Exercise of S. 263 on expenses claim withdrawn by Assessee valid: SC

Hon’ble SC held that Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue. The notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn. We, therefore, are of the opinion that the learned C.I.T. was perfectly justified and in passing the impugned order on that basis. The learned Tribunal as well as the High Court, therefore, ought not to have interfered with the said conclusion.

In the present case, there is no dispute that in the order dated 20^th March, 2006 passed by the learned C.I.T. under Section 263 of the Act findings have been recorded on issues that are not specifically mentioned in the show cause notice dated 7^th November, 2005 though there are three (03) issues mentioned in the show cause notice dated 7^th November, 2005 which had specifically been dealt with in the order dated 20^th March, 2006. The learned Tribunal in its order dated 28^th August, 2007 put the aforesaid two features of the case into two different compartments. Insofar as the first question i.e. findings contained in the order of the learned C.I.T. dated 20^th March, 2006 beyond the issues mentioned in the show cause notice is concerned the learned Tribunal taking note of the aforesaid admitted position held as follows:

“In the case on hand, the CIT has assumed jurisdiction by issuing show cause notice u/s 263 but while passing the final order he relied on various other grounds for coming to the final conclusion. This itself makes the revision order bad in law and also violative of principles of natural justice and thus not maintainable. If, during the course of revision proceedings the CIT was of the opinion that the order of the AO was erroneous on some other grounds also or on any additional grounds not mentioned in the show cause notice, he ought to have given another show cause notice to the assessee on those grounds and given him a reasonable opportunity of hearing before coming to the conclusion and passing the final revision order. In the case on hand, the CIT has not done so. Thus, the order u/s 263 is violative of principles of natural justice as far as the reasons, which formed the basis for the revision but were not part of the show cause notice issued u/s 263 are concerned. The order of the CIT passed u/s 263 is therefore liable to be quashed in so far as those grounds are concerned.”

The above ground which had led the learned Tribunal to interfere with the order of the learned C.I.T. seems to be contrary to the settled position in law, as indicated above and the two decisions of this Court in Gita Devi Aggarwal (supra) and M/s Electro House (supra). The learned Tribunal in its order dated 28^th August, 2007 had not recorded any finding that in course of the suo motu revisional proceedings, hearing of which was spread over many days and attended to by the authorized representative of the assessee, opportunity of hearing was not afforded to the assessee and that the assessee was denied an opportunity to contest the facts on the basis of which the learned C.I.T. had come to his conclusions as recorded in the order dated 20^th March, 2006. Despite the absence of any such finding in the order of the learned Tribunal, before holding the same to be legally unsustainable the Court will have to be satisfied that in the course of the revisional proceeding the assessee, actually and really, did not have the opportunity to contest the facts on the basis of which the learned C.I.T. had concluded that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. The above is the question to which the Court, therefore, will have to turn to.

To determine the above question we have read and considered the order of the Assessing Officer dated 30^th March, 2004; as well as the order of the learned C.I.T. dated 20^th March, 2006. From the above consideration, it appears that the learned C.I.T. in the course of the revisional proceedings had scrutinized the record of the proceedings before the Assessing Officer and noted the various dates on which opportunities to produce the books of account and other relevant documents were afforded to the assessee which requirement was not complied with by the assessee. In these circumstances, the revisional authority took the view that the Assessing Officer, after being compelled to adjourn the matter from time to time, had to hurriedly complete the assessment proceedings to avoid the same from becoming time barred. In the course of the revisional exercise relevant facts, documents, and books of account which were overlooked in the assessment proceedings were considered. On such re-scrutiny it was revealed that the original assessment order on several heads was erroneous and had the potential of causing loss of revenue to the State. It is on the aforesaid basis that the necessary satisfaction that the assessment order dated 30^th March, 2004 was erroneous and prejudicial to the interests of the revenue was recorded by the learned C.I.T. At each stage of the revisional proceeding the authorized representative of the assessee had appeared and had full opportunity to contest the basis on which the revisional authority was proceeding/had   proceeded in the matter. If the revisional authority had come to its conclusions in the matter on the basis of the record of the assessment proceedings which was open for scrutiny by the assessee and available to his authorized representative at all times it is difficult to see as to how the requirement of giving of a reasonable opportunity of being heard as contemplated by Section 263 of the Act had been breached in the present case. The order of the learned Tribunal insofar as the first issue i.e. the revisional order going beyond the show cause notice is concerned, therefore, cannot have our acceptance. The High Court having failed to fully deal with the matter in its cryptic order dated 7^th August, 2008 we are of the view that the said orders are not tenable and are liable to be interfered with.

This will bring us to a consideration of the second limb of the case as dealt with by the learned Tribunal, namely, that tenability of the order of the learned C.I.T. on the three (03) issues mentioned in the show cause notice and also dealt with in the revisional order dated 20^th March, 2006. The aforesaid three (03) issues are:

“i) Assessee maintaining 5 bank accounts and AO not examining the 5^th bank account, books of account and any other bank account where receipts related to KBC were banked.

ii) Regarding claim of deposits of Rs.52.06 lakhs in Special Bench A/c No.11155 under the head “Receipts on behalf of Mrs. Jaya Bachchan and

iii) Regarding the claim of additional expenses in the re-revised return.”

detailed reasons for not accepting the grounds cited in the revisional order for setting aside the assessment under Section 263 of the Act. The reasons cited by the learned Tribunal insofar as the first two issues are concerned may not justify a serious relook and hence need not be gone into. The third question would, however, require some detailed attention. The said question is with regard to the claim of additional expenses made by the assessee in its re-revised return which was subsequently withdrawn.

The assessee in the re-revised return dated 31^st March, 2003 had made a claim of additional expenses of 30% of the gross professional receipts (Rs.3. 17 crores). It appears that the Assessing Officer required the assessee to file requisite details in this regard. The assessee respon 13^th February, 2004 stating as follows:

“With regard to the 30% estimated expenses claimed, we have to submit that these are the expenses which are spent for security purposes by employing certain Agencies, guards etc. for the personal safety of Shri Bachchan as he has to protect himself from various threats to his life received by him and to avoid extortion of money from gangsters. The names of such Agencies cannot be disclosed/divulged as there is a possibility of leakage of information of Agencies’ names from the office staff, which will obviously be detrimental to the interests of Shri Bachchan. The payments have been made out of cash balances available and lot of outstanding expenses are to be paid which could not be paid for want of income.”

Thereafter by letter dated 13^th March, 2004 the assessee informed the learned C.I.T. that the claim was made on a belief that the same is allowable but as it will not be feasible for the assessee to substantiate the same, the re-revised return of income may be taken to the withdrawn. It appears that thereafter the Assessing Officer issued a notice to show cause as to why the provisions of Section 69-C should not be invoked and the expenses claimed should not be treated as unexplained In reply, the assessee by letter dated 24^th March, 2004 submitted that the claim was made as a standard deduction and that the assessee had been wrongly advised to make the said claim and as the same has been withdrawn, Section 69-C will have no application. The record of the assessment proceedings disclose that the said stand was accepted by the Assessing Officer and the matter was not pursued any further.

The learned C.I.T. took the view that notwithstanding the withdrawal of the claim by the assessee, in view of the earlier stand taken that the said expenses were incurred for security purposes of the assessee, the Assessing Officer ought to have proceeded with the matter as the assessee was following the cash system of accounting and the filing of the re-revised return, prima facie, indicated that the additional expenses claimed had been incurred. In this regard, the following findings/reasons recorded by the learned C.I.T. in the order dated 20^th March, 2006 would be of particular relevance:

“Withdrawal of claim by assessee can be for variety of reasons and this does not mean that Assessing Officer should abandon enquiries regarding sources for incurring expenses. Assessee follows cash system of accounting and the claim regarding additional expenses was made through duly verified revised return. The claim was pressed during assessment proceedings carried on by A.O. after filing revised return and it was specially stated in letter dated 13.02.2004 that expenses were for security purposes and that payments have been made out of cash balances available etc. Under the circumstances, the Assessing Officer was expected to examine the matter further to arrive at a definite finding whether assessee incurred expenses or not and in case, actually incurred, then what were sources for incurring these expenses. Assessing Officer was satisfied on withdrawal of the claim and in my view, his failure to decide the matter  regarding actual incurring of additional expenses and sources thereof resulted into erroneous order which is prejudicial to the interest of revenue.”

An argument has been made on behalf of the assessee that notice under Section 69-C was issued by the Assessing Officer and thereafter on withdrawal of the claim by the assessee the Assessing Officer thought that the matter ought not to be investigated any further. This, according to the learned counsel for the assessee, is a possible view and when two views are possible on an issue, exercise of revisional power under Section 263 would not be justified. Reliance in this regard has been placed on a judgment of this Court in Malabar Industrial Co. Ltd. CIT ³ which has been approved in Commissioner of Income-tax vs. Max India Ltd. ⁴

There can be no doubt that so long as the view taken by the Assessing Officer is a possible view the same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the learned C.I.T. on the basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue. The notice issued under Section 69-C of the Act could not have been simply dropped on the ground that the claim has been withdrawn. We, therefore, are of the opinion that the learned C.I.T. was perfectly justified in coming to his conclusions insofar as the issue No. (iii) is concerned and in passing the impugned order on that basis. The learned Tribunal as well as the High Court, therefore, ought not to have interfered with the said conclusion.

In the light of the discussions that have preceded and for the reasons alluded we are of the opinion that the present is a fit case for exercise of the suo motu revisional powers of the learned C.I.T. under Section 263 of the Act. The order of the learned C.I.T., therefore, is restored and those of the learned Tribunal dated 28^th August, 2007 and the High Court dated 7^th August, 2008 are set aside. The appeal of the Revenue is allowed.

SLP(C) No.861 of 2013

Leave granted.

Pursuant to the revisional order dated 20^th March, 2006 under Section 263 of the Income Tax Act setting aside the assessment order for the assessment year 2001-2002 and directing fresh assessment, a fresh assessment had been made by the Assessing Officer by order dated 29^th December, 2006. Against the said order the respondent assessee filed an appeal before the learned Commissioner of Income Tax (Appeals). By order dated 18^th October, 2007 the learned Commissioner of Income Tax (Appeals) had set aside the assessment order dated 29^th December, 2006 as in the meantime, by order dated 28^th August, 2007 of the learned Income Tax Appellate Tribunal the revisional order dated 20^th March, 2006 under Section 263 of the Act was set aside. The Revenue’s appeal before the learned Tribunal against the order dated 18^th October, 2007 was dismissed on 11^th January, 2000 and by the High Court on 29^th February, 2012. Against the aforesaid order of the High Court this appeal has been filed by the Revenue. As by the order passed today in the Civil Appeal arising out of Special Leave Petition (Civil) No.11621 of 2009 we have restored the suo motu revisional order dated 20^th March, 2006 passed by the learned C.I.T., we allow this appeal filed by the Revenue and set aside the order dated 1 1^th January, 2010 passed by the learned Tribunal and the order dated 29^th February, 2012 passed by the High Court referred to above. However, we have to add that as the re-assessment order dated 29^th December, 2006 had not been tested on merits the assessee would be free to do so, if he is so, if he is so inclined and so advised.

The appeals are disposed of in the above terms.