Transport Officer/SDM for ascertaining the veracity of sales shown to UAA. It transpired that some of the vehicles mentioned on behalf of the assessee to have been used for carrying apple crops to Parvano, were either tipper/oil tankers and scooter while other numbers given by the assessee were not allotted to any vehicle as per the r....
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....eturns by Virbhadra Singh (HUF) from A.Y. 2005-06 onwards till A.Y. 2011-12 and found that the income declared during the tenure of MOU was exceptionally high. In the ultimate analysis, he held that the sum of Rs. 1 crore, being the alleged sale of apple crop to UAA through agents of buyers, was unexplained as without any source of deposit. Therefore, an addition of Rs. 1 crore was made on protective basis. The Ld.CIT for the detailed reasons set out in the impugned order, held the assessment order to be erroneous and prejudicial to the interests of the revenue. The same was set aside and the Assessing officer was directed to frame the assessment afresh in accordance with the law and the facts as taken note of by him. 40. The ld. AR vehemently argued that unlike for the AYs 2009-10 and 2010-11, the AO carried out complete investigation in the matter and, hence, it could not be said that no enquiry was made by the AO necessitating revision of order. He took us through the assessment order, the summary of which has been recorded in earlier paras. This was countered by ld. DR who also took us through elaborate material to show that the AO erred in making necessary inquiries and dra....
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...., which issue has been discussed in para 4.4 of the assessment order. Such inquiry transpired that some of the vehicle numbers provided by UAA for allegedly transporting the apple crop by the assessee on behalf of Virbhadra Singh (HUF) were either tippers/oil tankers/scooters, which were not in a position to be utilized for carrying apples or the numbers of vehicles given were not allotted to any vehicle as per the record of RTO/SDM. Such an important aspect, which brings the alleged sales by the assessee in the arena of doubt, was ignored except for making an addition of Rs. 1 crore in respect of cash deposit entries in the bank account, that were not traceable from the books of account of UAA. v. The AO though conducted inquiry for comparing the apple crop with other growers of the area and found that the assessee's claimed turnover was several times higher, but he did not proceed further by impliedly accepting the comparable cases supplied by the assessee. In such comparable cases, income was shown at Rs. 31 lac and Rs. 40 lac for the year 2010 against 45 bighas and 40 bighas of land. No evidence was filed in respect of such income stated in their affidavits. Even other....