Bhageeratha Engineering Ltd Ernakulam

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IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI N.R.S.GANESAN, JM and B.R.BASKARAN, AM

I.T.(SS)A No. 210/Coch/2005 & IT(SS)A No. 01/Coch/2009
Block Period: 1-4-1996 to 31-3-2002 and broken period upto 9.10.2002.

1.The Assistant Commissioner of Vs. M/s. Bhageeratha Engineering Ltd.
Income-tax,Circle-1(1), Kochi-30
Ernakulam. [PAN: AABCB 1386N]

2.The Deputy Commissioner of
Income-tax,Circle-1(1),
Ernakulam
(Revenue-Appellant) (Assessee -Respondent)

I.T.(SS)A No. 28/Coch/2007 & IT(SS)A No. 57/Coch/2008
Block Period: 1-4-1996 to 31-3-2002 and broken period upto 9.10.2002.

M/s. Bhageeratha Engineering Vs. The Assistant Commissioner of
Ltd. Income-tax,Circle-1(1),
Kochi-30 Ernakulam.
[PAN: AABCB 1386N]

(Assessee – Appellant) (Revenue -Respondent)

Revenue by Shri Abhimanyu Singh Yadav, Jr. DR

Assessee by Shri Sarangan for Shri P.C.Varghese

Date of hearing 23/04/2012

Date of pronouncement 08/06/2012

O R D E R

Per B.R.BASKARAN, Accountant Member:

All the above appeals relate to the block assessments completed in the hands of

the assessee. Hence they were heard together and are being disposed of by this

common order for the sake of convenience. The appeal numbered as IT(SS)A

———————Page 2———————

2
I.T.(SS)A. Nos. 210 /Coch/2005,
28/Coch/2007,
57/Coch/2008& 01/Coch/2009
210/Coch/2005 relate to the block assessment originally passed in the hands of the

assessee. The appeal numbered as IT(SS)A 28/Coch/07 relate to the revision order

passed by Ld CIT for the block period. The other two appeals relate to the block

assessment order passed for giving effect to the revision order referred supra.

2. We shall first take up the appeal numbered as IT(SS)A 28/Coch/07, which is filed

by the assessee challenging the validity of the revision order passed by the

Administrative Commissioner. We have heard the parties in this regard and also

perused the record. We notice that the Administrative Commissioner, in the revision

order, has only directed the AO to examine the issues which were omitted to be

examined in the original block assessment proceeding.

3. Before going into the merits of the issue, we would like to discuss about the legal

position with regard to the power of Learned CIT to invoke revision proceedings under

section 263 of the Act. The scope of revision proceedings initiated under section 263 of

the Act was considered by Hon’ble Bombay High Court, in the case of Grasim Industries

Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon’ble

Supreme Court. The relevant observations are extracted below:

Section 263 of the Income-tax Act, 1961 empowers the Commissioner to
call for and examine the record of any proceedings under the Act and, if he
considers that any order passed therein, by the Assessing Officer is
erroneous in so far as it is prejudicial to the interests of the Revenue, to
pass an order upon hearing the assessee and after an enquiry as is
necessary, enhancing or modifying the assessment or cancelling the
assessment and directing a fresh assessment. The key words that are used
by section 263 are that the order must be considered by the Commissioner
to be “erroneous in so far as it is prejudicial to the interests of the Revenue”.
This provision has been interpreted by the Supreme Court in several
judgments to which it is now necessary to turn. In Malabar Industrial Co.
Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision
“cannot be invoked to correct each and every type of mistake or error
committed by the Assessing Officer” and “it is only when an order is
erroneous that the section will be attracted”. The Supreme Court held that
an incorrect assumption of fact or an incorrect application of law, will satisfy
the requirement of the order being erroneous. An order passed in

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3
I.T.(SS)A. Nos. 210 /Coch/2005,
28/Coch/2007,
57/Coch/2008& 01/Coch/2009
violation of the principles of natural justice or without application
of mind, would be an order falling in that category. The expression
“prejudicial to the interests of the Revenue”, the Supreme Court held, it is of
wide import and is not confined to a loss of tax. What is prejudicial to the
interest of the Revenue is explained in the judgment of the Supreme Court
(headnote) :

“The phrase ‘prejudicial to the interests of the Revenue’ has to be read in
conjunction with an erroneous order passed by the Assessing Officer. Every
loss of revenue as a consequence of an order of the Assessing Officer,
cannot be treated as prejudicial to the interests of the Revenue, for
example, when an Income-tax Officer adopted one of the courses
permissible in law and it has resulted in loss of revenue, or where two
views are possible and the Income-tax Officer has taken one view with
which the Commissioner does not agree, it cannot be treated as an
erroneous order prejudicial to the interests of the Revenue unless the view
taken by the Income-tax Officer is unsustainable in law.”

The principle which has been laid down in Malabar Industrial Co. Ltd.
[2000] 243 ITR 83 (SC) has been followed and explained in a subsequent
judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR
282.”

It has been held by Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd,

that the non-application of mind by the AO would render the assessment order to be

erroneous.. In the instant case, the Ld CIT(A) has listed out the search materials,

which have not been examined by the AO and which would have implication to the

undisclosed income determined in the hands of the assessee. Thus, it is seen that the

AO has failed to apply his mind on those materials and on account of that, the

assessment order is rendered erroneous. Since the said issues involve huge tax effect,

the assessment order is also rendered as prejudicial to the interests of the revenue.

Accordingly, we do not find any infirmity in the revision order passed by Ld.

Administrative Commissioner.

4. The Appeal numbered as IT (SS)A 01/C/2009 has been filed by the revenue

against the order dated 24.10.2008 passed by Ld CIT(A) on the assessment order

passed u/s 143(3) while giving effect to the revision order passed u/s 263 of the Act.

———————Page 4———————

4
I.T.(SS)A. Nos. 210 /Coch/2005,
28/Coch/2007,
57/Coch/2008& 01/Coch/2009
The revenue is challenging the jurisdiction of the Ld CIT(A) in admitting and

adjudicating the appeal filed by the assessee before him on the ground that the

assessment order passed on the directions of the Administrative commission would fall

outside the jurisdiction of Ld CIT(A). The contentions raised by the revenue, in our

view, are not in accordance with the scheme of the Act. The revenue has not adduced

any authority to the contentions so raised by it. It can be noticed that the

Administrative Commissioner only directs the AO to examine certain issues and it is the

exclusive right and prerogative of the AO to take a view in accordance with law after

the examining the issues that were set aside to him by the Administrative

Commissioner. There cannot be any dispute that the view taken by the AO cannot be

taken as the view of the Administrative Commissioner. It is also well settled proposition

of law that the Administrative Commissioner cannot impose his views on the Assessing

officer. It is apposite here to extract the following observations made by Hon’ble

Bombay High Court in the case of Hardilla Chemicals Ltd Vs.CIT (221 ITR 194):-

“In our opinion, though the appeal is maintainable from the fresh order passed
by the Income tax officer to give effect to a revisional order or an appellate
order, only such issues can be agitated in such appeal which have not attained
finality by virtue of earlier orders of the revisional or appellate authorities. It is
not open in such an appeal to agitate any point which has already been decided
by the revisional or the appellate authorities in their order.”

In the instant case, it was not shown to us that the Ld CIT(A) has considered issues

which have attained finality in the earlier proceeding. Hence, in view of the discussions

made, we are of the view that the assessment order passed u/s 143(3) r.w.s. 263 can

very well be appealed before the Ld CIT(A) in respect of the issues which have not

already been decided by the appellate authority. Accordingly, we do not find any merit

in the contentions raised by the revenue.

5. We shall now take up the appeal filed by the revenue, which is numbered as

IT(SS)A 210/Coch/2005. This appeal relates to the order dated 1-9-2005 passed by Ld

CIT(A) against the original block assessment order. The Ld CIT(A) had deleted the

entire amount assessed as undisclosed income in the hands of the assessee.

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5
I.T.(SS)A. Nos. 210 /Coch/2005,
28/Coch/2007,
57/Coch/2008& 01/Coch/2009

6. The facts relating to the same are discussed in brief. The assessee is a public

limited company engaged in undertaking of major construction projects. A search

action was taken in the hands of the company on 09-03-2002 on receipt of information

that unaccounted cash was being delivered from the office of the company to a person

named Sri Anup Kumar Shah, who was staying in a hotel. The department seized a

cash of Rs.14,78,500/- from Shri Anup Kumar Shah referred above. In the search

conducted in the office premises of the assessee, evidences depicting unrecorded

payments made to the officials of “National High way Authority of India” (NHAI) were

found. The assessee was executing projects of NHAI at the relevant point of time. The

payments made to various persons in various years aggregated to Rs.30,25,850/-. The

AO treated the above said payments as well as the cash seized from Sri Anup Kumar

Shah as the undisclosed income of the assessee. The assessee challenged the order of

the AO before Ld CIT(A), who deleted both the additions referred above. Hence the

revenue is in appeal before us.

7. The first issue relates to the addition of Rs.14,78,500/- relating to the cash seized

by the department. The Ld CIT(A) deleted the same on the reasoning that the person

from whom the cash was seized, i.e. Shri Anup Kumar Shah should have been

considered as the owner of the cash as per the presumption provided u/s 132(4A) of

the Act.

8. We have heard the parties on this issue and perused the record. There cannot be

any dispute that the presumption provided u/s 132(4A) is a rebuttable presumption.

Though the cash was seized from Shri Anup Kumar Shah, he has explained that the

same was handed over to him by Shri S.K.Jain, the Vice President of the company. The

AO has taken statements from Shri S.K.Jain and he has accepted that he has given an

amount of Rs.15.00 lakhs to Shri Anup Kumar shah and he further stated that the said

cash was sent through a person named Shri Ashok Kumar Singh. Shri S.K.Jain has also

stated that the cash belong to the assessee-company herein. The AO has taken

———————Page 6———————

6
I.T.(SS)A. Nos. 210 /Coch/2005,
28/Coch/2007,
57/Coch/2008& 01/Coch/2009
statement from the carrier Shri Ashok Kumar Singh also, who has also confirmed that

the amount that was handed over to Shri Anup Kumar Shah, was received by him from

shri S.K.Jain. The statements taken from the three persons clearly show that the

amount of Rs.15.00 lakhs belonged to the assessee-company herein. The statement of

Shri S.K.Jain, who was holding the responsible position of “Vice President” has not been

rebutted by the assessee company. In view of the above, there was no necessity for

the AO to invoke the presumption provided u/s 132(4A) of the Act in the hands of Shri

Anup Kumar Shah. Further there is no compulsion under the Act that the AO should

necessarily invoke the provisions of sec.132(4A) of the Act, as the words used in that

section are “may be presumed”. In view of the above, we are unable to agree with

the view expressed by the Ld CIT(A) on this issue. We also notice that the assessee

has failed to furnish any credible explanation with regard to the unaccounted cash

referred above. In view of the above, we set aside the order of ld CIT(A) on this issue

and restore the addition made by the AO.

9. The next issue relates to the addition pertaining to the unaccounted payments

claimed to have been paid to the officials of NHAI. The addition was deleted by the Ld

CIT(A) on the ground that the AO did not confront the NHAI officials and the assessee

company’s officials. But the fact remains the incriminating materials were seized from

the assessee and there cannot be any dispute that it is the responsibility of the

assessee to explain the entries made in those documents. From the assessment order,

we notice that the assessee has simply stated that they have verified the books of

accounts and records and no such payments have been made or authorised by the

company. Thus, it is seen that the assessee did not explain the entries found in the

incriminating documents except stating that they have not made such payments. In

this kind of situation the presumption provided u/s 132(4A) comes into operation and

we notice that the assessee has failed to rebut the presumption. The Ld Counsel for

the assessee argued that there is no evidence to show that the amounts mentioned in

the seized materials represent the “amount in lakhs”. It is stated that the amounts

were mentioned as under in the seized materials.

———————Page 7———————

7
I.T.(SS)A. Nos. 210 /Coch/2005,
28/Coch/2007,
57/Coch/2008& 01/Coch/2009
G.M. 1.00
Managers (12 bills) 1.90
A/c section (12 bills) 0.30
The AO presumed that the amount mentioned above represent “amount in lakhs of

rupees”. Accordingly, the AO has taken “1.00” as “One lakh rupees”. Considering the

quantum of work undertaken by the company and the position of the officials

mentioned above, in our view, it would be reasonable to presume that the amounts

noted in the seized materials represent “amounts in lakhs”. The assessee, having

failed to rebut the presumption, in our view, the AO was justified in making the addition

of Rs.30,25,850/-. Accordingly, we set aside the order of Ld CIT(A) on this issue and

restore the addition made by ld CIT(A).

10. We shall now take up the appeal filed by the assessee which is numbered as

IT(SS)A 57/C/2008. This appeal is preferred against the order dated 24.10.2008

passed by Ld CIT(A)-II, Kochi against the assessment order passed u/s 143(3) r.w.s.

263 of the Act. The assessee is assailing the decision of ld CIT(A) in confirming the

following additions made by the AO.

(a) Illegal payments made to the officials of NHAI – Rs.57.50 lakhs.

(b) Payments not accounted in the books – Rs.12.50 lakhs

11. The first issue relates to the illegal payments made to the officials of NHAI

amounting to Rs.57.50 lakhs. We have discussed identical issue in para 9 supra. For

the reasons stated in that paragraph, we do not find any infirmity in the decision of Ld

CIT(A) in confirming the addition of Rs.57.50 lakhs.

12. The next issue relates to the addition of Rs.12.50 lakhs. The AO made an

addition of Rs.40.50 lakhs as the vouchers pertaining thereto were not found accounted

in the books of accounts of the assessee. The assessee contended before ld CIT(A)

that the vouchers pertaining to Rs.40.50 lakhs actually belong to a Joint Venture

concern named “M/s PATI-BEL JV”. The Ld CIT(A) referred the matter to the AO, who

confirmed that a sum of Rs.12.50 lakhs was not reflected in the books of Joint venture

———————Page 8———————

8
I.T.(SS)A. Nos. 210 /Coch/2005,
28/Coch/2007,
57/Coch/2008& 01/Coch/2009
concern referred above. Accordingly, the AO stated that the addition of above said sum

of Rs.12.50 lakhs should be sustained. In the relevant vouchers, it was mentioned that

the sum of Rs.12.50 lakhs was paid to Shri S.K.Jain. Before Ld CIT(A), the assessee

filed bank statements. On verification of the same, the Ld CIT(A) has given a clear

finding that the transactions pertaining to Rs.12.50 lakhs could not be identified in the

bank statements. Ld CIT(A) has also given a finding that the amount of Rs.12.50 lakhs

was not accounted in the books of account of Joint venture concern. Before us, though

the assessee reiterated its claim that the transactions pertaining to Rs.12.50 lakhs

belong to the Joint Venture concern, yet no material was produced to contradict the

findings given by Ld CIT(A). Accordingly, we do not find any reason to interfere with

the decision reached by Ld CIT(A) on this issue.

13. In the result, the appeal of the revenue in IT(SS)A 210/C/2005 is allowed and

the appeal of the revenue in IT(SS)A 01/C/2009 is dismissed. Both the appeals of the

assessee are dismissed.

Pronounced accordingly on 08-06-2012

sd/- sd/-
(N.R.S.GANESAN) (B.R.BASKARAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi
Dated: 8th June, 2012
GJ
Copy to:
1. Bhageeratha REsidency, Banerji Road, Cochin-682 018.
2.The Assistant Commissioner of Income-tax, Circle-1(1), Ernakulam.
3. The Deputy Commissioner of Income-tax, Circle-i(1), Ernakulam.
4 The Commissioner of Income-tax (Appeals)-II, Kochi.
5 The Commissioner of Income-tax, Kochi.
6 D.R., I.T.A.T., Cochin Bench, Cochin.
7 Guard File.
By Order
(Assistant Registrar)
ITAT, Cochin

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9
I.T.(SS)A. Nos. 210 /Coch/2005,
28/Coch/2007,
57/Coch/2008& 01/Coch/2009

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