Commissioner of Income Tax vs Rais Ahmed and Co.

Rajesh Bindal, J.—Following question of law has been referred for opinion of this court by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as ''the Tribunal''), arising out of order passed in ITA No. 391/Asr/1988 in respect of the assessment year 1983-84:

Whether on the facts and in the circumstances of the case, the Tribunal has been right in law in partly sustaining the order of the Commissioner passed u/s 263 by holding that the unrecorded purchases were financed out of the unrecorded sales made by the assessee?

Briefly the facts are that the respondent-assessee was a registered firm deriving income from business of purchase and sale of cloth on retail basis. For the assessment year 1983-84, return of income was filed on 27-7-1983 declaring income at Rs. 59,570, which was assessed u/s 143(3) of the Income Tax Act, 1961 herein after referred to as ''the Act'') on 4-2-1986 at an income of Rs. 87,565. Certain discrepancies were found during the course of assessment with regard to detail of purchase and sale, etc. The assessment order was examined by the Commissioner (herein after referred to as ''the CIT'') suo motu u/s 263 of the Act, the order being erroneous and prejudicial to the interest of revenue. During the course of proceedings before the Commissioner u/s 263 of the Act, it was explained by the assessee that part of the purchases was duly recorded in the books of account and part of purchases, which was not recorded was financed through the sale effected outside the books of account. The Commissioner, accordingly, set aside the assessment and referred the case back to the assessing officer for fresh assessment, after affording reasonable opportunity to the assessee. Aggrieved against the order, the assessee preferred an appeal before the Tribunal, who partly allowed the appeal vide order dated 19-4-1990. It is out of this order of the Tribunal, out of which the question of law has been referred to this court for opinion.

A perusal of the order passed by the Tribunal shows the factual details of each and every transaction of purchases and finance thereof, which were out of books of account, was examined by the Tribunal and a definite finding of fact was recorded to the effect that the source of purchases, which were kept outside the books of account, stood fully explained and no addition on this account was called for. However, this was subject to verification about the compliance of provisions of Section 40A(3) of the Act. With this discussion, the Tribunal set aside the order of Commissioner passed u/s 263 of the Act, however, on account of alleged violation of Section 40A(3) of the Act for cash payments in excess of Rs. 2,500 was concerned, order of Commissioner u/s 263 of the Act was upheld wherein the matter was remanded back to the assessing officer for fresh assessment.

Learned counsel for the revenue submitted that the findings of facts recorded by the Tribunal whereby the explanation of the assessee to the effect that purchase of goods outside the books of account was financed from sale thereof outside the books of account, are perverse. There was enough material to hold that the assessing officer, having not examined the details during assessment proceedings, the order passed by the assessing authority was prejudicial to the interest of revenue and, accordingly, order passed u/s 263 of the Act was liable to be upheld. The contention made by learned counsel for the revenue cannot be accepted. Learned counsel for the revenue was not able to show as to what material in addition to what has been considered by the Tribunal to record a finding against the revenue was not considered while accepting the explanation of the assessee. A perusal of the order shows that each and every transaction with each and every dealer, the alleged parties from whom material was purchased outside the books of account, was considered by the Tribunal before recording a finding thereon. Under these circumstances, we do not feel findings recorded by the Tribunal are perverse. On the legal issue of violation of Section 40A(3) of the Act, the order passed u/s 263 of the Act passed by the CIT was upheld.

For the reasons recorded above, the question referred is answered against the revenue and in favour of the assessee.

The reference is disposed of accordingly.