CIT(A) has no power to give direction to AO to reopen assessment

Shri Arindam Bhattacharjee Ld. Departmental Representative appeared on behalf of Revenue and Shri Manoj Kataaruka, Ld. Advocate appeared on behalf of assessee.

2. At the outset, it was noticed that this appeal by Revenue is delayed by 45 days and Revenue has filed condonation petition supported by affidavit stating the reasons. The Ld. Counsel for the assessee fairly conceded that in view of the reasons given in condonation petition delay can be condoned. In view of concession give by Ld. Counsel for the assessee, we condone the delay and admit the appeal for hearing.

3. The Revenue has raised the following grounds:-

“1. On the facts and circumstances of the case, Ld. CIT(A) was not justified in allowing relief of Rs.55,32,393/- to the assessee.

2. Ld. CIT(A) has erred on facts and in law in overlooking the fact that the assessee failed to explain the receipts routed through bank A/c in the assessment stage.

3. Ld. CIT(A) has erred on facts and in law in not issuing direction u/s 150(1) to reopen the assessment for those years when the said investment (unaccounted) should have been assessed.

The appellant craves leave to add, delete or revise any grounds of appeal.”

4. First issue raised by Revenue in ground 1 and 2 are that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹55,32,393/- on account of undisclosed investment.

5. Briefly stated facts are that assessee is an individual and deriving his income from business of graphic designing. The assessee has not been filing his income tax return and he declared several bank accounts, Postal Savings, MIS, fixed deposits and investment made in the mutual fund in his deposition u/s. 131 of the Act. It was also observed that assessee also had bank accounts in the name of his two minor daughters. Thus, the re-assessment proceedings were initiated against the assessee u/s 147 of the Act. During the course of assessment proceedings, AO observed that the
assessee had declared his gross contractual receipts for ₹12,00,436/- in his profit and loss account. But on perusal of bank statement of the assessee, it was found that gross receipts in the banks are at ₹79,82,418/- only besides the interest income. Thus, AO observed that difference of ₹58,81,982/- (7082418 – 1200436) between gross receipt declared in the income tax return vis-a-vis gross receipt appearing in the bank statement. Accordingly, an explanation was sought by the AO from assessee on account of mismatch in the gross receipts as discussed above. However, assessee failed to reconcile the difference as discussed above. Therefore, AO treated the difference of ₹58,81,982/- as undisclosed investment and added to the total income of assessee.

7. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the AO has passed the assessment order without the application of his mind. In fact, the bank statements contain certain receipts on account of realization of mutual fund which were deposited in the bank account. The Short Term Capital Gains (STCG for short) on realization of mutual fund was duly offered to tax as evident from the computation of income. Thus, the entire amount received on the realization of mutual fund cannot be made subject to tax. Thus the profit earned on realization of mutual fund was offered to tax. Besides there were certain fixed deposit which matured in the year under consideration and accordingly, the interest income earned on such fixed deposits were duly offered to tax. The entire amount received on the maturity of fixed deposit cannot be made subject to tax. However the AO erred in treating the entire amount of maturity value received by assessee as taxable. The assessee further submitted that income of ₹57,600/- on account of interest of MIS and bonus on maturity was not reflecting in the bank statement. But the AO has included the same in the total income of assessee. Thus, it is a clear-cut case that AO has passed the order without the application of his mind. The detailed explanation was filed before AO by assessee along with all bank statement at the time of assessment proceedings explaining the source of deposit in the bank account. But AO failed to appreciate the same. The total deposits in all the seven bank accounts came to ₹67,98,612/- but AO has taken total receipts of ₹70,57,767/- only. Thus, there is difference of ₹2,59,155/- which has been wrongly added to the total income of assessee. The assessee further offered an amount of ₹3,49,589/- as undisclosed income and pleaded for the deletion of addition made by the AO on account of undisclosed income. Ld. CIT(A) after considering the submission made by assessee granted relief in part by observing as under:-

“Submission of the A/R, assessment records, assessment order and remand report were duly considered. The Assessing Officer made the total of credit side (receipts) in the bank statement (i.e Rs. 70,82,418/-) and deducted the profit shown by the appellant (i.e Rs. 12,00,418/-) and treated the balance amount of Rs. 58,81,982/- as undisclosed investment of the appellant in the business and finally as his income. In the remand report AO has not mentioned how total of receipts in bank statement of Rs. 58,81,982/- is undisclosed income/investment. No new facts were brought by Assessing Officer. On perusal of bank statement and details submitted by the A/R it was found that investment in FD/NSC is from earlier years but matured during the year, sale and purchase of MFs is out of available has not examined both Dr & Cr side of bank statement for coming to final conclusion of unaccounted investment. Simply adding receipts side bank statement does not make the transactions unaccounted. No effort was made by AO in assessment order and even in remand to figure out unaccounted receipts. The A/R worked out unaccounted receipts to the tune of Rs. 3,49,589/-. Amount to the extent of Rs. 3,49,589/- is confirmed and balance amount of Rs.55,32,393/- is deleted. Appellant gets relief of Rs. 55,32,393/-.”

The Revenue, being aggrieved, is in appeal before us.

8. Ld. DR before us submitted that the order passed by Ld. CIT(A) is non-speaking order and therefore same may be remitted back to the file of Ld. CIT(A) for fresh adjudication in accordance with law. He further submitted that addition was made by the AO on account of undisclosed investment but the Ld. CIT(A) has deleted the same only by observing that investment are coming from earlier years. Therefore, same cannot be added in the year under consideration. However, no breakup of the investment coming from the earlier year has been given in the order of Ld. CIT(A). He heavily relied on the order of AO.

On the other hand, Ld. AR before us filed paper book which is running from pages 1 to 144 and submitted that all the details were duly submitted before AO at the time of assessment proceedings as well as during the remand proceedings. The AO failed to bring any defect in the submission of the assessee. Ld. AR in this regard drew our attention on the remand report which is placed on pages 112 to 114 of the paper book. He further drew our attention on pages 5 to 14 where the bank statements explaining all the receipts were placed. He relied on the order of Ld. CIT(A).

9. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case the addition was made by AO on account of mismatch between gross turn-over declared by assessee vis-a-vis gross receipt appearing in the bank statement of the assessee. The assessee tried to reconcile the statement as observed by AO explaining that certain receipts in the bank statements are showing the money receipt on the realization of mutual fund as well as maturity value of fixed deposit. As such, the principal amount received by assessee on account of realization of mutual fund as well as on maturity of fixed deposit cannot be subject to tax. Only the profit earned by it can be brought to tax which has already been offered to tax. However, we find that Ld. CIT(A) reversed the order of AO after giving part relief to assessee by observing the fact that the investment in mutual fund / fixed deposit are coming from the earlier year. However, on perusal of First Appellate Order we find that it suffered from several infirmities detailed as under:-

a) The investment in FD/NSC is coming from earlier year but matured during the year (07-08)

i) There is no finding about the number of FD maintained by assessee as well as his daughters.

ii) No breakup of FD i.e. i.e. principal amount vis-à-vis interest amount;

iii) No comment whether the interest on FD were offered to tax on the basis of cash method or mercantile method.

iv) No finding for the deduction of TDS by the bank on the payment of interest on FD/saving bank account;

b) Sale and purchase of mutual fund is out of available fund because assessee has declared capital gain on the realization of mutual fund for ₹1,06,212/- only. The gross sale proceed of realization of mutual fund was shown for ₹14,42,721/- where the cost price of mutual fund was shown for ₹1 3,36,500/- only. Thus the gain of ₹1 ,06,21 2/- was offered in the income tax return. But there is no whisper in the order of Ld. CIT(A) about source of investment made by assessee in the impugned mutual fund.

c) Ld. CIT(A) in his appellate order has admitted the fact that AO has not examined both debit and credit side of the bank account. But Ld. CIT(A) has also not commented on all the debit and credit side of the bank statement of the assessee.

d) It was also observed by Ld. CIT(A) in his appellate order that Assessing Officer failed to put any effort in his assessment order as well at the stage of remand report. But in this case, also we find that Ld. CIT(A) has also not exercised his power to figure out the unaccounted receipt.

e) We also note that the requisition made by the Ld. CIT(A) during remand report has not been recorded in the order of Ld. CIT(A)

f) The provision of Section 250(6) of the Act require the commissioner appeal to dispose of the appeal in writing and with reasoning but we find from the appellate order that where he has given relief to assessee merely relying on the submissions made by assessee. We also note that lot of information were submitted by assessee before Authorities Below which has not been duly verified.

Therefore, in view of the above, and in the interest of natural justice and fair play we are inclined to restore the matter back to the file of AO for fresh adjudication in accordance with law. The AO must give reasonable opportunity to the assessee before passing order on this point. Accordingly, Revenue’s issue is allowed for statistical purpose.

10. Next issue raised by Revenue in ground No.3 is that Ld. CIT(A) erred in not issuing direction to the AO u/s 150(1) of the Act to reopen the assessment for those years in which the investment had been made by the assessee. The AO made the addition on account of undisclosed investment made by the assessee but Ld. CIT(A) deleted the addition as made by the AO on the ground that these investments were not made in the year under consideration. As per Ld. CIT(A) this investments were made in the earlier year. Accordingly, Ld. CIT(A) was of the view that the investments have not been made in the year under consideration. Therefore no addition on account of undisclosed investment can be made in the hands of the assessee.

11. Now the Revenue has agitated before us that Ld. CIT(A) erred in not giving direction to reopen the case of earlier years of the assessee in which investments were made. In this regard, we find that Ld. CIT(A) has been given power u/s. 251 of the Act to confirm the order of AO reduce, enhance or annul assessment order under the provision of Act but there is no power available to Ld. CIT(A) to give direction to AO for reopening the case of other years. The Income Tax Act provides different schemes wherein the AO is empowered to assess or re-assess the income which has escaped assessment. So at the most, if the Revenue wishes to tax the escapement of income then it has followed the scheme provided under the Act. The relevant provisions for taxing the escape income are given u/s 147/263 of the Act. In holding so, we find support and guidance from the judgment of Hon’ble Supreme Court in the case of ITO vs. Murlidhar Bhaghubabu reported in 52 ITR 335 (SC). The relevant extract of the judgment is reproduced below:-

“Section 33(4) of 1922 Act only refers to a finding or direction made by an appellate authority and does not itself confer any power on an appellate authority to make a finding or direction. Indeed, section 34 of 1922 Act deals with entirely a different aspect, that of empowering an ITO to bring to assessment escaped income, and has no concern with the powers of an appellate authority. The provision which deals with the powers of an appellate authority is section 31 of 1922 Act.”

Respectfully following the judgment of Hon’ble Supreme Court in the case of Murlidhar Bhaghubabu (supra) we conclude that Ld. CIT(A) has no power under the provision of law for giving any direction to AO for reopening of assessment. The appeal before Ld. CIT(A) is confined to the particular assessment year which is before him. Thus, in view of the above proposition, we dismiss the ground of Revenue’s appeal. Consequently, Revenue’s ground is dismissed.

12. In the result, Revenue’s appeal stands allowed partly for statistical purpose.

Order pronounced in the open court 10/11/2017