By TIOL News Service

SHIMLA, NOV 07, 2017: THE issue before the Bench is - Whether if the AO fails to make inquiry for verifying the genuineness of agriculture income, it is a fit case for invocation of powers u/s 263. And the HC verdict is YES.

Facts of the case

The Assessee-HUF filed its return for the AY in question to be Rs. 7,22,943/-. In the said Return, income from the source of agriculture was disclosed as Rs. 15,00,000/-. It was also observed that the Assessee had also generated income from the source of LIC. The return was selected for scrutiny assessment and accordingly, the notice was issued u/s 143(2) of the Act. However, the Assessee filed a Revised Return, declaring his income from the agricultural source and enhancing it from Rs. 15,00,000/- to Rs. 2,80,92,500/-. Accordingly, the AO accepted the income so declared by the Assessee. Thereafter, the CIT, by invoking revisional jurisdiction, u/s 263 of the Act, issued notice to the Assessee, and after affording opportunity of hearing, 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. On Assessee's appeal, the Tribunal dismissed the appeal filed by the Assessee and upheld the decision of the CIT.

Having heard the parties, the HC held that,

++ 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;

++ 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 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. 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, (b) the Assessing Officer did not comply with the directions that of the Additional Commissioner of Income Tax, issued under Section 144A, (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;

++ 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) so reflected in the books of account, thus believing the plea of the transactions in question being not genuine, if not false. It is in this backdrop, Tribunal found the inquiry conducted by the Assessing Officer not to be in accordance with law and the view taken by the Officer not to be a plausible one, 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;

++ 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;

++ 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;

++ 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. 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".

(See 2017-TIOL-2337-HC-HP-IT)