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2017 (2) TMI 686 - ITAT JAIPUR

2017 (2) TMI 686 - ITAT JAIPUR - TMI - Revision u/s 263 - whether action has not been taken by the Ld. CIT suo moto but based on the proposal of the AO which is invalid in law and liable to be quashed? - Held that:- In the order passed u/s 263 CIT-A has stated that while reviewing the case my predecessor reviewing authority for the cases assessed by the ACIT observed certain matters which were listed down and thereafter in para 3 of its order, CIT states that the undersigned also took note of th .....

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occasions and thereafter has issued the show-cause and passed the order u/s 263 of the Act. It is therefore, not a case where the Pr. CIT has simpliciter initiated the action u/s 263 on the basis of the proposal received from the AO rather he has applied his own independent mind and after going through the assessment records has come to an opinion that the order passed by the AO is erroneous so far as it is prejudicial to the interest of the revenue. - Denial of natural justice - Whether o .....

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.3.2016 and the assessee was asked to reply to the show cause by 4 PM. - These facts thus demonstrate that firstly no action was taken by the Pr. CIT for 2 years after passing of the assessment order, and thereafter at the fag-end of the limitation period which was expiring on 31.3.2016, the assessment records were pursued, the reports were called from the AO, a show cause notice was issued to the assessee on 31.3.2016 wherein the assessee was given a limited time window of mere two hours t .....

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nd adequate hearing before the ld Pr. CIT. Allowing a time window of two hours to respond to the show-cause is as good as not allowing any opportunity at all to the assessee. The order has been passed in undue haste and there is nothing on record to suggest the urgency in the matter except the fact that the limitation period to exercise powers under section 263 was expiring on the said date. - Decided in favour of assessee - ITA No. 433/JP/16 - Dated:- 12-1-2017 - Shri Kul Bharat, JM And Shri Vi .....

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ntly in order but calls for further enquiry. The ld. Pr. CIT set-aside the assessment with the directions to the AO to frame it denovo after making proper enquiry and verification of books of accounts and further record/documents and after giving proper opportunity of being heard to the assessee. 2. The ld. AR has raised two preliminary objections against the exercise of power by the Pr. CIT u/s 263 of the Act. It would therefore be relevant to examine those preliminary objections before the mer .....

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g ACIT Circle -2 Kota himself send the Proposal u/s 263 dt. 02.11.2015 to the ld. Pr. CIT Kota on all the points as mentioned in notice u/s 263 of the Act. Thereafter the ld. AO has issued the notice u/s 133(6) to the assessee on 14.03.2016 calling the information on the various points. In response thereto, the assessee has filed the detailed reply with details on 18.03.2016. After that, the ld. AO has send its report to the Pr. CIT on 21.03.2016 on all the points and stated that in my opinion n .....

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the assessee at 2.00 PM on 31.03.2016 itself without signature and carrying only seal paste by alleging that the order passed by the AO is found to be erroneous as it is prejudicial to the interest of the revenue on the various issues and the assessee was asked to appear and file its submissions at 4.00PM on 31.03.2016 itself before the ld Pr. CIT. 3.2 In the above factual matrix, it was submitted by the ld AR that action initiated u/s 263 by the ld. Pr. CIT is itself invalid as it is based on t .....

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tisfaction or reasons. And, in law, no where it has been provided that if the AO has found any error and which is prejudicial to Revenue in the assessment order, he may propose to the ld. Pr. CIT to take action u/s 263. Hence the Action taken by the ld. Pr. CIT on the proposal of AO itself is invalid and liable to be quashed. How an Assessing officer itself can says its own order erroneous and prejudicial to the interest of the revenue. 3.3 The ld AR further submitted that on these same facts an .....

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s CIT 135 TTJ 01(Jp). 4. The second preliminary objection raised by the ld. AR is that the order has been passed by the ld. Pr. CIT u/s 263 in undue haste on the very last day of limitation period and it was passed without providing the assessee an adequate opportunity of being heard which is against the principal of natural justice. 4.1 In this regard, the ld. AR took us through the sequence of events right from the issuance of notice u/s 263 which was issued on 31.03.2016, the last day of two .....

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e ITO (Technical) called the A/R of the assessee and served the fax notice on him at 2.00 PM on 31.03.2016 and asked to file the reply of show cause notice u/s 263 at 4.00 PM on 31.03.2016 itself. In response thereto, the A/R of the assessee has prepared its reply, explanation with enclosures trying to explain the facts and appeared at 5.00 PM on 31.03.2016 in the office of Pr. CIT Kota. However as he was not available in the office on that day, being present at Jodhpur, the A/R submitted the re .....

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) The Pr. Commissioner or Commissioner may call for and examine the record of any proceeding under this 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, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or mo .....

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6) 105 ITR 212 (SC) wherein it was held that: "The taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not in a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. we are wholly unable to subscribe to the view that unless those authorities exerc .....

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he ld. Pr. CIT in initiating and taking action u/s 263 of the Act. Regarding contentions of the ld. AR that the action has been taken by the Ld. CIT on the proposal of the AO, it was submitted that the ld. Pr CIT has duly reviewed the assessment records and after taking into consideration the proposal and report of the AO has issued the show cause notice u/s 263 of the Act which is in due compliance with the provisions of law. Regarding the second contention of the assessee, the ld. CIT DR has d .....

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rst contention of the ld AR that the action has been taken by the ld. Pr. CIT on the proposal of the AO which is invalid and liable to be quashed, it would be relevant to refer to the provisions of Section 263 of the Act which reads as under: 263(1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this 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 .....

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that if the Pr. CIT considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the interest of Revenue, he may give the assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justified. The requirement of law therefore is the ld. Pr. CIT has to firstly examine the records of the assessment proceedings and thereafter analyzing the records and a .....

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ng certain specific matters in terms of deficiencies and being erroneous in nature to the prejudicial to the interest of revenue to the Pr. CIT. Thereafter the Pr. CIT after going through the proposal as well as the assessment records have raised certain points on which report of the AO was called, the AO has submitted two reports dated 21.03.2016 and thereafter, another report dated 30.03.2016 and thereafter after considering the reports of the AO, a show cause issued to the assessee on 31.03.2 .....

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.03.2016 was issued fixing the case for hearing on 31.03.2016 itself. The above factual matrix makes it clear that even though the proposal has been initially received by the Pr. CIT for initiating action u/s 263 of the Act, the Pr. CIT has himself gone through the assessment records and thereafter has called for the report of the AO on two occasions and thereafter has issued the show-cause and passed the order u/s 263 of the Act. It is therefore, not a case where the Pr. CIT has simpliciter ini .....

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the concerned AO and in those cases he did not apply his mind to see whatever proposal has been received by him, he himself should have been satisfied that the proposed action really falls under 263 of the Act. 6.3 In this regard, useful reference can be drawn to the decision of Hon ble Calcutta High Court in case of Smt. Sumitra Devi Khirwal vs Commissioner of Income-tax [1972] 84 ITR 26 (Cal)wherein it was held as under: The next contention of Mr. Saraf is that under section 33B it is the dut .....

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the assessee, the Commissioner's consolidated order cannot be sustained. In our opinion, there is no substance in this contention. At page 26 of the paper book we find the notice under section 33B. The opening words of this notice are: "On calling for and examining your case for the assessment years 1956-57, 1957-58, 1958-59, 1959-60, 1960-61 and 1961-62 and other connected records.........". These statements in the notice were challenged before the authorities below. It is possibl .....

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ds of the tax authorities in this reference we have no doubt that the Commissioner had complied with these provisions and, as such, his order ought to be sustained. 6.4 Further, the Hon ble Allahabad High Court in case of Commissioner of Income-tax vs Bhagat Shyam & Co [1991] 188 ITR 608 (All) has held as under: 5. We agree with Mr. Katju to this extent that merely because the ITO placed certain information or material before the Commissioner and the Commissioner invoked the power under sect .....

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revisional power. Then he may issue a show-cause notice and after affording an opportunity to the affected parties pass final orders. 6.5 In light of above, we are unable to accede to the first contention of the ld. AR that the action u/s 263 has been initiated solely on the proposal initiated by the AO. There is no bar on the AO bringing the relevant issues to the notice of the Pr. CIT. The ld Pr. CIT has applied his mind after going through the proposal and the assessment records and after be .....

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63 on the same date i.e 31.03.2016. These are the admitted facts as apparent from para 3 of the order u/s 263 passed by the Pr. CIT which is reproduced as under: The undersigned also took note of the matter and found that the above observations correct in view of the facts of the case. Therefore show cause notice u/s 263 vide this office letter no. Pr.CIT/ITO(Tech) Kota/2015- 16/3336 dated 31.3.2016 was issued fixing the case for hearing on 31.3.2016 itself. The assessee filed its reply through .....

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from a recent decision of Hon ble Supreme Court in case of Commissioner of Income- tax, Mumbai vs. Amitabh Bachchan [2016] 69 taxmann.com 170 (SC) where the provisions of section 263 have been examined at great length in terms of issuance of show-cause notice and opportunity of being heard and legal preposition has been laid down by the Hon ble Supreme Court in para 10 and 11 of its order as under: 10. Reverting to the specific provisions of Section 263 of the Act what has to be seen is that a .....

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opportunity of being heard. It is in the context of the above position that this Court has repeatedly held that unlike the power of reopening an assessment under Section 147 of the Act, the power of revision under Section 263 is not contingent on the giving of a notice to show cause. In fact, Section 263 has been understood not to require any specific show cause notice to be served on the assessee. Rather, what is required under the said provision is an opportunity of hearing to the assessee. T .....

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e. Reference in this regard may be illustratively made to the decisions of this Court in Gita Devi Aggarwal v. CIT [1970] 76 ITR 496 and in CIT v. Electro House [1971] 82 ITR 824 (SC). Paragraph 4 of the decision in Electro House (supra) being illumination of the issue indicated above may be usefully reproduced hereunder: "This section unlike Section 34 does not prescribe any notice to be given. It only requires the Commissioner to give an opportunity to the assessee of being heard. The sec .....

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ching his decision and not before commencing the enquiry, he must give the assessee an opportunity of being heard and make or cause to make such enquiry as he deems necessary. Those requirements have nothing to do with the jurisdiction of the Commissioner. They pertain to the region of natural justice. Breach of the principles of natural justice may affect the legality of the order made but that does not affect the jurisdiction of the Commissioner. At present we are not called upon to consider w .....

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ction to proceed under Section 33-B. Therefore the question what that notice should contain does not arise for consideration. It is not necessary nor proper for us in this case to consider as to the nature of the enquiry to be held under Section 33-B. Therefore, we refrain from spelling out what principles of natural justice should be observed in an enquiry under Section 33-B. This Court in Gita Devi Aggarwal v. CIT, West Bengal ruled that Section 33-B does not in express terms require a notice .....

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t is so done a notice proposing the revisional exercise is given to the assessee indicating therein broadly or even specifically the grounds on which the exercise is felt necessary. But there is nothing in the section (Section 263) to raise the said notice to the status of a mandatory show cause notice affecting the initiation of the exercise in the absence thereof or to require the C.I.T. to confine himself to the terms of the notice and foreclosing consideration of any other issue or question .....

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Estate [1994] 75 TAXMAN 503 (AP), the Hon ble Andhra Pradesh High Court has held as under: 5. We are unable to accept this contention based on the observation of the Supreme Court pertaining to the peculiar facts of that case. What is required by section 263 is that the assessee must be afforded an opportunity of being heard by the Commissioner with regard to the error which he proposes to revise. Affording any further opportunity after setting aside the order of the ITO would not amount to an o .....

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is that what has to be seen in the given case is that a satisfaction that an order passed by the Authority under the Act is erroneous as well as prejudicial to the interest of the Revenue has to be reached by the CIT. Both are twin conditions that have to be conjointly present. Once such satisfaction is reached, jurisdiction to exercise the power would be available subject to observance of the principles of natural justice which is implicit in the requirement cast by the Section 263 to give the .....

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deration of all relevant facts, a full and adequate opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to the assessee by the C.I.T. prior to the finalization of the decision. Affording any further opportunity after setting aside the order of the AO would not amount to an opportunity of meeting and satisfying the requirements as enshrined in section 263 of the Act. 7.4 In the context of above .....

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period. As per the ld. AR, the show cause notice was handed order to the assessee at 2 PM on 31.3.2016 and the assessee was asked to reply to the show cause by 4 PM. The assessee prepared and filed its submission at 5 PM and thereafter the order has been served on the AR of the assessee at 5.30 to 6 PM on 31.3.2016. Even the order passed by the ld Pr. CIT at para 3 is explicitly clear where he states that show cause notice u/s 263 vide this office letter no. Pr.CIT/ITO(Tech) Kota/2015-16/3336 d .....

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ords were pursued, the reports were called from the AO, a show cause notice was issued to the assessee on 31.3.2016 wherein the assessee was given a limited time window of mere two hours to respond to the show cause. Further, given the fact that the assessee managed to prepare and file its submissions by 5 PM and order u/s 263 was passed by the ld Pr. CIT and handed over to the assessee by 6 PM, we have our serious doubts as to whether the submission of the assessee filed at Kota have been consi .....

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