By TIOL News Service:

NEW DELHI, MAY 11, 2016 - THE Issue is - Whether suo moto revision undertaken by the Commissioner u/s 263 would be justified in a case, where the proceedings initiated u/s 69-C by the AO has been dropped simply on the ground that the claim for additional expenses made by the assessee in his re-revised return has been withdrawn, and the assessment was completed without verifying the source of such expenses. YES is the answer.

Facts of the case:

The assessee is an individual and a film actor. Although he had filed his origional return as on the due date, the same was subsequently revised claiming additional expenses incurred in the payment of the agencies & security gaurds. Consequently, the AO initiated proceedings u/s 69-C as the names of such agencies were not disclosed. The assessee subsequently filed re-revised return and had withdrawn such additional claim on ground that he had claimed the same under a bonafide belief and because he was wrongly advised. Therefore, the assessee pleaded that as the claim for additional expenses had been itself withdrwan, Section 69-C would have no application. The AO agreed with the said contention and passed the assessment order accepted the re-revised return. Thereafter, the CIT by invoking his revisional jurisdiction, issued show cause notice u/s 263 on the ground that the assessment framed by AO was erroneous and prejudicial to interest of Revenue, as the AO had failed to examine the source of expenses made by the assessee on security purpose, since the payments were made in cash. The CIT also issued show cause notices on various other grounds which were not mentioned in the revisional order. On appeal, the Tribunal reversed the order of the CIT on the ground that the CIT had formed suo moto revisional assessment on various grounds without mentioning the same in the revisional order. On further appeal, the High Court confirmed the order of the Tribunal.

After hearing the parties, the Supreme Court had held that,

++ it is seen that it appears that the CIT in the course of the revisional proceedings had scrutinized the record of the proceedings before the AO and noted the various dates on which opportunities to produce the books of account and other relevant documents were afforded to the assessee which requirement was not complied with by the assessee. In these circumstances, the revisional authority took the view that the AO, after being compelled to adjourn the matter from time to time, had to hurriedly complete the assessment proceedings to avoid the same from becoming time barred. In the course of the revisional exercise relevant facts, documents, and books of account which were overlooked in the assessment proceedings were considered. On such re-scrutiny it was revealed that the original assessment order on several heads was erroneous and had the potential of causing loss of revenue to the State. It is on the aforesaid basis that the necessary satisfaction that the assessment order was erroneous and prejudicial to the interests of the revenue was recorded by the CIT. At each stage of the revisional proceeding the assessee's counsel had appeared and had full opportunity to contest the basis on which the revisional authority was proceeding/had proceeded in the matter. If the revisional authority had come to its conclusions in the matter on the basis of the record of the assessment proceedings which was open for scrutiny by the assessee and available to his authorized representative at all times it is difficult to see as to how the requirement of giving of a reasonable opportunity of being heard as contemplated by Section 263 had been breached in the present case. The order of the Tribunal insofar as the first issue i.e. the revisional order going beyond the show cause notice is concerned, therefore, cannot be accepted. The High Court having failed to fully deal with the matter in its cryptic order, this court is of the view that the said orders are not tenable and are liable to be interfered with;

++ the next question that requires examination is the tenability of the order of the CIT on the issues mentioned in the show cause notice and also dealt with in the revisional order. The said question is with regard to the claim of additional expenses made by the assessee in its re-revised return which was subsequently withdrawn. The assessee in the re-revised return had made a claim of additional expenses of 30% of the gross professional receipts (Rs.3.17 crores). It appears that the AO required the assessee to file requisite details in this regard. The assessee responded to the same by stating that these are the expenses which are spent for security purposes by employing certain Agencies, guards etc. for the personal safety of Mr. Bachchan as he has to protect himself from various threats to his life received by him and to avoid extortion of money from gangsters. Thereafter, the assessee informed the CIT that the claim was made on a belief that the same is allowable but as it will not be feasible for the assessee to substantiate the same, the re-revised return of income may be taken to the withdrawn. It appears that thereafter the AO issued a notice to show cause as to why the provisions of Section 69-C should not be invoked and the expenses claimed should not be treated as unexplained expenditure. In reply, the assessee submitted that the claim was made as a standard deduction and that the assessee had been wrongly advised to make the said claim and as the same has been withdrawn, Section 69-C will have no application. The record of the assessment proceedings disclose that the said stand was accepted by the AO and the matter was not pursued any further. The CIT however took the view that notwithstanding the withdrawal of the claim by the assessee, in view of the earlier stand taken that the said expenses were incurred for security purposes of the assessee, the AO ought to have proceeded with the matter as the assessee was following the cash system of accounting and the filing of re-revised return, prima facie, indicated that the additional expenses claimed had been incurred;

++ the CIT also observed that since the payments as admitted have been made out of cash balances available, the AO was expected to examine the matter further to arrive at a definite finding whether assessee incurred expenses or not and in case, actually incurred, then what were sources for incurring these expenses. There can be no doubt that so long as the view taken by the AO is a possible view the same ought not to be interfered with by the Commissioner u/s 263 merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. However, the above is not the situation in the present case in view of the reasons stated by the CIT on the basis of which the said authority felt that the matter needed further investigation, a view with which we wholly agree. Making a claim which would prima facie disclose that the expenses in respect of which deduction has been claimed has been incurred and thereafter abandoning/withdrawing the same gives rise to the necessity of further enquiry in the interest of the Revenue. The notice issued u/s 69-C could not have been simply dropped on the ground that the claim has been withdrawn. This court therefore, is of the opinion that the CIT was perfectly justified in coming to his conclusions insofar as this issue is concerned and in passing the impugned order on that basis. Therefore, the present matter is a fit case for exercise of the suo motu revisional powers of the CIT u/s 263.

(See 2016-TIOL-70-SC-IT)