I.T.A. No.2752/Ahd/2015 Assessment year: 2011-12 Page 1 of 7 IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH, AHMEDABAD [Coram: Pramod Kumar AM and S S Godara JM] I.T.A. No. 2752/Ahd/2015 Assessment year: 2011-12 Raghunath D Patil Appellant rd T 12, 3 floor, Silicon Shoppers Main Road, Udhana, Surat 394 210 [PAN: AAVPP7289H] Vs. Assistant Commissioner of Income Tax, Circle 2, Surat Respondent Appearances by: S N Soparakar for appellant D P Gupta for respondent Date of concluding hearing : 20/07/2016 Date of pronouncing order : 19/10/2016 ORDER Per Pramod Kumar, AM: [1] This appeal, filed by assessee, is directed against order dated 12th August 2015 passed by learned CIT(A) in matter of assessment under section 143(3) of Income Tax Act, 1961, for assessment year 2011-12. [2] In first three grounds of appeal, assessee has raised following grievances: 1. Learned CIT(A) erred in law and on fact in confirming action of AO rejecting books of accounts under section 145(3) of Act. Learned CIT(A) ought not to have confirmed rejection of audited books of accounts by AO without issuance of show cause notice pointing out any defects in books. 2. Learned CIT(A) erred in law and on facts in confirming addition of Rs 14,14,26,914 unaccounted income based on mismatch in contract receipts as per Form # 26AS against contract receipts shown in audited accounts. Learned CIT(A) ought to have held that only profit I.T.A. No. 2752/Ahd/2015 Assessment year: 2011-12 Page 2 of 7 earned from such unaccounted receipts requires to be taxed and not whole of gross receipts. 3. Learned CIT(A) erred in law and on facts in confirming denial of expenses by AO on discrepancies in signatures on wages register or non deduction of PPF/ESI is not conclusive of non hiring of staff. [3] So far these two grievances are concerned, learned senior counsel for assessee has limited point to make, and that point is on question as to what needs to be added to income- entire suppressed business receipts or profit element embedded in these receipts. [4] To adjudicate on point raised by learned counsel, only few material points need to be taken note of. assessee before us is engaged in business of providing security services. During course of scrutiny assessment proceedings, Assessing Officer noted that there is mismatch in receipts for security services, as per information available on 26AS report generated from information on records of income tax department vis- -vis receipts disclosed in financial statements submitted by assessee. While figure as per form 26 AS was Rs 21,63,40,230, receipts disclosed by assessee were only Rs 7,49,13,316. When assessee was confronted with this discrepancy, assessee, inter alia, submitted that he is not so literate person, that there was unintentional mistake on part of assessee of not recording all contract receipts and that he has not recorded all expenses like wages for generating such contract receipts . Not satisfied with correctness of books of accounts or with evidences for expenses incurred to generate unaccounted receipts, Assessing Officer declined to accept explanation of assessee and proceeded to add amount of Rs 14,14,26,914 to profits of assessee as per income tax return. Aggrieved, assessee carried matter in appeal before CIT(A) but without any success. Learned CIT(A) noted that assessee has not produced sufficient evidences in support of claim of expenditure. He noted that appellant was asked to furnish proof regarding deduction of PF/ESI to substantiate claim regarding payment of wages to security guards , that no proof regarding payment of service tax was also provided , that appellant failed to produce books of accounts in support of his contentions and that burden of proof was on appellant to show that expenses claimed by him are fully supported with proper books of accounts and bills and vouchers and this onus remained to be discharged. Learned CIT(A) concluded that in absence of any evidence regarding claim of expenses, contention of appellant is rejected . assessee is aggrieved and is in further appeal before us. [5] We have heard rival contentions, perused material on record and duly considered facts of case in light of applicable legal position. [6] As learned senior counsel rightly points out, it is settled legal position that in case of suppressed receipts being unearthed in case of assessee what is to be normally brought to tax is income embedded in such suppressed receipts. I.T.A. No. 2752/Ahd/2015 Assessment year: 2011-12 Page 3 of 7 In case of DCIT Vs Panna Corporation (ITA No. 323 of 2000; judgment dated 16th June 2012), Hon ble jurisdictional High Court summed up legal position by concluding, after elaborate survey of judicial precedents on issues, that it can, thus, be seen that consistently, this Court and some other Courts have been following principle that even upon detection of on money receipt or unaccounted cash receipt, what can be brought to tax is profit embedded in such receipts and not entire receipts themselves. If that be legal position, what should be estimated as reasonable profit out of such receipts, must bear element of estimation . Viewed thus, addition of suppressed receipts, in entirety and on gross basis, is unsustainable in law. It is only profit element, even on estimate basis, which can be brought to tax. As antithesis of this approach, in present case, however, authorities below have held that, in absence of conclusive evidence about expenses having been incurred, entire suppressed receipts are to be brought to tax. stand of authorities below, therefore, does not merit our approval. [7] In view of above discussions, in our considered view, right course of action will be to remit matter to file of Assessing Officer with direction to bring to tax, on fair and reasonable basis, estimated income component on suppressed receipts amounting to Rs 14,14,26,914. We order accordingly. As we do so, however, we refrain from making any observations on as to what should be reasonable profit element in these receipts. Learned counsel did urge us to adopt income estimation on basis of profits disclosed by assessee in preceding year, but given admitted track record of assessee so far his lack of truthfulness in declaring income in concerned- whether by deliberate design or whether, as claimed by assessee, inadvertently, it would indeed to unfair to adopt such figures. As to what should be estimated profit element is open issue and assessee can present his case, regarding quantification, before Assessing Officer who will take call on same in fair and reasonable manner, in accordance with law and by way of speaking order. Ordered accordingly. [8] Ground no. 1,2 and 3 are thus allowed for statistical purposes in terms indicated above. [9] In ground no. 4, assessee has raised following grievance: Learned CIT(A) erred in law and on facts in directing AO to reopen assessments of earlier and subsequent years under section 147 to bring undisclosed receipts/ income of mismatched contract receipts to tax. Learned CIT(A) ought not to have issued such directions surpassing his jurisdiction. [10] So far as this grievance of assessee is concerned, it is sufficient to take note of fact that while dismissing appeal of assessee for present year, learned CIT(A) observed as follows: In result, this appeal is dismissed with direction under section 150(1) of Act to reopen assessments under sections 147 r.w.s. I.T.A. No. 2752/Ahd/2015 Assessment year: 2011-12 Page 4 of 7 148 of Act for assessment years 2008-09, 2009-10, 2010-11, 2012- 13 and 2013-14 for relevant assessment years and bring undisclosed receipts/income to tax . [11] question that really calls for our adjudication is whether learned CIT(A) had powers, under section 150(1), to direct reopening of assessment for other years. [12] Let us begin by taking look at scheme of Section 150, which provides as follows: Provision for cases where assessment is in pursuance of order on appeal, etc. 150. (1) Notwithstanding anything contained in section 149, notice under section 148 may be issued at any time for purpose of making assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by Court in any proceeding under any other law (2) provisions of sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section relates to assessment year in respect of which assessment, reassessment or recomputation could not have been made at time order which was subject-matter of appeal, reference or revision, as case may be, was made by reason of any other provision limiting time within which any action for assessment, reassessment or recomputation may be taken. [13] While we will deal with scope of Section 150(2), and overall scheme of this section, little later, even cursory look at Section 150(1) indicates that it can be triggered only to give effect to any finding or direction contained in order passed during, amongst other things, appellate proceedings. [14] expression to give effect to any finding or directions also finds place in Section 153(3) which, inter alia, provides that time limits set out in Section 153 shall not apply to . assessments, reassessments and recomputations which may made on assessee or any person in consequence of or to give effect to any finding or direction contained in order, under sections 250, 254, 260, 262, 263 or 264 or in order of any court in proceeding otherwise than by way of appeal or reference under this Act . It was in this context that expression findings or directions came up for consideration before Hon ble Supreme Court in case of Rajinder Nath Vs CIT [(1979) 120 ITR 14 (SC)]. While dealing with connotations of this expression, under scheme of section 153(3) which is in pari I.T.A. No. 2752/Ahd/2015 Assessment year: 2011-12 Page 5 of 7 materia with scheme of Section 150(1), Hon ble Supreme Court has observed as follows: 7. expressions "finding" and "direction" are limited in meaning. finding given in appeal, revision or reference arising out of assessment must be finding necessary for disposal of particular case, that is to say, in respect of particular assessee and in relation to particular assessment year. To be necessary finding, it must be directly involved in disposal of case. It is possible in certain cases that in order to render finding in respect of A, finding in respect of B may be called for. For instance, where facts show that income can belong either to or B and no one else, finding that it belongs to B or does not belong to B would be determinative of issue whether it can be taxed as A's income. finding respecting B is intimately involved as step in process of reaching ultimate finding respecting A. If, however, finding as to A's liability can be directly arrived at without necessitating finding in respect of B. then finding made in respect of B is incidental finding only. It is not finding necessary for disposal of case pertaining to A. same principles seem to apply when question is whether income under enquiry is taxable in assessment year under consideration or any other assessment year. As regards expression "direction" in s. 153(3)(ii) of Act, it is now well settled that it must be express direction necessary for disposal of case before authority or Court. It must also be direction which authority or Court is empowered to give while deciding case before it. expressions "finding" and "direction" in s. 153(3)(ii) of Act must be accordingly confined. Sec. 153(3)(ii) is not provision enlarging jurisdiction of authority or Court. It is provision which merely raises bar of limitation for making assessment order under s. 143 or s. 144 or s. 147 : ITO vs. Murlidhar Bhagwan Das (1964) 52 ITR 335 (SC) : TC51R.2168 and N.K.T. Sivalingam Chettiar vs. CIT (1967) 66 ITR 586 (SC) : TC51R.2042. question formulated by Tribunal raises point whether AAC could convert provisions of s. 147(1) into those of s. 153(3)(ii) of Act. In view of s. 153(3)(ii) dealing with limitation merely, it is not easy to appreciate relevance or validity of point. [Emphasis supplied by us now] [15] principle is, therefore, quite clear and unambiguous. findings or directions which can trigger relaxation of time limits involved in assessment or reassessment process must be such which are, to quote words of Hon ble Supreme Court, necessary for disposal of case before authority . It is, therefore, not desire to protect interests of revenue but call of judicial duty, in process of upholding majesty of law, which can legitimately result in findings or directions for purpose of Section 153 as also for 150. Section 150(2), which is integral part of scheme of Section 150 and which carves out exception from powers conferred under section 150(1), makes this aspect even more abundantly clear. Section 150(2), in simple words, provides that powers under section 150(1) cannot be exercised in respect of assessment year in respect of which assessment, reassessment or recomputation could not have been made I.T.A. No. 2752/Ahd/2015 Assessment year: 2011-12 Page 6 of 7 at point of time when order impugned in appellate or revision process, was framed. In other words, if reassessment could not have been initiated as on date of passing assessment order in this case, such assessment cannot be reopened even as result of directions under section 150(1). This rider on provisions of Section 150(1) shows that, unlike plenary or unfettered powers of statutory authority to protect interests of revenue, these powers are inextricably linked and connected with subject matter of appellate or revision etc. As noted by Hon ble Supreme Court, in Rajinder Nath s case (supra), assessment of income in assessment year y , which cannot be taxed in hands of assessee in assessment year x (i.e. year of actual assessment) because it is taxable in assessment year y , is to be treated as assessment as result of finding or direction in appellate or revision order, but even such reassessment can be done only when this reassessment could have been done at point of time when impugned assessment was framed. Clearly, therefore, provisions of Section 150(1) can come to rescue of Assessing Officer only when assessment of income was made in wrong assessment year when assessment in right assessment year was permissible when assessment was actually framed. It is this kind of error of judgment which is sought to be protected by Section 150(1). provisions of Section 150 or 153(3), so far as findings and directions in appellate order are concerned, can only come to rescue of Assessing Officer only when such findings are directions are wholly incidental to, and necessary for, adjudication by appellate or revision authority or Court, rather than, as perhaps perceived by CIT(A) in impugned order, to protect interests of revenue. As noted by Hon ble Supreme Court, in case of K M Sharma Vs Income Tax Officer [(2002) 254 ITR 772 (SC)], fiscal statute, more particularly on provision such as regulating period of limitation, must receive strict construction . expression findings or directions contained in order having been subjected to interpretation by Hon ble Supreme Court, though in context of Section 153(3), cannot, therefore, be interpreted in manner so as to give plenary powers to appellate or revision authorities or Courts to give directions for reopening assessment merely because, in their opinion, some income, which is not subject matter of adjudication before them, has escaped assessment. There are separate provisions to deal with such situation and action, if permissible, must be taken within parameters of those statutory provisions. [16] In present case, income, which is directed to be brought to tax by reopening assessments, is not even income which was subject matter of appeal. What is sought to be taxed by directing reopening of assessments is similar income which may have escaped assessment in other assessment years. That cannot be, under scheme of Act, subject matter of concern to even CIT(A). Undoubtedly, CIT(A) has powers co-terminus with Assessing Officer but that is only in respect of assessment year which he is in seisin of because he gets these plenary powers by virtue of being seized of appeal in respect of that assessment year. If income is brought to tax in wrong hands or in wrong assessment year, under scheme of Section 150 and 153(3), he has powers to rectify those lapses- of course, within limitations of these statutory provisions. However, when income in respect of some other assessment year remains untaxed, and such income is not even subject matter of appeal before I.T.A. No. 2752/Ahd/2015 Assessment year: 2011-12 Page 7 of 7 CIT(A), remedy does not lie with CIT(A). In our humble understanding, it is for Assessing Officer to invoke his powers under section 147 or for Commissioner to exercise his powers under section 263, but CIT(A) cannot supplement or substitute for their efforts in this respect. Having said that, however, we may make it clear that fact that CIT(A) did not have powers to issue impugned directions to reopen assessment would not prejudice validity of reopening of assessment in case same is otherwise permissible under scheme of Act. In other words, while we uphold plea of assessee, so far legal challenge to powers of CIT(A) to issue impugned directions is concerned, we decline to deal with correctness or otherwise of reassessment proceedings, which may have been initiated by Assessing Officer, on facts and as same are not before us. [17] Ground no. 4 is thus allowed in terms indicated above. [18] In ground no. 5, assessee has raised following grievance: Learned CIT(A) erred in law and on facts in confirming disallowance by AO of employee s contribution to PF/ESI of Rs 13,21,000 paid before due date of filing return. Learned CIT(A) ought to have deleted disallowance. [19] Having heard rival contentions and having perused material on record, we find that this issue is now covered against assessee by Hon ble jurisdictional High Court s judgment in case of CIT Vs Gujarat State Road Transport Corporation Ltd [(2014) 366 ITR 170(Guj)]. We, therefore, uphold disallowance and decline to interfere in matter. [20] Ground no. 5 is thus dismissed. [21] In result, appeal is partly allowed in terms indicated above. Pronounced in open court today on 19th day of October, 2016. Sd/- Sd/- S S Godara Pramod Kumar (Judicial Member) (Accountant Member) Dated: 19th day of October, 2016. Copies to: (1) appellant (2) respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad Raghunath D Patil v. Assistant Commissioner of Income-tax, Circle-2, Surat