RAJA & COMPANY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) There is only one question raised in all the connected appeals filed by the very same assessee for the assessment years 2000-01 to 2006-07, that is about the validity of the suo motu revisional order issued by the Commissioner of Income Tax under Section 263 of the Income Tax Act. We have heard Sri. T.M. Sreedharan, counsel appearing for the appellant-assessee and have gone through the orders of the Tribunal and that of the Commissioner of Income tax.

(2.) The reason why the Commissioner directed revision of assessment in exercise of his powers under Section 263 is because the assessing officer in the course of completion of assessments did not consider the application of Section 40A(3) disallowance for all these years, and disallowance under Section 40(a)(ia) of the Income Tax Act for the assessment years 2005-06 and 2006-07. The assessee, a rice merchant, admittedly had made cash purchases for all the years in excess of the limit provided under Section 40A(3) of the Act. The assessing officer did not consider disallowance under Section 40A(3) and therefore the Commissioner through orders issued under Section 263 directed the Officer to verify whether any disallowance is called for. So far as assessment years 2005-06 and 2006-07 are concerned, the assessee did not not make any payment of tax at source for the inward freight charges paid for goods purchased. Consequently the Commissioner in exercise of suo motu revisional power under Section 263 directed the assessing officer to consider this matter also. The assessee filed appeals against the orders of the Commissioner issued under Section 263 contending that the Commissioner of Income Tax (Appeals) while deciding the appeals against regular assessments considered the issue of disallowance under Section 40A(3) and held in their favour and so much so, the Commissioner cannot exercise suo motu revisional power after disposal of appeals. The specific case of the assessee is that Section 263(e) applies to his case. However, the Tribunal after verifying the records found that the assessing officer did not in fact consider disallowance under Section 40A(3) for the purchases made by the assessee against cash payments. The finding of the CIT (Appeals) is also to the effect that the issue does not arise from assessment orders because the assessing officer has not made any disallowance. Admittedly the assessee was engaged in purchase of rice and the purchases are made against cash payments which attract Section 40A(3) of the Act. In fact exemption available under Rule 6DD (a) is only for purchase of agricultural produce and since rice is not an agricultural produce exemption is not available to the assessee and this is available for purchase of paddy under Rule 6DD (e) of the Rules. Therefore the Commissioner directed the assessing officer to verify the facts with reference to Section 40A(3).

(3.) The Tribunal rejected the assessee's case by following the decision of the Supreme Court in malabar industries co. Ltd. V. CIT,243 ITR 83 (SC) wherein the Supreme Court held that non-application of mind or lack of proper enquiry in the matter by the adjudicating authority would make the order vulnerable for revision under Section 263 of the Act. We are of the view that the finding of the Tribunal is perfectly justified because once assessment is made by the officer without referring to mandatory provisions of Section 40A(3) in a case where the assessee is admittedly engaged in purchase of goods paying cash over the limit that attracts the provisions of Section 40A(3) then such order is erroneous in law and prejudicial to the interests of the revenue because if provisions were considered at the time of assessment, probably there would have been disallowance leading to demand of tax. In the circumstances, we are of the view that Tribunal rightly upheld the order of the Commissioner issued under Section 263 of the I.T. Act.