Shobha Govil vs Addl. CIT and Another

Prakash Krishna, J.—The petitioner is engaged in two distinct line of businesses, namely,

(1) Mentha business, and

(2) Cattle feed and green vegetable business.

The petitioner is maintaining a separate profit and loss accounts and drawing separate balance-sheets for them. The dispute relates to the assessment year 2006-07. The assessment proceedings were initiated under the income tax Act, 1961 (hereinafter referred to as "the Act"). The assessment order was passed on November 17, 2008, by the income tax Officer, CHN Ward, Chandausi. On September 16, 2009, the Commissioner of income tax issued a notice u/s 263 of the Act treating the assessment order as erroneous and prejudicial to the Revenue. The petitioner filed a reply to the show-cause notice and supported the assessment order. The said reply was not found favour with respondent No. 1 who revised the assessment order u/s 263 of the Act. The said order is dated January 21, 2010, which has attained finality. The matter was restored back to the Assessing Officer after setting aside the assessment order. The Assessing Officer after remand, served a questionnaire on the petitioner making inquiries with regard to the income and expenditure of the petitioner in respect of the mentha business as well as the cattle feed and green vegetable business. The petitioner resisted the questionnaire on the ground that the remand order passed by the Commissioner of income tax is confined to the question of determination of the cattle feed business. Income from the mentha business has become final as it has not been interfered with u/s 263 of the Act.

The present writ petition has been filed challenging the legality and validity of the order dated March 4, 2010, and March 2, 2010, rejecting the contention of the petitioner that the scope of order passed u/s 263 of the Act is confined to the determination of income of the cattle feed and green vegetable business only.

A counter-affidavit has been filed on behalf of the respondents questioning the maintainability of the present writ petition as also raising pleas on the merits of the case.

Heard Sri Subham Agrawal, learned counsel for the petitioner and Sri Dhananjay Awasthi, learned counsel for the respondents.

Learned counsel for the petitioner submits that indisputably the petitioner is carrying two businesses, namely, mentha business as well as cattle feed and green vegetable business. The turnover of the mentha business has been audited and the audited accounts book relating to the mentha business and the auditors report is on the record. No objection was raised nor any defect could be pointed out with regard to the maintenance of accounts relating to the mentha business either by the assessing authority or by the Commissioner of income tax while exercising the power u/s 263 of the Act. The income and expenditure with regard to the mentha business has attained finality as the same has not been adversely commented upon in the revision by the Commissioner. However, certain objections were raised with regard to the assessment of income from the cattle feed and green vegetable business and after setting aside the assessment order, the matter has been restored back to the Assessing Officer. Therefore, the Assessing Officer could make queries and serve questionnaire with regard to the business affairs of the cattle feed and green vegetable and no query can be raised with regard to the mentha business. Reliance has been placed on the following decisions:

(1) Commissioner of Income Tax Vs. D.N. Dosani, ;

(2) Rani bayal Harbilas v. CST (1979) 44 STC 84 (All) (FB); and

(3) Commissioner of Income Tax Vs. Hindustan Coconut Oil Mill, .

Sri Dhananjay Awasthi, learned counsel for the respondents, on the other hand, submits that the ambit and scope of fresh assessment proceedings as a consequent of the remand order passed by the Commissioner, is not confined to the question of determination of income from the cattle feed and green vegetable business alone. In other words, the entire assessment order has been set aside and fresh assessment has to take place in respect of the entire income and expenditure of the petitioner.

Considered the respective submissions of the learned counsel for the parties and perused the record.

It is not in dispute that the petitioner is maintaining two sets of account books one for the mentha business and another for the cattle feed and green vegetable business. The account books relating to the mentha business is audited one and no mistake or defect was pointed out therein by the assessing authority. In the show-cause notice issued to the petitioner u/s 263 of the Act it does not raise any objection with regard to the account books relating to the mentha business. The order of the Commissioner of income tax is bereft of any discussion with regard to the mentha business. The objection raised by the Commissioner of income tax is with regard to the business relating to the cattle feed and green vegetable business. The assessment order has been criticized with regard to determination of income relating to the cattle feed and green vegetable business only. The contention of the learned counsel for the petitioner is that the scope of inquiry after remand is confined to the question relating to determination of income from the cattle feed and green vegetable business and the earlier assessment order has attained finality so far it relates to the mentha business. Reliance has been placed on Commissioner of Income Tax Vs. D.N. Dosani, as also on Commissioner of Income Tax Vs. Hindustan Coconut Oil Mill, . These decisions support the contention of the learned counsel for the petitioner. The Assessing Officer opined that the entire assessment order has been set aside and the scope of inquiry is not restricted to the cattle feed and green vegetable business. This approach appears to be incorrect To answer the issue, the revisional order is to be read as a whole along with the show-cause notice which commenced the proceedings. The show-cause notice is confined to the cattle feed and green vegetable business. Sri Dhananjay Awasthi, learned counsel for the Department, failed to demonstrate that the Commissioner raised any objection with regard to income of the mentha business. He referred paragraph 10 of the Commissioners order. The said paragraph is reproduced below:..

Considering the submission of the assessee and taking into account the findings as discussed in this order, I cancel the order dated November 17, 2008, of the income tax Officer, Chandausi, and direct him to pass a fresh assessment order after carrying out a thorough enquiry of purchase and sale transactions and expenses claimed by the assessee as discussed in this order and pass the assessment order by applying the provisions of the income tax Act correctly.

The above quoted paragraph should not be read in isolation and it should be read with the other part of the order. The entire discussion in the order u/s 263 is confined to the question of determination of income and expenditure of the cattle feed and green vegetable business. This is clear even from paragraph 5 of the order of the Commissioner of income tax, reproduced below:

The main issue involved in this case while starting the revisionary proceeding u/s 263 was enquiring into the cattle feed and green vegetable business of the assessee to find out the nature of this business, to find out the genuineness of the loss claimed by the assessee from this business and also to find out as to why account of this business was not audited after determining the nature of the business. During the course of hearing, the authorized representative of the assessee was asked to produce sale and purchase bills/voucher of this business and also vouchers for travelling and conveyance freight outward expenses claimed by the assessee.

The discussion, paragraph after paragraph, is with regard to the cattle feed and green vegetable business, viz., its sales, sale bills, absence of addresses of the purchasers of bus, truck expenses and freight outward expenses, salary of the staff, all related to the cattle feed and green vegetable business. It shows that the subject matter of proceedings u/s 263, was confined to the cattle feed and green vegetable business and the remaining part of the earlier assessment order was not the subject matter of the revision. We, therefore, find force in the submission of the petitioners counsel.

The income tax Officer in paragraph 3(i) of the impugned order has made reference to paragraph 2.2, 2.3 and 2.5 in particular and other paragraphs of the order passed by the Commissioner of income tax to support his view that the remand order passed by the Commissioner of income tax was an open remand order. Meaning thereby, the assessment order was set aside in its entirety. We do not find any such thing in the order of the Commissioner of income tax suggesting that the entire assessment order is being set aside. As discussed herein above, the subject matter of revisional order was the income drawn from the cattle feed and green vegetable business and not other income. The income tax Officer was not justified in coming to the conclusion that he is also required to pass a fresh assessment order for the mentha business. To this extent, the impugned order cannot be allowed to stand and is hereby, set aside. However, by way of clarification, it may be added that it shall be open to the Assessing Officer to raise all such queries which, according to him, are relevant to determine the income of the asses-see with regard to the cattle feed and green vegetable business.

Viewed as above, by way of clarification it may be added that the petitioner cannot refuse to give the reply to the queries raised by the assessing authority. However, the Assessing Officer shall bear in mind the dictum of law as indicated above. We find merits in the present writ petition. The writ petition is allowed as indicated above by quashing the impugned order dated 2-3-2010.