Hon'ble Subhash Chandra Nigam,J.
(Delivered by Hon'ble Rajes Kumar, J) Paper-books containing typed copies of the documents filed today. It may be taken on record.
At the instance of the Commissioner of Income Tax, the Tribunal has referred the following question of law under Section 256 of the Income Tax Act for consideration of this Court.
"Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was justified in holding that in the assessment order dated 3.1.94, there was no error in the order and it cannot be said to be erroneous and thereby quashing the order passed under Section 263 of the Income Tax Act, 1961?"
The brief facts of the case are as follows:
The assessee, a liquor contractor, filed its return on 31.10.1993 declaring income of Rs. 5910/-. In the trading account, gross sales of Rs.2,74,29,952/- were disclosed on which gross profit of Rs. 27,23,950/- giving out gross profit rate of 9.9% was shown. The A.O. completed the assessment on 03.01.1994. However, during the security of the assessment order, the learned Commissioner held that the same was erroneous and prejudicial to the interest of the Revenue. He held so on the ground that the A.O. has not given any reason for arriving at the conclusion that the gross profit rate disclosed at 9.9% was considered to be reasonable. According to learned C.I.T., neither any detailed enquiry through notice U/s 143(3) was made nor the assessee was required through order-sheet entry to prove the trading results. It was further held that the A.O.
committed a gross error in accepting the book results without making proper enquiry and without bringing out the material on record. The learned C.I.T. also observed that as the assessee had not produced cash memo for verification of sales, the order of the A.O. was not a proper order and had been passed without appreciating the facts of the case and without proper application of mind. It was also held by the learned Commissioner that the assessing officer has failed to examine the genuineness of the security deposits supposedly made by the employees of the assessee and allowed interest on security deposits without properly examining the taxability of the same. The learned Commissioner on the basis of reasons given in his order set aside the order of the A.O. and directed him to make the assessment afresh after carrying out necessary enquiries and affording opportunity of hearing to the assessee.
Against the order of the Commissioner of Income Tax, the assessee has filed an appeal before the Tribunal. The Tribunal, vide impugned order, allowed the appeal and set aside the order passed under Section 263 of the Income Tax Act.
The Tribunal has recorded the following findings:
"We have given our utmost consideration to the issue in dispute.
As would be seen, the A.O. examined and perused the books of accounts, which he found to have been maintained in regular course of business. He also accepted the trading results and found the gross profit reasonable. On the basis of the information already placed on record, as was explained and demonstrated before us by Shri Garg, debit side as well as credit side of the trading account were explainable and that being so, the accounts appear to have been rightly acceptable by the A.O. along with the trading result. Even at the cost of repetition, it may be stated that the non-issue of cashmemos of retail sales was explained by the assessee and the method adopted finds support from the decision of the jurisdictional High Court in the case of Ramjilal and sons, referred to supra. The law applied by the learned Commissioner in the case of Awadesh Pratap Singh is also found to be distinguishable.
In the circumstances, it appears difficult for us to say that the order rendered by the A.O. on the point of gross profit is erroneous. No legal error could be pointed out. For arriving at a legal error, there must be some prima facie material shown to exist whereby it could be said that the A.O. faltered or took an incorrect or incomplete interpretation of law whereby a lesser tax than what was due under the relevant statutes was 3 imposed. The learned Commissioner, exercising jurisdiction u/s 263, must being on record certain cogent material and advance good ground to come to the conclusion that the assessment order suffered from a legal error. In view of what has been instated by us above, it is difficult to concur with him, particularly when the gross profit rate arrived at by the A.O. was backed by examination of account books produced by him and acceptance of trading results etc. It may also not be out of place to say that even in liquor cases, the possibility of the occurring of a loss to the assessee cannot be ruled out as was upheld by the Tribunal in the case of Ram Narain Hiralal, copy found at pages 85 to 91 of the assessee's paper book. Reference may also be made to a decision of the Madhya Pradesh High Court in the case of Jayantilal Kirhori Lal Vs. C.I.T., reported in 154 ITR 821, where it was held that in case result shown by a country liquor dealer was verifiable, net profit rate could not be resorted to.
We will not pass on to the other points taken by the learned Commissioner. Certain expenses were disallowed by the A.O. in respect of which an appeal was preferred by the assessee. These disallowances were deleted. Obviously nothing survived before the learned Commissioner, which could have been revised by him. A reference to the provisions of Sec. 263(1)(c) do not help the Department as they refer only to such matters as have not been considered and decided in an appeal preferred by the assessee. It is only then and then alone that the powers of the Commissioner shall extend to such aspect of the matter. We would not like to make comments on the observations made by the learned Commissioner that the A.O. failed to scrutinise the item of expenses and made only lump sum disallowances, deleted by the learned C.I.T.(A). It was for the Department to have preferred an appeal before the Tribunal if they were really aggrieved of such deletion rather than the assumption of jurisdiction by the learned Commissioner u/s 263 of the Act, which is legally wholly untenable. The issue clearly got merged in the first appeal order snatching the jurisdiction of the Commissioner u/s 263. The Commissioner, whether administrative or appellate, does not have any second appeal powers which vest only in the Appellate Tribunal by virtue of Sec. 253 of the Income-tax Act, 1961.
The last objection of the learned Commissioner is about the genuineness of the security deposits made by the employees.
In this connection, it was contended on behalf of the assessee that confirmatory letters from the person concerned were placed on record. The deposits of security by the salesmen was a part of service condition, which the learned authorised representative for the assessee submitted, was an imperative requirement in view of the fact that such salesmen dealt with cash and the assessee having 39 shops, had not physical control over them all the time. Such deposits appeared at the beginning of the accounting period and, therefore, could not even be considered as cash credits in the hands of the assessee. In this connection, reliance was placed on the decision of the jurisdiction High Court in the case of C.I.T. Vs. Jaiswal Motor Finance, reported in 141 ITR 706. It was also submitted that the A.O. found and observed in the 4 assessment order that it was customary in the liquor business that salesmen were required to deposit security money with the firm which was returned back to them after the confirmation was over. The assessment order also went to say that confirmation from the salesmen had been filed as required by the A.O. and placed on record.
We feel that even on this score there is nothing, which appears, could be unusual, much less warranting any action u/s 263 of the Act. If the security deposits by the salesmen were found at the beginning of the accounting period and the taking of such deposits was customary in the relevant period, which deposits were eventually returned, what else the assessee could have done except filing confirmatory letters from the salesmen, which he did. There also appears to be some force in the contention raised that if any addition could have been made, the same could be in the hands of a particular employee if he could not satisfy the A.O. about the source of the money, which he deposited with the assessee.
In the circumstances, we are of the considered view that there was no error in the assessment order and that being so, it cannot be said to be erroneous. In response to the notice issued by the learned Commissioner, the assessee showed that the order could not be revised as it was neither erroneous not prejudicial to the interest of the revenue. This certainly deprived the Commissioner to take any further action. In view of the aforesaid, we are unable to uphold the action taken by the learned Commissioner. The order rendered by him u/s 263 is, therefore, quashed.
Appeal allowed.
Heard Shri R.K. Upadhyay, learned standing counsel. Learned standing counsel submitted that a huge sum of Rs. 10,22,500/- was found deposited in the books of account of the assessee in the names of 84 employees, who were working as salesmen, and their deposits have been accepted merely on the basis of the certificates/confirmatory letters furnished by them before the assessing authority without making any further inquiry about the source of deposits. Therefore, the Commissioner of Income Tax has rightly initiated the proceedings under Section 263 of the Income Tax Act and has held that the order was erroneous.
We have perused the assessment order. On perusal of the assessment order, it reveals that the firm had 48 shops, located in district Rai Bareilly, wherein salesmen were appointed to carry out the sales of the country liquor. It was found that it was customary in this business that the salesmen are required to deposit security money with the firm. The assessing authority further found that the 5 amount so deposited was returned back to them after the contract was over and the confirmatory letters were filed by the salesmen. Therefore, it cannot be said that in respect of the deposits made by salesmen, the assessing authority has not applied his mind and has not made any enquiry. It may be that the inquiry, according to the Commissioner of Income Tax, was not a detailed inquiry which ought to have been done but that will not make the order erroneous. This Court in the case of C.I.T. Vs. Goel Private Family Specific Trust, reported in 171 ITR 698 has held that orders of the Income Tax Officer may be brief and cryptic, but that by itself is not sufficient reason to brand the assessment orders as erroneous and prejudicial to the interest of revenue. The Apex Court in the case of Malabar Industrial Co. Vs. CIT held that the revisional power cannot be exercised where two views are possible. We further find that the Tribunal has dealt with each and every aspects in details on the basis of material on record and recorded the findings of facts that the assessment order was not erroneous. The proceedings under Section 263 of the Income Tax Act can only be taken in case if the assessment order is found to be erroneous and prejudicial to the interest of Revenue. Therefore, both the conditions should coexist. If one of the conditions does not exist the power under Section 263 of the Income Tax Act could not be exercised.
In the facts and circumstances of the case, we do not see any error in the order of the Tribunal. The question referred is, therefore, answered in affirmative in favour of the assessee and against the Revenue.
Date: 06.01.2010 MK/