P.R. Raman, J. -
(1.) THESE three income-tax appeals relate to the asst. yrs. 1998-99, 1999-2000 and 2000-2001.
(2.) THE assessee is a contractor. THE assessment was completed under Section 143(3) of the IT Act for the asst. yr. 1998-99 on 7th Feb.. 2001 fixing the income at Rs. 10,08,090. For the asst. yr. 1999-2000 the assessment was completed on 8th Parch, 2001, fixing the income at Rs. 13,81,760, and for the asst. yr. 2000-2001 the assessment was completed on 8th March, 2001, fixing the income at Rs. 13,18,660. THEre was a survey operation under Section 133A of the IT Act on 23rd Jan., 2001, and a statement was also recorded from the managing partner Roy Mathew. It was admitted that there was some irregularities and discrepancies in the books of accounts, in that there was excess payment of cash over what is available as per cash book and also unaccounted investment in properties and suppression of receipt and inflation of expenses. In the course of such statement given by the managing partner he offered an amount of Rs. 43 lakhs as additional income for the three years i.e., for 1998-99 at Rs. 13 lakhs, for 1999-2000 at Rs. 10 lakhs and for 2000-2001 at Rs. 20 lakhs. THE AO determined the business income for the asst. yr. 1998-99 at Rs. 8,26,550, taking the net profit at 8 per cent of the total receipt of Rs. 1,22,92,150. For the asst. yr. 1999-00 the business income was determined at Rs. 7,72,960, taking the net profit at 8 per cent of the total receipts of Rs. 1,14,41,748, and for the asst. yr. 2000-01 at Rs. 8,18,255, at the same rate of net profit from the total receipt of Rs. 1,22,46,673. But according to the CIT this was erroneous and prejudicial to the interest of Revenue. He also noted certain receipts other than transport receipts such as discount, interest, compensation, etc., shown by the assessee in the P&L a/c and considered by it for the computation had however, not been considered by the AO. Hence, he issued notice under Section 263 of the IT Act on 12th Dec., 2001, requiring the assessee to explain why the assessment orders should not be modified suitably. THE assessee submitted that during the survey under Section 133A the managing partner stated that their income for the three years is around Rs. 43 lakhs and the total income fixed as per the assessment proceedings for the above three years also comes to Rs. 43,42,881. It was also contended that for the asst. yr. 1998-1999 an advance of Rs. 19 lakhs was received by the partners. THE AO accepted the explanation for Rs. 13 lakhs and the balance Rs. 6 lakhs was allowed to be telescoped. In addition, the assessee had estimated an income of Rs. 12 lakhs before payment of salary to the partners for the asst. yr. 2000-2001 and remitted the advance tax also. It was submitted that the assessee had co-operated with the Department in the survey proceedings and for completion of assessment proceedings, there was no difference between the income offered for assessment and income finally assessed.
However, the CIT rejected the above contention as according to him, these are factually incorrect. According to him, the income declared at the time of survey amounting to Rs. 43 lakhs was in addition to the income already assessed for the three years under consideration. According to the CIT, this was offered as additional income on investment and expenditure and credits which were not reflected in the books of account and was out of the business activity of the assessee. According to him, it cannot be clubbed with the capital gain which is not out of business activity of the assessee. Hence, excluding the capital gains for the three years the income assessed under the head "business or profession" came to Rs. 24,17,774, only as against the disclosed income of Rs. 43 lakhs. Hence, according to the CIT, the additional income disclosed for each year should have been taken into account separately while making the assessment. Hence, he set aside the assessment and directed the AO to reframe the assessment afresh taking into consideration the omissions/mistakes pointed out. The assessee, aggrieved thereby, appealed to the Tribunal.
The assessee contended before the Tribunal, that there is no error in law in the order of the AO and, therefore, the action of the CIT amounts to illegal exercise of jurisdiction vested in him under Section 263 of the Act and that the AO has correctly exercised the judicial discretion vested in him while estimating the income of the appellant and hence interference with such judicial exercise of powers of the AO under Section 263 of the Act amounted to unlawful exercise of the jurisdiction conferred on the CIT, as the order of the AO is neither erroneous nor prejudicial to the Revenue. The conditions, therefore, for invoking Section 263, according to the assessee, is not satisfied in the case and accordingly, the order in revision of the CIT has to be held not sustainable in law.
(3.) THE Tribunal pointed out that the CIT has entirely relied on the depositions made during the course, of survey under Section 133A on 23rd Jan., 2001, and virtually brushed aside everything which the AO considered subsequent thereto in the course of the assessment proceedings. THE declaration with regard to the sum of Rs. 13 lakhs made in the Section 133A statement was on mistaken understanding of facts and the real fact stood proved much before the survey as the Department had already held the payment of Rs. 19 lakhs as genuine in the hands of the creditor (M.O. Devassy alias Pappu).
The Tribunal after consideration of the submissions on both sides however held that the order of the CIT is in the right direction and has to be upheld. According to the Tribunal, the submission reproduced in the statement of the assessee showed that what the assessee offered was in addition to the returned income. Even otherwise, according to the Tribunal, the CIT was right in holding that the AO has taken capital gains to reach the assessed figures. It was also held that the AO did not go into the implication of the answer to question No. 13. According to the Tribunal, the failure of the AO to make proper enquiry itself gives jurisdiction to the CIT to invoke the provisions of Section 263. Accordingly, the appeals were dismissed.;