Dev Raj Garg, Shahabad (M) v. Pr. CIT, Karnal

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH . . ! ' # '$ BEFORE: SHRI N.K.SAINI VP & SHRI RAJPAL YADAV JM ./ ITA NO. 774/CHD/2018 # % &% / ASSESSMENT YEAR : 2011-12 DEV RAJ GARG AGGARWAL BHAVAN SHAHABAD (M) DIST.KURUKSHETRA PAN : ABWPG 5939 R '( VS. PR.CIT KARNAL. ( )* / APPELLANT) ( + )* / RESPONDENT) # %-. / 0 / ASSESSEE BY : SHRI K.R. CHHABRA ADV !$ / 0 / REVENUE BY : : SHRI CHANDRAJIT SINGH CIT-DR 1 2 / .3 / DATE OF HEARING : 06/11/2019 '45& / .3 / DATE OF PRONOUNCEMENT : 07 /11/2019 / ORDER PER RAJPAL YADAV JUDICIAL MEMBER : PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST ORDER OF LD.PR.COMMISSIONER KARNAL PASSED UNDER SECTION 263(1) OF THE INCOME TAX ACT 1961 DATED 26.3.2018 FOR THE ASSTT.YEAR 20 11-12. 2. THE ASSESSEE HAS TAKEN FIVE GROUNDS OF APPEAL BUT HIS GRIEVANCE IS THAT THE LD.CIT HAS ERRED IN TAKING COGNIZANCE UNDER SECTION 263 OF THE ACT AND SETTING ASIDE THE ASSESSMENT ORDER. ITA NO NO.774/CHD/2018 2 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 9.3.2012 ELECTRONICALLY DECLARING TOTAL INCOME AT RS.11 48 620/- .THIS RETURN WAS SCRUTINIZED AND ASSESSMENT ORDER WAS PAS SED ON 13.3.2014 UNDER SECTION 143(3) OF THE ACT WHEREBY THE R ETURNED INCOME WAS ACCEPTED. THE ASSESSMENT WAS REOPENED FOR THE REAS ON THAT THE ASSESSEE HAS RECEIVED A GIFT OF RS.4 25 000/- FROM SA TISH GARG HUF WHICH IS THE HUF OF HIS BROTHER AND IT WAS HARBOURED THAT HUF OF HIS BROTHER DOES NOT FALL WITHIN THE AMBIT OF RELATIVE PROVIDED U NDER SECTION 56(2) OF THE ACT. SINCE GIFT WAS EXCEEDING RS.50 000/- THEREFORE IT WAS TO BE ASSESSED AS INCOME OF THE ASSESSEE. ACCORDING LY THE ASSESSMENT ORDER WAS REOPENED. THE LD.AO HAS CONDUCTED INQUIRY AND THEREAFTER PASSED THE ASSESSMENT ORDER ON 24.12.2015 UND ER SECTION 143(3) R.W.S. 147 OF THE ACT. THE LD.AO HAS AGAIN ACCEP TED THE RETURNED INCOME BY PUTTING RELIANCE UPON THE ORDER OF THE ITAT RAJKOT BENCH IN ITA NO.583/RJT/2007 HOLDING THAT GIFT FROM HIS REAL BROTHER S HUF IS TO BE TREATED AS RECEIVED FROM A RELATIVE. BRIEF FINDING OF THE ASSESSING OFFICER READS AS UNDER: 2.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS I T HAS BEEN SUBMITTED THROUGH WRITTEN REPLIES THAT THE ASSESSEE HAS RECEI VED THE GIFT FROM HIS REAL BROTHERS HUF AND THAT THUS IT IS EXEMPT HAVING B EEN RECEIVED FROM THE GROUP OF RELATIVES AS ALL THE MEMBERS OF HUF FALL W ITHIN DEFINITION OF RELATIVES FALLING WITHIN THE PROVISIONS OF SECTION 56(2)(VII). A COPY OF THE ITAT RAJKOT BENCH RAJKOTS ORDER PASSED IN ITA NO . 583/RJT/2007 IN THE CASE OF VINEET KUMARRAGHAVJIBHAI HALODIA VS. IT O HAS ALSO BEEN FILED IN SUPPORT OF THIS CLAIM. 4. ON PERUSAL OF THIS FINDING THE LD.CIT HARBOURED A BELIEF T HAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF THE REVENUE BECAUSE ITAT RAJKOT BENCH HAS NOT LAID DOWN THAT GIF T ITA NO NO.774/CHD/2018 3 RECEIVED BY A PERSON FROM NON-HUF WOULD STILL BE CONSIDERE D AS RECEIVED FROM A RELATIVE UNDER SECTION 56(2) OF THE ACT. THE LD.CIT RECORDED REASONS AND ISSUED A SHOW CAUSE NOTICE ON 27.2.2 018 WHICH HAS ALSO BEEN REPRODUCED IN THE IMPUGNED ORDER. DURING THE PEND ENCY OF THE PROCEEDINGS UNDER SECTION 263 IT CAME TO THE NOTICE OF T HE LD.CIT THAT A GIFT OFRS.6 LAKHS WAS ALSO RECEIVED BY THE ASSESSEE FR OM HIS OWN HUF AND IN THE UNDERSTANDING OF THE CIT EVEN OWN HUF WILL ALSO NOT BE TREATED AS RELATIVE WITHIN THE MEANING OF DEFINITION RELATIVE P ROVIDED IN SECTION 56(2). THEREFORE THE LD.CIT ISSUED AN ADDITIONAL SHO W CAUSE NOTICE UNDER SECTION 263 ON 21.3.2018. THE LD.CIT THEREAFT ER GONE THROUGH SUBMISSIONS OF THE ASSESSEE AND HELD THAT ORDER OF THE ASSESSING OFFICER IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. HENCE HE SET ASIDE THE ASSESSMENT ORDER AND REMITTED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH EXAMINATION AND RE-AD JUDICATION. 5. BEFORE US THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THA T BOTH THE HUFS OUGHT TO BE TREATED AS RELATIVE AND GIFT RECEIVED FR OM MEMBERS OF HUF IS TO BE TREATED AS RECEIVED FROM RELATIVE UNDER SE CTION 56(2) AND NO ADDITION SHOULD BE MADE. HE FURTHER CONTENDED THAT THE ASSES SING OFFICER HAS CONDUCTED AN INQUIRY AND TOOK A VIEW BASED ON THE ORDER OF THE ITAT RAJKOT IN FAVOUR OF THE ASSESSEE. THE LD.CIT IS NOT JUSTIFIED IN TAKING ACTION AGAINST THE ASSESSEE. 6. ON THE OTHER HAND THE LD.DR RELIED UPON ORDERS OF THE CIT AND CONTENDED THAT ITAT RAJKOT BENCH HAS ONLY CONSIDERED THE HUF IN WHICH THE ASSESSEE IS ONE OF THE MEMBERS. IT WAS NOT HUF A S STRANGER EVEN IF IT IS HUF OF THE BROTHER. ITA NO NO.774/CHD/2018 4 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND GONE THROUGH THE RECORD CAREFULLY. AT THIS STAGE BEFORE CONSIDERING CONTENT IONS OF THE LD. REPRESENTATIVES WE DEEM IT PERTINENT TO TAKE NOTE OF THE FUNDAMENTAL TESTS PROPOUNDED IN VARIOUS JUDGMENTS RELEVANT FOR JUDGING T HE ACTION OF THE CIT TAKEN U/S 263. THE ITAT IN THE CASE OF MRS. KHATIZA S. OOMERBHOY VS. ITO MUMBAI 101 TTJ 1095 ANALYZED IN DET AIL VARIOUS AUTHORITATIVE PRONOUNCEMENTS INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIES 243 ITR 8 3 AND HAS PROPOUNDED THE FOLLOWING BROADER PRINCIPLE TO JUDGE THE ACTION O F CIT TAKEN UNDER SECTION 263. (I) THE CIT MUST RECORD SATISFACTION THAT THE ORDER OF THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. BOTH THE CONDITIONS MUST BE FULFILLED. (II) SEC. 263 CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE AO AND IT WAS ONLY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. (III) AN INCORRECT ASSUMPTION OF FACTS OR AN INCORRECT APPLICATION OF LAW WILL SUFFICE THE REQUIREMENT OF ORDER BEING ERRONEOUS. (IV) IF THE ORDER IS PASSED WITHOUT APPLICATION OF MIND SUCH ORDER WILL FALL UNDER THE CATEGORY OF ERRONEOUS ORDER. (V) EVERY LOSS OF REVENUE CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND IF THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE UNDER LAW OR WHERE TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE. IF CANNOT BE TREATED AS AN ERRONEOUS ORDER UNLESS THE VIEW TAKEN BY THE AO IS UNSUSTAINABLE UNDER LAW ITA NO NO.774/CHD/2018 5 (VI) IF WHILE MAKING THE ASSESSMENT THE AO EXAMINES THE ACCOUNTS MAKES ENQUIRIES APPLIES HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND DETERMINE THE INCOME THE CIT WHILE EXERCISING HIS POWER UNDER S 263 IS NOT PERMITTED TO SUBSTITUTE HIS ESTIMATE OF INCOME IN PLACE OF THE INCOME ESTIMATED BY THE AO. (VII) THE AO EXERCISES QUASI-JUDICIAL POWER VESTED IN HIS AND IF HE EXERCISES SUCH POWER IN ACCORDANCE WITH LAW AND ARRIVE AT A CONCLUSION SUCH CONCLUSION CANNOT BE TERMED TO BE ERRONEOUS SIMPLY BECAUSE THE CIT DOES NOT FEE STRATIFIED WITH THE CONCLUSION. (VIII) THE CIT BEFORE EXERCISING HIS JURISDICTION UNDER S. 263 MUST HAVE MATERIAL ON RECORD TO ARRIVE AT A SATISFACTION . (IX) IF THE AO HAS MADE ENQUIRIES DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON THE RELEVANT ISSUES AND THE ASSESSEE HAS GIVEN DETAILED EXPLANATION BY A LETTER IN WRITING AND THE AO ALLOWS THE CLAIM ON BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE THE DECISION OF THE AO CANNOT BE HELD TO BE ERRONEOUS SIMPLY BECAUSE IN HIS ORDER HE DOES NOT MAKE AN ELABORATE DISCUSSION IN THAT REGARD. 8. APART FROM THE ABOVE PRINCIPLES WE DEEM IT APPROPRIATE TO MAKE REFERENCE TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CA SE OF CIT VS. SUN BEAM AUTO REPORTED IN 227 CTR 113 AND GEE V EE ENTERPRISES LTD VS. ADDL. COMMISSIONER OF INCOME TAX (99 ITR 375). IN THE CASE OF SUN BEAM AUTO THE HON'BLE HIGH COURT HAS POINTED OUT A DISTINCTION BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IF T HERE IS A LACK OF ENQUIRY THEN THE ASSESSMENT ORDER CAN BE BRANDED AS ERRONEOUS. THE FOLLOWING OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT ARE W ORTH TO NOTE: 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE COUNSEL ON THE OTHER SIDE AND HAVE GONE THROUGH THE ITA NO NO.774/CHD/2018 6 RECORDS. THE FIRST ISSUE THAT ARISES FOR OUR CONSID ERATION IS ABOUT THE EXERCISE OF POWER BY THE COMMISSIONER OF INCOME-TAX UNDER SECTION 263 OF THE INCOME-TAX ACT. AS NOTED ABOVE THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE WAS THAT WHILE PASSING THE ASSESSMENT ORDER THE ASSESSING OFFICER DID NOT CONSIDER THIS ASPECT SPEC IFICALLY WHETHER THE EXPENDITURE IN QUESTION WAS REVENUE OR CAPITAL EXPENDITURE. THIS ARGUMENT PREDICATES ON THE ASSESS MENT ORDER WHICH APPARENTLY DOES NOT GIVE ANY REASONS WH ILE ALLOWING THE ENTIRE EXPENDITURE AS REVENUE EXPENDIT URE. HOWEVER THAT BY ITSELF WOULD NOT BE INDICATIVE OF THE FACT THAT THE ASSESSING OFFICER HAD NOT APPLIED HIS MIND ON T HE ISSUE. THERE ARE JUDGMENTS GALORE LAYING DOWN THE PRINCIPL E THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER IS NO T REQUIRED TO GIVE DETAILED REASON IN RESPECT OF EACH AND EVERY ITEM OF DEDUCTION ETC. THEREFORE ONE HAS TO SEE F ROM THE RECORD AS TO WHETHER THERE WAS APPLICATION OF MIND BEFORE ALLOWING THE EXPENDITURE IN QUESTION AS REVENUE EXPENDITURE. LEARNED COUNSEL FOR THE ASSESSEE IS RI GHT IN HIS SUBMISSION THAT ONE HAS TO KEEP IN MIND THE DISTINC TION BETWEEN LACK OF INQUIRY AND INADEQUATE INQUIRY. IF THERE WAS ANY INQUIRY EVEN INADEQUATE THAT WOULD NOT BY ITSELF GIVE OCCASION TO THE COMMISSIONER TO PASS ORDERS UN DER SECTION 263 OF THE ACT MERELY BECAUSE HE HAS DIFFE RENT OPINION IN THE MATTER. IT IS ONLY IN CASES OF LACK OF INQUIRY THAT SUCH A COURSE OF ACTION WOULD BE OPEN. 9. IN THE CASE OF GEE VEE ENTERPRISE VS. COMMISSIONER OF I NCOME TAX REPORTED IN 99 ITR PAGE 375 THE HONBLE COURT HAS EXPOU NDED THE APPROACH OF LD. ASSESSING OFFICER WHILE PASSING ASSESSMENT OR DER. THE OBSERVATION OF THE HONBLE COURT ON PAGES 386 OF JOURNAL READ AS UNDER:- IT IS NOT NECESSARY FOR THE COMMISSIONER TO MAKE FURTHER INQUIRIES BEFORE CANCELLING THE ASSESSMENT ORDER OF THE INCOM E-TAX OFFICER. THE COMMISSIONER CAN REGARD THE ORDER AS ERRONEOUS ON T HE GROUND THAT IN THE CIRCUMSTANCES OF THE CASE THE INCOME-TAX OFFICE R SHOULD HAVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE STATEMENTS M ADE BY THE ASSESSEE IN HIS RETURN. THE REASON IS OBVIOUS. THE POSITION AND FUNCTION O F THE INCOME-TAX OFFICER IS VERY DIFFIDENT FROM THAT OF A CIVIL COUR T. THE STATEMENT MADE IN ITA NO NO.774/CHD/2018 7 A PLEADING PROVED BY THE MINIMUM AMOUNT OF EVIDENCE MAY BE ADOPTED BY A CIVIL COURT IN THE ABSENCE OF ANY REBUTTAL. T HE CIVIL COURT IS NEUTRAL. IT SIMPLY GIVES DECISION ON THE BASIS OF THE PLEADI NG AND EVIDENCE WHICH COMES BEFORE IT. THE INCOME-TAX OFFICER IS NOT ONL Y ON ADJUDICATOR BUT ALSO AN INVESTIGATOR. HE CANNOT REMAIN PASSIVE IN T HE FACE OF THE RETURN WHICH IS APPARENTLY IN ORDER BUT CALLED FOR FURTHER INQUIRY. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED IN THE RETU RN WHEN THE CIRCUMSTANCES OF THE CASE ARE SUCH AS TO PROVOKE AN INQUIRY IT IS BECAUSE IT IS INCUMBENT ON THE INCOME-TAX OFFICER T O FURTHER INVESTIGATE THE FACTS STATED IN THE RETURN WHEN CIRCUMSTANCES W OULD MADE SUCH AN INQUIRY PRUDENT THAT THE WORD ERRONEOUS IN SECTIO N 263 INCLUDES THE FAILURE TO MAKE SUCH AN ENQUIRY. THE ORDER BECOMES ERRONEOUS BECAUSE SUCH AN INQUIRY HAS NOT BEEN MADE AND NOT B ECAUSE THERE IS ANYTHING WRONG WITH THE ORDER IF ALL THE FACTS STAT ED THEREIN ARE ASSUMED TO BE CORRECT. 10. IN THE LIGHT OF THE ABOVE LET US EXAMINE FACTS OF THE PRESENT CASE. THE LD.COUNSEL FOR THE ASSESSEE HAS PLACED ON RECORD COPY O F ORDER OF THE ITAT RAJKOT BENCH CITED (SUPRA). IT IS AVAILABLE ON PAGE NO.24 OF THE PAPER BOOK. IN PARA-10 THE ITAT RAJKOT HAS FORMULATE D TWO QUESTIONS FOR CONSIDERATION WHICH READS AS UNDER: 1. WHETHER GIFT RECEIVED FROM HUF BY A MEMBER OF H UF FALLS UNDER THE DEFINITION OF RELATIVE AS PROVIDED IN THE EXP LANATION TO CLAUSE (VI) OF SUB-SECTION (2) OF SECTION 56 OF THE ACT ? 2. WHETHER AMOUNT RECEIVED BY THE ASSESSEE FROM HIS HUF IS COVERED BY SECTION 10(2) OF THE ACT. 11. A PERUSAL OF THESE QUESTIONS WOULD INDICATE THAT GIFT RECEIVED BY THE ASSESSEE IN THAT CASE WAS FROM HIS HUF. IN OTHER WORD S THE ASSESSEE WAS THE MEMBER OF HUF FROM WHERE GIFT CAME TO THE ASS ESSEE. THE ASSESSMENT WAS REOPENED FOR CONDUCTING AN INQUIRY ABOUT THE GIFTS RECEIVED FROM SATISH GARG HUF. THE ASSESSEE IS NOT MEMBER OF SATISH GARG HUF. THEREFORE THE ASSESSING OFFICER HAS ERRED IN CO NSTRUING POSITION OF LAW WHILE ACCEPTING THE STAND OF THE ASSESSEE. A PERUSAL OF THE ASSESSMENT ORDER WOULD INDICATE THAT NO PROPER INQUIRY HAS BEEN ITA NO NO.774/CHD/2018 8 MADE BY THE ASSESSING OFFICER WITH REGARD TO CONSTRUING THE M EANING OF EXPRESSION RELATIVE EMPLOYED IN SECTION 56(2) OF THE ACT. THE ASSESSING OFFICER HAS BASED HIS FINDING ON A DECISION WHERE HUF HAS GIVEN GIFTS TO ITS MEMBERS AND NOT STRANGER HUF THEREFORE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS TO THIS EXTENT. 12. WITHOUT GOING INTO THE LARGER ASPECT WHETHER HUF CAN BE CONSIDERED AS A RELATIVE OR NOT WE EXAMINE THE ASPECT WHET HER THE ASSESSING OFFICER HAS CONDUCTED AN INQUIRY AND FORMED AN OPINION ON THE BASIS OF RECORD AVAILABLE BEFORE HIM. HE HAS MISREAD THE JUDGMENT AND APPLIED ON THE GIVEN FACTS WITHOUT ELABORATE DISCUSSION. THEREFORE TO THIS EXTENT WE ARE OF THE VIEW THAT THE LD.COMMISSIONER HAS RIGHTLY TAKEN COGNIZANCE UNDER SECTION 263 AND HAS RIGHTLY SET ASIDE THE ASSESSMENT ORDER. 13. AS FAR AS ADDITIONAL SHOW CAUSE NOTICE ISSUED UNDER S ECTION 263 ON 21.3.2018 IS CONCERNED BY WAY OF THIS NOTICE THE LD.COMIS SIONER WISH TO INQUIRE THE GIFT RECEIVED BY THE ASSESSEE FOR RS.6 LAKHS FR OM HIS HUF. WE FIND THAT THIS ISSUE WAS NOT SUBJECT MATTER OF REASSESS MENT. THE ASSESSMENT WAS NOT REOPENED FOR CONDUCTING AN INQUIRY ON THIS ISSUE AND THEREFORE THE LD.COMMISSIONER CANNOT TAKE COGNIZANCE OF AN ISSUE WHICH HAS ALREADY ATTAINED FINALITY IN THE REGULAR ASSESSMENT ORD ER PASSED UNDER SECTION 143(3) ON 13.3.2014. THE ASSESSING OFFICER HAS NOWHERE INQUIRED THIS ISSUE IN THE ASSESSMENT ORDER; NOR IT WAS S UBJECT MATTER OF RE-ASSESSMENT. THEREFORE IT COULD NOT BE TAKE N UP BY THE LD.COMMISSIONER FOR TAKING UP THIS ISSUE. HE SHOULD HAVE QU ESTIONED THE ORIGINAL ASSESSMENT ORDER PASSED UNDER SECTION 143(3) ON 13.3.2014 ITA NO NO.774/CHD/2018 9 WHICH HAS NOT BEEN DONE BY HIM. THEREFORE THE FINDING OF THE COMMISSIONER RECORDED QUA ADDITIONAL SHOW CAUSE NOTICE IS CONCERNED IS NOT SUSTAINABLE. WE QUASH THIS FINDING AND PART OF THAT ORDE R IS VACATED. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED . PRONOUNCED IN THE OPEN COURT ON 7 TH NOVEMBER 2019. SD/- SD/- (N.K. SAINI) VICE-PRESIDENT (RAJPAL YADAV) JUDICIAL MEMBER CHANDIGARH; DATED 07/11/2019