2020 (12) TMI 300 - AT - Income Tax

Revision u/s 263 by CIT - Addition u/s 68 - HELD THAT - Main source of income of the assessee was from Services/Commission in respect of RTO services to transporters and in the bank accounts, there are various debit entries in terms of payments in relation to such services which can be duly explained and therefore whole cash deposit cannot be assessed as undisclosed income, we direct the AO to verify such debit entries and consider the explanation of the assessee as may be submitted besides the credit entries in the bank accounts, and taking into consideration the income already disclosed in the return of income, arrive at the taxable income afresh as per law after providing reasonable opportunity to the assessee. Accordingly, the order so passed by the ld Pr CIT is modified to this extent. Appeal has been preferred against the assessment order before the ld CIT(A) and therefore, the matter is beyond the jurisdiction of the ld Pr CIT u/s 263 - Though there is no dispute that the assessee has preferred an appeal before the ld CIT(A), however, such an appeal has been delayed filed and there is nothing on record that the delay has been condoned and the appeal has been admitted for adjudication and in such a situation, it cannot be held that mere filing an appeal where such appeal has not even been admitted for adjudication act as an estoppel in exercise of jurisdiction by the Pr. CIT u/s 263 of the Act. In any case, the ld AR has stated at the Bar that the assessee didn t wish to press ground no. 3 relating to clause (c) to explanation 1 to section 263 where it has been clearly spelt out that powers of the Pr CIT shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. In the instant case, where the appeal has not even been admitted for adjudication by the ld CIT(A), the question of subject matter of appeal been considered and decided in such appeal doesn t arise and therefore, the doctrine of merger of the assessment order with that of the appellate order doesn t arise for consideration and thus, in the instant case, there is no bar on exercise of jurisdiction of ld. Pr CIT u/s 263

Summary

Issues Involved:
1. Validity of the order passed by the ld. Pr. CIT under section 263 of the Income Tax Act, 1961.
2. Competence of the ld. Pr. CIT to pass an order under section 263 when the matter was pending before the ld. CIT(Appeals).
3. Alleged violation of clause (c) of Explanation 1 to sub-section 1 of section 263 by the ld. Pr. CIT.
4. Delay in filing the appeal and its condonation.

Issue-wise Detailed Analysis:

1. Validity of the order passed by the ld. Pr. CIT under section 263 of the Income Tax Act, 1961:
The appellant contended that the order passed by the ld. Pr. CIT was bad in law as the ld. AO had passed the order after due application of mind. The ld. AO had assessed a sum of ?8,44,745/- being 10% of cash deposits as net income based on the bank statements and various debit entries. The ld. Pr. CIT, however, held that the whole amount of cash deposit should have been treated as unexplained under section 68, making the AO's order erroneous and prejudicial to the interest of Revenue. The Tribunal found that the AO's order was indeed erroneous as he did not bring the whole of the unexplained cash deposits to tax and failed to provide a basis for taxing only 10% of such deposits. The Tribunal directed the AO to verify the debit entries and consider the explanation of the assessee afresh, thereby modifying the order of the ld. Pr. CIT to this extent.

2. Competence of the ld. Pr. CIT to pass an order under section 263 when the matter was pending before the ld. CIT(Appeals):
The appellant argued that since an appeal against the AO's order was pending before the ld. CIT(Appeals), the ld. Pr. CIT was incompetent to pass an order under section 263. The Tribunal observed that although the assessee had filed an appeal before the ld. CIT(A), there was no record of the delay being condoned and the appeal being admitted for adjudication. Thus, the mere filing of an appeal did not act as an estoppel in the exercise of jurisdiction by the ld. Pr. CIT under section 263. Therefore, the Tribunal dismissed this ground.

3. Alleged violation of clause (c) of Explanation 1 to sub-section 1 of section 263 by the ld. Pr. CIT:
The appellant claimed that the ld. Pr. CIT violated clause (c) of Explanation 1 to sub-section 1 of section 263 as the matter was pending before the ld. CIT(A). The Tribunal noted that the appellant did not wish to press this ground and clarified that the powers of the ld. Pr. CIT extend to matters not considered and decided in an appeal. Since the appeal had not been admitted for adjudication, the doctrine of merger did not apply, and there was no bar on the exercise of jurisdiction by the ld. Pr. CIT under section 263. Hence, this ground was also dismissed.

4. Delay in filing the appeal and its condonation:
The appeal was filed with a delay of 143 days due to the COVID-19 lockdown. The appellant cited the relaxation provided by the Ministry of Law and Justice and the Ministry of Finance, extending the time for filing the appeal. The Tribunal, considering the prevailing situation and the relaxation provided, condoned the delay and admitted the appeal for adjudication.

Conclusion:
The Tribunal modified the order of the ld. Pr. CIT to the extent that the AO was directed to verify the debit entries and consider the explanation of the assessee afresh. The grounds challenging the competence of the ld. Pr. CIT and the alleged violation of clause (c) of Explanation 1 to sub-section 1 of section 263 were dismissed. The delay in filing the appeal was condoned, and the appeal was admitted for adjudication.