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Ranka Jewellers Vs. Additional Commissioner of - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Pune
Decided On
Judge
Reported in(2008)117TTJ(Pune.)522
AppellantRanka Jewellers
RespondentAdditional Commissioner of
Excerpt:
1. in this appeal the appellant has challenged the order of cit (central), pune dt. 26th march, 2007 passed under section 263 of it act and the grounds are as under: 1. the learned cit (central), pune erred in law and on facts in assuming jurisdiction under section 263 of the it act, 1961. 2. the learned cit (central), pune further erred in setting aside the order passed under section 158bc by the addl. cit, central range 1, pune on 31st dec, 2004 and issuing directions which were not warranted on facts and in law.2. facts in brief as emerged from the impugned order passed under section 263 are that the appellant firm is engaged in the business of manufacturing and trading in gold jewellery, silver articles, etc. a search was conducted on 24th oct., 2002. since there were incriminating.....
Judgment:
1. In this appeal the appellant has challenged the order of CIT (Central), Pune dt. 26th March, 2007 passed under Section 263 of IT Act and the grounds are as under: 1. The learned CIT (Central), Pune erred in law and on facts in assuming jurisdiction under Section 263 of the IT Act, 1961.

2. The learned CIT (Central), Pune further erred in setting aside the order passed under Section 158BC by the Addl. CIT, Central Range 1, Pune on 31st Dec, 2004 and issuing directions which were not warranted on facts and in law.

2. Facts in brief as emerged from the impugned order passed under Section 263 are that the appellant firm is engaged in the business of manufacturing and trading in gold jewellery, silver articles, etc. A search was conducted on 24th Oct., 2002. Since there were incriminating documents, therefore, a special audit under Section 142(2A) was recommended. Block assessment was completed for the period 1st April, 1996 to 24th Oct., 2002 under Section 158BC(c). dt. 31st Dec, 2004. The total undisclosed income was determined at Rs. 5,23,33,910. In this total undisclosed income, there was a component of a protective addition; however, the same is not the subject-matter of this appeal.

The learned CIT has broadly given two reasons for the invocation of the provision of Section 263 of IT Act, as follows: 2. It is noticed that while completing the assessment, the AO has not considered the issue of investment required by the assessee to achieve substantial turnover of undisclosed transactions of sale and purchase of gold and jewellery items. The AO had also not applied the provisions of Section 40A(3) of the IT Act when the evidences found during the course of search indicated cash purchases of over Rs. 93.76 crores during the period 1999-2000 to 2002-03.

As is evident, the first reason given was that the AO has not considered the investment made by the assessee towards undisclosed turnover so also corresponding purchases and second reason was non-application of the provisions of Section 40A(3) in respect of cash purchases of over Rs. 93.76 crores. A show-cause notice was issued wherein the learned CIT has given the description of the document which was seized during the course of search and according to him, not properly considered by the AO while passing the block assessment order.

In the said notice, there was a reference of a document seized viz., "Jama Kharach Panas". He has mentioned that those seized documents were subject to special audit under Section 142(2A) of IT Act pertaining to the period from 2nd Nov., 1999 to 17th Sept., 2002. According to learned CIT, the appellant was admittedly indulged in unaccounted purchase and sale of the gold and silver articles on large scale but the initial investment was not shown and the same was also not taken into account by the AO while computing the undisclosed income. In the notice, the learned CIT has also accepted an another fact that after passing the impugned assessment order, the AO has made a reference of enhancement to learned CIT(A), who has estimated the same at 12.5 per cent on the average turnover of Rs. 75,00,000, resultantly in that manner an enhancement of Rs. 10,00,000 was made. Further, learned CIT has also mentioned that the said average turnover as estimated by the AO was taken into account by learned CIT(A) only in respect of first three years of the block period. According to learned CIT, the later part of the block period and especially the period to which the said incriminating material, i.e., 'Jama Kharach Pana' was related was not taken into account. In the notice, the turnover determined was also mentioned and the relevant portion of the notice is reproduced below so as to place on record the relevant figures and the relevant period as follows: The later part of the block period and especially for the period for which 'Jarna Kharch Panas' were recovered and seized during the course of search and which were subjected to special audit under Section 142(2A) and where the undisclosed turnover was much higher were riot considered by learned CIT(A). The turnover determined was of Rs. 15.23 crores of the five months period in financial year 1999-2000 (for the period 2nd Nov., 1999 to 31st March, 1999), of Rs. 38.51 crores for financial year 2000-01 and Rs. 43.27 crores for financial year 2001-02. Similarly the undisclosed turnover for the part year in which search took place was determined at Rs. 13.31 crores by the special auditor based on the evidences viz. Jama Kharch Panas seized by the Department. The initial investment so determined by the learned CIT{A) considering the turnover of only first three years of the block assuming the average turnover of Rs. 75 lakhs is not commensurate with the investment required to achieve the substantial higher turnover to the tune of Rs. 38 crores per year in the subsequent period of the block starting from financial year 1999-2000 till the date of search. For the reason of failure to determine the 'initial investment by the AO particularly with reference to huge undisclosed turnover in financial years 1999-2000 onwards and inclusion thereof into the undisclosed income, the assessment order framed by the AO appears to be erroneous insofar as the same is prejudicial to the interests of Revenue.

In respect of the other reason, the observation was that for the period beginning from 1999-2000 to 2002-03, there were purchases of Rs. 93.76 crores in cash, therefore, attracted the provisions of Section 40A(3) of IT Act to which 20 per cent disallowance was to be made, however, the same has escaped the assessment. Learned CIT has reproduced the submissions of the assessee, which were argued; to be dealt with in the following later part of this order, and came to the conclusion that the incriminating material evidenced a huge unaccounted turnover over Rs. 100 crores pertaining to the later part of the block period. In the special audit, the auditor has worked out the undisclosed turnover for the first three years of the block period which, according to him, were incomplete. The AO has accepted those recommendations and in this manner, failed to consider the fact that to achieve the said huge unaccounted turnover of last three years; the assessee did require initial investment. In one of the paras, as appeared on p. 16, learned CIT(A) has also discussed the issue of theory of merger once CIT(A) has made an enhancement. Learned CIT has given a finding that the request for enhancement was only for the first year, i.e., asst. yr. 1997-98 and for that year, there were evidences of isolated undisclosed transaction viz., the auditor and also the AO have extrapolated to project the undisclosed sales and on that basis estimated the initial investment at Rs. 10,00,000 but the CIT(A) had not gone beyond that.

Hence, it qannot be said to be an order of CIT(A) in which the issue was either considered or decided by the appellate authority. Referring provisions of Section 263(1) to be read with Expln. (c) of IT Act, the learned CIT has held that the doctrine of merger was inapplicable.

Since the AO has failed to consider the question of sufficiency of money to achieve the said huge turnover, which has not been considered by the AO, therefore, escaped the assessment, therefore, the order was erroneous and prejudicial to the interest of the Revenue. He has set aside the impugned order passed under Section 158BC and directed to examine the issue of undisclosed investment required to achieve the unaccounted sales for the financial years commencing from asst. yr.

2000-01 onwards up to the end of the block period. He has also directed to apply the provisions of Section 40A(3) of IT Act since the AO has not applied his mind on this issue as well. Now the appellant has challenged these directions of the learned CIT in this appeal.

3. The appellant is represented by learned Authorised Representative Mr. Vardhaman Jain. The arguments can be summarized in the following manner. The first plank of his argument was that once the entire incriminating material was subject to special audit and the AO has passed an order based upon that audit report, then the said order of the AO should not have been treated an erroneous order as there was no error committed by the AO. For this proposition, he has cited the decision in the case of CIT v. Mehrotra Brothers , Saw Pipes Ltd. v. Addl. CIT , Dhruv N. Shah v. Dy. CIT Bench. The next argument was about the possible view taken by the AO.The learned Authorised Representative has stated that a decision was taken by the AO in respect of the initial capital investment and on proper application of mind, he has arrived at a figure which was taxed in the hands of the assessee, therefore, it was wrong on the part of the learned CIT to hold that the decision of AO is erroneous. For this proposition, case laws relied were-Indian Shaving Products Ltd. v. Addl. CIT (2007) 108 TTJ (Jp) 1004.

The learned Authorised Representative has expended his arguments on the question of lack of enquiry or non-application of mind and contended that once the AO has passed an elaborate order, based upon an audit report of the Revenue Department, then, that order cannot be said to be passed without proper enquiry. For this proposition, he has relied upon the decision in the case of Pawan Kumar v. AO (2007) 106 TTJ (Jd) 494 and Smt. Anita Malpotra v. ITO . Learned Authorised Representative has further argued that the conclusion drawn by learned CIT was not based upon any material on record but it was purely on a guesswork and probabilities, therefore, such an order under Section 263 should not be upheld. Learned Authorised Representative was also critical about an observation of the learned CIT directing the AO to consider everything de novo. Such a direction was bad in law and for this proposition, he has relied upon the decision in the case of CIT v.Gabriel India Ltd. . By such direction, learned CIT has travelled beyond the scope of Section 263 as well as beyond the scope of block assessment, reliance placed on Mange Ram Mittal v.Asstt. CIT .

3.1 Mr. Jain has also argued on the issue of the doctrine of merger and mentioned that on reference by the AO, the learned CIT(A) has taken note of the proposed enhancement which was also on the issue of application of initial investment made towards unaccounted purchases.

The learned CIT(A) has discussed in detail the question of initial capital which was for the entire block period, therefore, the order of the AO has merged with the said order of the CIT(A), hence not amenable to the provisions of Section 263 of IT Act. For this proposition, reliance was placed on the following:CIT v. Shashi Theatre (P) Ltd. 3.2 The other reason for this revision order as assigned by the learned CIT was the disallowance under Section 40A(3) of IT Act and in this regard, Mr. Jain has argued that the auditor had already dealt with this question, so the AO had no option but to follow the said report of the special auditor. There was an argument from his side that on similar fact the learned CIT has directed the proceedings under Section 263 in one of the group case of Ranka Jewellers (P) Ltd., hence the learned CIT should not be permitted to adopt pick and choose policy as the same is not permissible in the eyes of law. Learned Authorised Representative has concluded that even after the detailed submissions, through which, the appellant has established that there was no failure on the part of the AO but the learned CIT(A) has overlooked all those submissions without, assigning proper reasons. Finally, he had relied upon the decision in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) for the exercise of jurisdiction by the learned CIT deserves to be held as unjustified.

4. From the side of the Revenue, learned CIT-Departmental Representative Mr. Pradeep Sharma appeared and drew our attention on certain documents which were part of the compilation to establish that the AO as well as CIT(A) have not properly adjudicated upon them. He has raised a question that how the assessee can justify a meagre initial investment of Rs. 10,00,000 for making a huge turnover of about Rs. 96 crores which was detected by the Revenue Department consequent upon the search. He has emphasized that this issue was left unnoticed firstly by the special auditor and secondly by the AO, therefore, the learned CIT has invoked the jurisdiction under Section 263 of IT Act.

Learned Departmental Representative has commented that efforts have been made from the side of appellant to establish that how this small investment of Rs. 10,00,000 was sufficient to cover up the huge turnover. Learned Departmental Representative has also specified that the initial investment of Rs. 10,00,000 was in respect of first three years pertaining to the block assessment as considered by the learned CIT(A), however, the huge turnover pertained to the later part of the block year. It escaped the attention and on the wrong premise the assessment was completed which was prejudicial to the interest of Revenue, therefore learned CIT(A) was within his jurisdiction to invoke the provisions of Section 263 of IT Act.

4.1 On the question of doctrine of merger, learned CIT-Departmental Representative has drawn our attention on the concluding para of CIT(A)-1, Pune, order dt. 22nd May, 2006, para 16.5 reproduced below : "16.5 There is no denying the fact that for the period 2nd Nov., 1999 to 17th Sept., 2002 there is seizure of duplicate cash book which is written very scientifically giving full details of incoming and outgoing cash. The undisclosed profit of the appellant and accepted by the Department at Rs. 69,33,940 for the period 1996-97 upto 1st Nov., 1999 can be considered as ploughed back in the unaccounted trading.

This profit can be considered as capital used in the undisclosed trading as per the stand taken by the appellant. However, the stand taken by the AO that in the first year of the block period initial seed capital requires to be considered also merits consideration.

Incidentally, in the first year of the block period, i.e., 1996-97 the turnover is not fully based on the seized materials and the sales and purchases are not fully recorded and Department was constrained to estimate the turnover at Rs. 50 lacs. The profit derived therefrom came to Rs. 5,35,000. The appellant has accepted this finding. Similarly, in the next two years of the block period, i.e., for 1997-98 and 1998-99 in the absence of full details, the turnover has once again been estimated at Rs. 75 lacs and Rs. 1 crore respectively and profit worked out therefrom as per the AO and accepted by the appellant came to Rs. 8,22.000 and Rs. 14,24,000 respectively. Since for the first three years of the block period, the turnover and profit are estimated figures, in my considered opinion, it is deemed fit to take average of the turnover of the first three years and then to work out the seed capital by applying a reasonable percentage. The average of the turnover for the three years will work out to Rs. 75 lacs and at the rate of 12.5 per cent which is a reasonable percentage, the profit comes to Rs. 9,37,500. However, this figure is rounded off to Rs. 10,00,000. The undisclosed income will go up by Rs. 10 lacs as worked out." Learned Departmental Representative, Mr. Sharma has vehemently argued that it is evident from the concluding para that learned CIT(A) has only taken into consideration the first three years for the purpose of initial capital and arrived at the figure of Rs. 10,00,000. However, there was no discussion of the huge turnover which was detected for the later part of the block period. On the question of theory of merger, learned CIT has also referred Expln. (c) to Section 263 of IT Act and argued that where an order is referred for the purpose of invocation of Section 263 but had been the subject-matter of appeal, then, the powers of CIT shall not extend to such matters which have been considered and decided by the first appellate authority. So, he has argued that the important aspect is that the subject-matter should have been "considered" and "decided" by CIT(A), but if it is not so, then the learned CIT has all the powers for revision. Learned Departmental Representative has referred the details of the unaccounted turnover of the later part of the year which was duly mentioned in the show-cause notice issued by the learned CIT as reproduced supra. He has emphasized that the substantial part of the turnover was detected for the period starting from November, 1999 till the date of search i.e., upto 24th Jan. 2002 as per the year-wise bifurcation in the quoted show-cause notice. Those figures were admittedly not considered by learned CIT(A), hence neither those figures were considered nor decided by learned CIT(A), hence definitely out of the ambit of doctrine of merger. The emphasis on his part was that there was no occasion either for the special auditor or the AO and in the same sequence for CIT(A) to ponder upon this question because the same was raised for the first time by the learned CIT in the impugned show-cause notice, rather it had never occurred to any other Revenue authority. Further advancing his arguments, learned Departmental Representative has stated that Section 263 was rightly invoked being based upon a rational basis as prima facie it was visible that the said order of the AO was an erroneous order and for that reason, the learned CIT was the best judge of the situation, reliance placed on CST v. H.M. Esufali H.M. Abdulali . He has also drawn our attention on a case law as relied upon by the learned CIT namely Duggal and Co. v. CIT .

5. We have heard at length the submissions of both the sides. We have carefully perused the material placed before us in the light of the precedents cited. Both the reasons for invocation of provision of Section 263 as noted in the impugned revisional order have been carefully examined. The factual position as emerged from the above discussion as also from the material placed before us is that the learned CIT(A) has indeed taken into account the first three years of the block period to assess the initial capital. The relevant paras of CIT(A) commenced from para 16 in which he has reproduced the request of enhancement made by the Revenue authority reproduced below : "While compiling the assessment, the profit in this case was computed on the basis of seized documents for certain period, the turnover was also estimated in view of seized documents for incomplete financial year. In asst. yr. 1997-98 also, the turnover was estimated as mentioned in the assessment order. The assessee had done purchase and sale transactions of gold and jewellery at large scale and hence for the first year of the block period, initial investment, to carry out the undisclosed business was required to be estimated and added to the undisclosed income. However, inadvertently, such estimation of initial investment remained to be made In this case. Since the appellate proceedings are in progress, it is requested to enhance the undisclosed income on account of initial investment to carry out the undisclosed business transactions." So, the AO has referred that inadvertently the initial investment remained to be taken into account was for asst. yr. 1997-98 which was required to be added, hence requested to enhance the undisclosed income on that account i.e., investment to carry out the undisclosed business transactions. From this admitted factual position which has not been contravened from the side of the appellant, it is evident that there was no occasion for CIT(A) to go beyond the said request, hence he had neither scope nor occasion for looking into the matter beyond the said reference. It appears to us; so the facts stated; that this question has cropped up for the first time to the mind of learned CIT, so consequently, he has invoked the provisions of Section 263 of IT Act.

This is also not contradicted that the learned CIT has not touched those three years for directing the AO to consider the initial investment but the learned CIT has categorically directed the AO to re-examine the question of initial capital only for the later part of the block period stated to be from November, 1999 till 24th Oct., 2002, i.e., date of search. Once the learned CIT has established that the impugned assessment order was lacking the necessary investigation and enquiry, then by itself, that order can be held to be an erroneous order. It has not been demonstrated before us that there was an enquiry either by the AO or by learned CIT(A) in respect of the initial capital for the later part of the block period. Though there was a discussion in respect of the "initial capital" but admittedly that was for the first three years of the block period.

5.1 A pertinent question has also been raised that how the meagre sum of Rs. 10,00,000 could cover up the hung (sic-huge) turnover of around Rs. 96 crores stated to be made in the later part of the block period and this question remained unanswered. Learned Authorised Representative has made an attempt to explain the same but opposed from the side of the learned CIT-Departmental Representative that the same is the subject-matter in quantum appeal, hence any observation in this regard in the present appeal may affect the outcome of the quantum appeal pending for disposal. Nevertheless, the issue before us is that whether prima facie learned CIT have found that there was an error on the part of the AO due to which, the justifiable revenue was adversely effected making the said order an erroneous order.

5.2 We may like to clarify at this stage itself that none of the observation is going to effect in either way the question of the fixation of the quantum, its assessability and also the merits at the time of disposal by any of the Revenue or appellate authority. This judgment has a limited scope just revolving around to consider the assumption of jurisdiction under Section 263 of IT Act by learned CIT, nonetheless, facts and circumstances of the case, if any, related to the merits in respect of the quantum addition, being an independent issue, shall not be governed or effected as admittedly the same is set aside for a fresh adjudication, naturally free from outside control, by the AO without being influenced by such order passed on a different issue.

5.3 The scope of Section 263 is not a limited one, rather gives a significantly wide, supervisory powers to the learned CIT. It is enough for the CIT to invoke this section if he considers that the AO has passed an erroneous order and this conclusion, having regard to the language of Section 263, apparently, is a conclusion which the learned CIT exercises by calling for and examining the records and on that basis, forms a prima facie opinion so as to pass the revisional order.

During this particular stage of consideration or a primary phase of forming an opinion, there is no question of challenging the same as they are purely administrative decisions which at the later phase, acquires a quasi judicial character when the learned CIT gives an opportunity of hearing to the aggrieved party, i.e., the assessee.

Thereupon the onus is on the assessee to place on record the full facts especially to establish that the issue in dispute had already been duly placed before the AO who has applied his mind and on due deliberation, he has arrived at a judicial decision and that was the only decision which was possible in those circumstances. So, it is beyond dispute that the CIT does have the power to set aside an assessment order and send the matter for a fresh assessment if he is satisfied that further enquiries are necessary. The material which might not be available to the AO when the assessment was made but the CIT can take into consideration that material and direct the AO to hold enquiry so as to pass an assessment order in accordance with law. These are few basic principles that apply for the invocation of provisions of Section 263 of IT Act.

6. Next is the question of merger whether actually happened in the present set of facts and circumstances has to be examined in the light of the observation of the first appellate authority and the reference made by the AO. On the basis of the facts on record and on analysis of the observations, we have noted ante that the CIT(A) has confirmed himself to the reference made by the AO which pertains to the first three years of the block assessment. We may like to make it clear at this juncture that we are not giving any finding on merits that whether Rs. 10 lacs was for initial three years or related to the remaining years as well, so that the appellant should not be adversely effected while contesting the quantum appeal because the issue before us is limited to the invocation of provisions under Section 263 of IT Act.

Simultaneously, our decision of confirming the action of the learned CIT shall also not effect adversely by this observation because we have made ourselves clear that if prima facie the CIT has made up his mind based upon the record available and considered thereupon that the order was erroneous, then he is empowered for revision of the impugned assessment order or he may direct the AO for fresh assessment after making the requisite enquires.

6.1 Reverting back to the question of merger, Expln. (c) to Section 263 is to be looked into wherein the words "considered" and "decided" are conjoined with a conjunction "and". It means it is not suffice that the matter should only be "considered" by CIT(A) but it is equally necessary that learned CIT(A) should "decide" the matter by giving his appropriate finding. Both the conditions, thus, have to be fulfilled.

The decision of Hon'ble Supreme Court in the case of CIT v. Shri Arbuda Mills Ltd. (supra) is applicable in such a situation as in this appeal wherein it was held that powers of the CIT shall be deemed to have extended to matters not considered and decided in appeal. The Hon'ble Gujarat High Court in the case of CIT v. Panna Knitting Industries have also given the finding on the question of merger and in that case as well, it was held that if part of the claim was considered by CIT(A) and rest of the part remained undecided, then the portion of claim cannot be said to be merged with the order of CIT(A).

In this precedent as well, the order of revision was upheld. In an another precedent, viz., CIT v. Tube Investments of India Ltd. , the Hon'ble Madras High Court has opined as under The precondition for merger of an order of a lower authority in that of the higher authority is that the matter in question decided by the lower authority should have been considered and decided by the higher authority in the appeal preferred against the order of the lower authority. Where a part of the order of the ITO was not considered and decided by the first appellate authority there is no question of merger of the order of the ITO with the order of the higher authority. The Explanation introduced to Section 263 of the Act also makes the position abundantly clear.

On the basis of the above discussion and the precedents cited a conclusion can be drawn that when an assessment order is appealed against and an order is passed by an appellate authority, there is merger of the assessment order with the appellate order in all respect, however, there are exceptions to this general rule of merger in cases where the question involved is the subject-matter of appeal before the appellate authority. If the appellate authority has not been called upon, as in this case, or has not suo motu dealt with a part of the assessment order or the matter in dispute in totality has escaped his attention, then there is no question of that part of the assessment order being superceded or being merged by the said appellate authority, so in such a case the CIT is entitled under Section 263(1) to revise that part of the assessment order For this reason, Clause (c) of the Explanation to Section 263 has been brought into force by the legislature after due amendments.

7. We are under obligation to distinguish, few case laws, which were cited by learned Authorised Representative. The well-known decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) discussed the conditions precedent for invocation of Section 263 and held that when the AO has accepted the claim of the assessee without making any enquiry, then that order of the AO was an erroneous order and held that the exercise of the jurisdiction by the learned CIT was justified. Few decisions have been cited by learned Authorised Representative which were on the issue of "lack of enquiry" whether committed by the AO however, all these cases were on peculiar facts of those precedent such as in the case of Mehrotra Brothers (supra) wherein the evidence were on record in respect of the genuineness of the cash creditors and once this factual finding was recorded, then it was held that the order under Section 263 was on vague grounds.

Likewise in the case of Saw IHpes Ltd. (supra) the observation was that the CIT must revise an assessment order on the basis of the objective material and not merely on subjective satisfaction. In that case, the AO had issued a show-cause notice and a reply was furnished by making reference to the facts, hence the respected Bench has held that the contentions on which the CIT invoked Section 263 have already been part of the assessment proceedings, therefore, revision was unjustifiable.

Likewise in the case of Dhruv N. Shah (supra), the respected Co-ordinate Bench has held that assessee having offered a detailed explanation about non-chargeability of a particular receipt on an enquiry being raised by the AO and AO having allowed the claim by recording his satisfaction, then the CIT cannot hold such an order of AO an erroneous order. Conclusively, the facts of this appeal are not matching with those facts as narrated by us supra.

7.1 Few more case laws as cited by the learned Authorised Representative revolve around the invocation of jurisdiction under Section 263 in cases where it was a question of possibility of two views, happened. Again, we may like to mention that those precedents were based upon the facts of those very cases such as Mepco Industries Ltd. (supra) and Sohana Woollen Mills (supra). Learned Authorised Representative has also referred few cases in respect of the lack of proper enquiry was the reason of revision namely Pawan Kumar and Smt Anita Malpotra (supra). However, in this case, the question of initial investment did not occur to the mind of the AO at the time of framing of the impugned assessment order, rather admittedly it had occurred later on, only thereupon he had referred it for enhancement. Such reference for enhancement itself establishes that there was no enquiry on this issue by the AO, hence after the completion of assessment, he had made the request for enhancement. Once it was so, that too admittedly, that this issue had escaped the attention of the AO then the question arises that how much is the quantum which is to be fixed for initial investment. For this reason of determination of the quantum, if the learned CIT deemed it necessary for further enquiry by the AO then in our considered opinion, he has not faulted. Rather, he is giving a chance to the assessee as well to place his case before the AO properly, so that a clear finding can be given on this issue after investigation.

8. For invocation of Section 263, another reason had also been assigned by learned CIT, which was in respect of the applicability of Section 40A(3) pertaining to alleged cash purchases stated to be to the extent of Rs. 93.76 crores. Based upon the incriminating material, an observation was made that during the relevant part of the block period there were sales to the tune of Rs. 100 crores but there were no adjudication in respect of corresponding purchases, hence it had escaped the attention of the AO resulted into a failure on his part to make the enquiry about the applicability of the provisions of Section 40A(3). We find substance in this observation of learned CIT because records of the case and the impugned assessment order do not contain any discussion on this issue. Once the learned CIT prima facie considers on examination of the records that the AO has defaulted in a particular area of assessment; then this section empowers him either to set aside, or to cancel or direction for fresh assessment by the AO.9. In the light of the totality of the facts and circumstances of the case, we hereby conclude that the question of initial investment remained uninvestigated and undecided by the AO and that part of the investment was not considered by learned CIT(A) or AO, so the learned CIT has rightly remitted the matter to AO by setting aside that portion of the order of AO for limited purpose which did not stand merged with an appellate order, hence justified it in invoking the provisions of Section 263 of IT Act. His action is confirmed.


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