JUDGMENT

A.K. Sikri, J.

ITA No.553 of 2010 & ITA No.557 of 2010

1. These appeals are admitted on the following substantial question of law:

"Whether the ITAT was correct in law in setting aside the order passed by the CIT under Section 263 of the Income Tax Act?"

2. We heard the arguments in detail at the time of admission itself.

3. These two appeals pertain to the Assessment Years 2003-04 and 2004-05. They are filed against the common orders dated 21.01.2009 passed by the Income Tax Appellate Tribunal (hereinafter referred to as `the Tribunal') in respect of both the assessment years. In these appeals before the Tribunal, the assessee had challenged the orders of Commissioner of Income Tax (CIT) passed under Section 263 of the Income Tax Act (`the Act' for brevity). Since both the orders under Section 263 of the Act were passed for these two assessment years under identical circumstances, the facts narrated hereinafter would cover both these assessment years.

4. A search under Section 132 of the Act was carried out in JMD Group on 16.12.2003. Since the assessee was a close associate of Mr. Sunit Bedi, MD of JMD Group, search was also carried out at the residence of assessee. However, his two concerns, viz., M/s In-Style Exports (Proprietary concern) and M/s In-Style Exports Pvt. Ltd. (company in which he was a Director) were not covered under search/survey. During the search, a sum of Rs.62,30,300/- was found from the residence of the assessee. In the statement recorded during search, the assessee offered a sum of Rs.61.30 lacs for taxation as his undisclosed income for assessment year 2003-04.

5. Subsequently, the assessee filed his return for the assessment year 2003-04 declaring income of Rs.1,57,24,780/-. The assessment was framed by the Assessing Officer (AO) under Section 153(3)/143(3) of the Act at an income of Rs.1,58,10,044/-.

6. After calling the records, the CIT noticed that though the assessee had offered a sum of Rs.61.30 lacs for taxation during search for assessment year 2003-04, but the same was not offered in the return of income and the AO had not examined this aspect during the assessment proceedings. Accordingly, he passed the orders dated 31.03.2008 under Section 263 of the Act whereby he set aside the order passed by the AO with direction to him to examine the same in the light of statement recorded at the time of search and surrounding circumstances. Likewise, he found that in the assessment year 2004-05, the assessee had offered a sum of Rs.21 lacs only against the surrendered amount of Rs.61.30 lacs at the time of search. On this basis, another order on the same date, i.e., 31.03.2008 was passed under Section 263 of the Act setting aside the assessment order in respect of Assessment Year 2004-05 also to the aforesaid limited extent and directing the AO to examine the same. The operative portion of the orders dated 31.03.2008, which is common in both the assessment years, reads as under:

"10. Since the Assessing Officer has failed to examine the cash found at the residence of the assessee in light of the facts stated above, he made an assessment order which was erroneous to the extent that he did not bring unexplained cash to the tax on the basis of the admission of the assessee at the time of search. The assessment order so farmed by the assessee was erroneous and prejudicial to the interest of revenue. Further, although the cash of Rs.6.30 lacs was offered as unexplained income for A.Y. 2003-04, in the return of income filed subsequently cash of Rs.21 lacs was offered as undisclosed income for A.Y. 2004-05. Here also, the Assessing Officer was at fault as the cash was not taxed in accordance with the statement given by the assessee.

11. Since the assessment orders of both the Assessment Years 2003-04 and 2004-05 are erroneous and prejudicial to the interest of revenue these are set aside on the limited issue of cash found during the search proceedings. The Assessing Officer is directed t