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TMI Blog2021 (3) TMI 1163X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in holding that the AO has not verified the details while passing the order dated 2nd May 2018. 4. The learned PCIT erred in holding that the order passed by the AO is erroneous and prejudicial to the interest of the revenue. 5. The learned PCIT erred in deciding the merits of the addition against the assessee. The action of the learned PCIT is also without giving proper opportunity of hearing. The Appellant craves leave to add, delete, amend and/or alter all or any of the grounds of appeal herein." 2.1. The assessee has raised the following additional grounds of appeal on 14/01/2021. "1. Additional ground No 1: On the peculiar facts and circumstances of the case and in law, the Ld. PCIT acted against the law in passing the order u/s 263 of IT Act, 1961 when the subject matter involved in the order Dt 02.05.2018 was duly considered and decided by the Income Tax Appellate Tribunal vide order Dt. 14.01.2019. 2. Additional ground No 2 The Ld. PCIT illegally assumed jurisdiction u/s 263 of the IT Act, 1961 treating that order passed u/s 143(3) read with section 250 of the Act, giving effect to the order of the CIT(A) Dt 28.06.2017 as an independent order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powers of PCIT for invoking jurisdiction in respect of the matters as had been considered and decided in such appeal. It is not denied that all the matters for which the PCIT invoked jurisdiction under section 263 of the Income Tax Act, 1961 had duly been considered in appellate proceedings not only by CIT(A) but also by this tribunal vide its order dated 14.01.2019. Your honours will appreciate that in case, an order is passed by your good selves, the consequential order giving effect to the order of this tribunal naturally is required to be passed by the assessing officer. If the action of the PCIT is legal or it is held that the PCIT had valid jurisdiction, PCIT can even revise the order which is being passed by ITAT in consequence of appeal before your honours, i.e. indirectly PCIT be superior to the Hon'ble Tribunal and PCIT can disturb any order which is passed by your good self and can modify the order passed by this Hon'ble Tribunal. 1.1 The Hon'ble Tribunal is the second Appellate authority and is independent to the income tax department. The Income Tax Tribunal is similar to the court of Appeal and enjoy the same power under the suit procedure court which are enjoyed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come Tax Act, 1961. Therefore, the only interpretation with respect to order of assessing officer under Section 263 of the Income Tax Act, 1961 have to be given only to an independent order passed by the assessing officer by applying his own mind nor to an order which has been passed by the assessing officer in consequence of the order of the Appellate Authority or on the direction of any other authority. 1.3 In the impugned case at the cost of repetition I may again bring your honours' attention to the impugned order, show cause notice, order of the CIT (Appeal) dated 28.06.2017 and the tribunal order dated 14.01.2019 from which it is apparent that all the five issues in respect of which relief was given and duly considered by the CIT (Appeal) and confirmed by ITAT are the same in respect of which jurisdiction under Section 263 of the Income Tax Act, 1961 has been exercised by the PCIT and accordingly he directed, to the assessing officer, as is apparent from page 38 of the order passed by PCIT under section 263 of the Income Tax Act, 1961, to make addition in the income of the assesee in respect of all these five issues. Clause (c) of explanation (1) to Section 263 (1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceeding before the Income Tax Tribunal are the judicial proceedings. This fact has duly been recognised by Hon'ble Supreme Court in the case of ITAT Vs. V.K.Agarwal (235 ITR 175 (S.C), the respondent (Ex-Law Secretary, Ministry of Law and Justice, Government of India) In the said case, the Hon'ble Supreme Court held as under: "This court has consistently held that the Supreme Court has power under this article to punish, not merely for contempt of itself, but also for contempt of all courts and Tribunals subordinate to it. In the case of Delhi judicial Service Association, Tis Hazari Court, Delhi Vs. State of Gujarat, AIR 1991 Supreme Court 2176; (1991) 3 SCR 936, this court examined at length the power of this court under article 129 to punish for contempt. This court first examined the jurisdiction of the Supreme Court and held (at page 970 and page 2194 of AIR 1991 Supreme Court): "There is therefore no room for any doubt that this court has wide power to interfere and correct the judgment and orders passed by any court or Tribunal in the country. In addition to the appellate power, the court has special residuary power to entertain appeal against any order of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the Department - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to the assessees and chaos in administration of tax laws". The Hon'ble M.P High Court further observed in clear terms as under: "Obviously, the Commissioner of Income tax (Appeals) not only committed judicial impropriety but also erred in law in refusing to follow the order of the Appellate Tribunal. Even where he may have some reservations about the correctness of the decision of the Tribunal, he had to follow the order. He could and should have left it to the Department to take the matter in further appeal to the Tribunal and get the mistake, if any, rectified." 2.3 The Hon'ble M.P High Court in the case referred (Supra) has placed reliance on the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under section 35E(1) or (2) to keep the interests of the department alive. If the officers' view is the correct one, it will no doubt be finally upheld and the revenue will get the duty, though after some delay which such procedure would entail. It is clear that the observations of the High Court, seemingly vehement, and apparently unpalatable to the Revenue, are only intended to curb a tendency in revenue matters which, if allowed to become widespread, could result in considerable harassment to the assessee public without any benefit to the Revenue. We would like to say that the department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them." 2.4 I also rely to the decision of Khalid Automobiles Vs. UoI (1995) (4 SCC (Suppl.) 652), the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Where there is a conflict between different High Courts, he must follow the decision of the High Court within whose jurisdiction he is functioning, but if the conflict is between decisions of other High Courts, he must take the view which is in favour of the assessee and not against him. Similarly, if the Income tax Appellate Tribunal has decided a point in favour of the assessee, he cannot ignore that decision and take a contrary view, because that would equally prejudice the assessee." There cannot be any dispute that the ratio of the decision of Jurisdictional High Court equally applies to the orders passed by the ITAT also vis-à-vis the authorities down below. 2.7 A.P. High Court in the case of State Of Andhra Pradesh Vs. CTO, referred (Supra), as we also come across numerous instances of such kind of observations as noted by Hon'ble High Court. "In recent times, we are coming across innumerable cases where the authorities observe with impunity that they cannot follow the decisions of this court on a variety of grounds, such as: (a) that an appeal was actually filed in the Supreme Court against the judgment of this court and is pending in the Supreme Court. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned. I have no manner of doubt that the Income-tax Officer concerned had assessed income-tax on the same income which was fetched from the consultancy services. I find the specific finding of the learned Tribunal that this income is not taxable and I also find from the finding of the learned Tribunal that the amount which was paid by way of advance tax is liable to be refunded. The learned Tribunal painstakingly considered all the points advanced before him on behalf of the Department. Since the reference has been refused by the court so also previously by the Tribunal, at the present moment the findings of the learned Tribunal have reached finality. In my view, the venture which has been undertaken by the Income tax Officer for making an assessment is absolutely an act of hierarchical indiscipline. This exercise is nothing short of setting the Tribunal's judgment at naught. It is a well settled principle of law that the junior incumbent is supposed to obey and carry out the order and/or observations made by the superior authority, be it a judicial forum or a quasi-judicial forum or even in any administrative field. Therefore, I hold that the impugned order passed by the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of in the case Agarwal Warehousing and Leasing Ltd, (Supra), the Learned CIT(A), in the instant case, has committed judicial impropriety and also erred in law in refusing to follow the order of the Appellate Tribunal by passing order under Section 263 Income Tax Act, 1961 and directing the assessing officer to withdraw the relief given by CIT(A) and as confirmed by tribunal. Being an authority in the higher hierarchy of the Income tax Department, that too holding administrative charge, PCIT should not have committed this kind of judicial impropriety. In view of aforesaid submission your honours will appreciate that this is the case where by passing an order under Section 263 Income Tax Act, 1961, the PCIT illegally withhold the refund which has arisen in consequence of the PCIT (Appeal) order as well as Income Tax Appellate Tribunal's Order. This is a clear cut case of judicial indiscipline for which I request your honours that the cost be awarded under Section 254 (2B) to the asseseee and revenue be directed by exercising your judicial power to give the appeal effect to your honours order dated 14.01.2019 immediately within the specified time so that in future ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (the order dated 02.05/2018 is subject matter of revision u/s.263 vide impugned order dated 22/01/2020) 3.5. We find from the aforesaid table that the ld. PCIT seeks to revise the order passed by the ld. AO on 02/05/2018 which is effectively the order giving effect to order of the ld. CIT(A) dated 28/06/2017, though the same has been termed as an order passed u/s.154 of the Act by the ld. AO. There is one more interim order which was passed by the ld. AO giving effect to the order of the ld. CIT(A). This interim order was passed by the ld. AO on 28/09/2017 terming it as "order giving effect to ld. CIT(A)‟s order dated 28/06/2017". In this interim order, the ld. AO categorically admits that the issues mentioned in ground Nos. 6,8,10,13 & 17 requires verification by him in order to ascertain the correct amount of relief eligible to the assessee. Similarly, in respect of ground No.28, credit for TDS and advance tax would be given after due verification of the same. Similarly for ground Nos. 29 & 31, the revised interest shall be calculated as per directions of the ld. CIT(A) vide order dated 28/06/2017. In fact in this interim order dated 28/09/2017, though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (As per para 24.24 of CIT(A)'s order dated 29.06.2017) Addition on account of money market unexplained stock -Relief due to order of Supreme Court dated 01.11.2002 and 03.12.2008 224,37,25,245 LESS (As per para 27.9 of CIT(A)'s order dated 28.06.2017) Addition on account of interest on money market 10,42,27,500 TOTAL TAXABLE INCOME 1143,38,34,164 Rounded off to 1143,38,34,160 3.7. Out of the aforesaid sums which were granted relief by the ld. AO in the giving effect order after due verification of the issues together with the relevant supporting evidences, the issues that are subject matter of revision proceedings u/s.263 of the Act (i.e. the impugned order) are as follows:- Particulars Amount(Rs.) a. Addition on account of money market oversold position - due to decree transactions 438,43,55,195/- b. Addition on account of money market oversold position - due to inconsistencies in Annexure M-2 418,31,76,323/- c. Additional loss on account of money market trading activities 2,61,95,089/- d. Addition on account of money market unexplained stock - due to order of the Hon'ble Supreme Court dated 01/11/2002 and 03/12/2008 224,37,23,243/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs himself but initiated the proceedings on the proposal received from the AO. Only on receipt of proposal from the AO, the Pr. CIT initiated revision proceedings. It is not the case where CIT called for the record and after examining the same, initiated the proceedings under section 263. This clearly proves that there is no application of mind on the part of CIT WHILE invoking jurisdiction u/s 263. As mentioned above, that the proposal for initiation of revision proceedings must be initiated by the CIT, which is not the case at present, therefore, the initiation of proceeding u/s 263 at the instance of the assessing officer are invalid. In this regard reliance is placed on the following legal authorities: - (i)Ashok kumar Shivpuri v. CIT dated 07-11-2014, in ITA No.631 (M) of 2014 It has been observed by us that the assessment was framed subject to valuation by the DVO. This, by itself is a deficiency in the order under section 143(3). We further find that the proposal was received by the CIT from the AO, which clearly means that there has been no independent application of mind by the CIT, because section 263(1) clearly says, "The Commissioner may call for and examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has categorically held that the order of his predecessor is erroneous and prejudicial to the interest of the revenue. Thereafter the case record was called for by the Commissioner. If the recommendation would not have received from the successor the Assessing Officer, then the Commissioner would even not have initiated the proceedings under section 263. Therefore, it could not be termed that the Commissioner himself has called for the records. In this case, the record has been called for only after the recommendation received from the successor Assessing Officer. In similar situation, the ITAT, Mumbai "A" Bench in the case of Ashok kumar Shivpuri v. CIT dated 07-11-2014, in ITA No.631 (M) of 2014, held that the revision proceedings simply on the basis of proposal from the Assessing Officer is not valid, because section 263(1) says that proposal for initiation of revision proceedings must be initiated by the Commissioner. It is the Commissioner who has to call for and examine the records; but in the instant case the proposal came from the Assessing Officer and on receipt of the proposal, the Commissioner initiated revision proceedings, which is not justified. (iv)Adishwar K. Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to be set aside. For revision of order of AO, the Pr. CIT had not made any inquiries on his own but had merely relied on the proposal made by the AO as is apparent from show cause notice as well as order u/s 263 to Pr. CIT that in the assessment order certain points were not verified although verification was duly made by assessing officer while allowing effect to the order of the CIT(A). Even the CIT did not point out what verification was left by Assessing officer. It is practically, revision asked by the AO himself and not by the Pr. CIT. He merely relied on the version of the AO who wanted to re-examine the issue which is not permitted under the law. 3.9. We find that the very same issues were indeed subject matter of appeal before the ld. CIT(A) in the third round of proceedings and the ld. CIT(A) had already considered and decided these issues in its appellate order. Further, the Revenue as well as the assessee had preferred an appeal before this Tribunal against the order of the ld. CIT(A) dated 28/06/2017 and this Tribunal vide its order dated 14/01/2019 had quashed the assessment order in ITA No.5702 & 6028/Mum/2017 on 15/03/2016 by observing as under:- "6.8. Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the AO has not taken any action u/s 154 of the Act in respect of the first order dated 30.01.2015 giving effect to the order of Tribunal dated 29.10.2014. Even no contrary decision was brought to our knowledge which has taken a view that the AO has the power to pass a second order giving effect to ITAT order. We are bound to follow the decision of the jurisdictional High Court as well of the co-ordinate Bench. We therefore quash and set aside the assessment order dated 15.03.2016 passed u/s 144 rws 253 of the Act as invalid. Thus the ground no. 1 & 2 taken by the assessee are allowed." 3.10. Apart from quashing the assessment order dated 15/03/2016, the Tribunal had further proceeded to adjudicate each of the issues involved on merits also and had indeed granted relief to the assessee. This fact is also mentioned by the ld. PCIT in his order passed u/s.263 of the Act in para 14 page 35 thereon. 3.11. In the aforesaid backdrop of the case, let us now examine the provisions of Section 263(1) Explanation 1 Clause (C) which is reproduced for the sake of convenience:- "Revision of orders prejudicial to revenue. 263. (1) The Principal Commissioner or Commissioner may call for an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal affect of the order passed by ld.CIT(A) dated 28.06.2017 which is not included in the order eligible for revision in the aforesaid Explanation u/s 263 of the Act. Technically it cannot be called to be the order of the Assessing Officer. If ld. PCIT is permitted to invoke jurisdiction u/s 263 of the Income Tax Act, 1961 in respect of the order passed for giving effect to the order of the ld.CIT(A), then the provisions of clause (c) of Explanation 1 of Section 263 of the Act will become redundant. One cannot interpret the provision of section in this manner. It is an undisputed fact that the order dated 02.05.2018 against which the jurisdiction under Section 263 of the Act has been invoked by ld. PCIT has been passed, to give effect to the order of the ld.CIT(A) dated 28.06.2017. The provisions of clause (c) of Explanation 1 to Section 263 of the Act clearly debars the powers of ld. PCIT for invoking jurisdiction in respect of the matters as had been considered and decided in such appeal. It is not denied that all the matters for which the ld. PCIT invoked jurisdiction under section 263 of the Act had duly been considered in appellate proceedings not only by ld.CIT(A) but also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merely on the basis that the revenue has not accepted the order of the Tribunal dated 14.01.2019 and the same is being contested before Hon‟ble High Court. Needless to mention that the decision of the tribunal is binding on revenue including the ld. PCIT which passed an order under Section 263 of the Act until and unless operation of the order of this tribunal is stayed by the Hon'ble High Court. The operation of the order of the Tribunal has not been stayed by the Hon‟ble High Court. Hence, it could be safely concluded that the subject matter of issues in the revision proceedings u/s.263 were already duly considered and decided by the ld. CIT(A) and also by this Tribunal and accordingly, the ld. PCIT could not have validly invoked his revision jurisdiction u/s.263 of the Act in terms of Clause (C) of Explanation 1 of Section 263(1) of the Act on the very same issues. 3.13. One more excruciating fact which needs to be addressed here is that this Tribunal vide its order dated 14/01/2019 had indeed quashed the entire assessment order framed on 15/03/2016 by the ld. AO in the third round of proceedings for detailed reasons given thereon. The said reasons for quashin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by the ld. AO in the order dated 02/05/2018 while granting relief to the assessee. In this regard we find that in the first paragraph of the order dated 02/05/2018, the ld. AO categorically admits that he had concluded that the entire verification proceedings were carried out in accordance with various directions issued by the ld. CIT(A) on various issues thereon and accordingly had proceeded to give effect to the order of the ld. CIT(A) dated 28/06/2017. For the sake of convenience, the relevant operative portion of the order of the ld. AO dated 02/05/2018 which was sought to be revised by the ld. PCIT u/s.263 is reproduced hereunder:- "An order giving effect to the order of the Ld, CIT(A) dated 28.6.2017 was passed by this office on 28.09.2017 computing the total income at Rs. 2346,32,06,080/- wherein no effect for the reliefs granted to the assessee was given as the verification pursuant to the directions of the Ld. CIT(A) was pending. However, as the verification proceedings have been concluded the effect to the various directions of the Ld.CIT(A) is being given now. In view of the above, the directions of the Ld. CIT(A) are now being complied with. Hence, the OGE dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 3 that certain grounds were allowed by the ld. CIT(A) thereby granting reliefs, verification has not been entirely carried out before arriving at the amounts referred to in the computation and therefore, the notice of demand does not reflect the correct amount. Before the Special Court, the ld. Sr. Counsel representing the Income Tax department sought time to obtain further instructions on the aspect of actual amount of relief to be granted in accordance with the order of the ld. CIT(A) dated 28/06/2017. We find that the ld. Sr. Counsel representing the Income Tax department before the Special Court had in para 3 of the interim proceedings dated 08/12/2017 had categorically admitted that the verification process as directed by the ld. CIT(A) is being carried out by the ld. DCIT and the same shall be disclosed in the form of an affidavit from the ld. AO and accordingly, sought time from Special Court. Subsequently in the proceedings before the Special Court dated 18/01/2018, an affidavit from the ld. AO dated 04/01/2018 was filed by the ld. Senior Counsel representing Income Tax department before Special Court duly affirming that the process of verification is still under way a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of replies from those third parties without any further delay. So, all these points categorically drives home the point that the ld. AO had indeed carried out extensive verification of the issues before giving effect to the order of ld. CIT(A) dated 28/06/2017. While this is so, it would be totally unfair on the part of the ld. PCIT to say that no verification was carried out by the ld. AO in the order dated 02/05/2018. We find that the ld. AO in his affidavit filed before the Special Court had also affirmed that he had even resorted to third party verification for examining the documents filed by the assessee. No better action could be expected more than this from the side of the ld. AO. Hence, it could be safely concluded that the ld. AO had indeed carried out extensive verification of all the documents and had made requisite enquiries thereon while giving effect to the order of the ld. CIT(A) dated 28/06/2017. Hence, the ld. PCIT could not exercise revision jurisdiction u/s.263 of the Act on the same by holding the said order to be erroneous and prejudicial to the interest of the Revenue on the ground that no enquiries were made or proper enquiries were not made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner would have specifically pointed out which of the inquiries or verification should have been carried out by the Assessing Officer in this regard and how examination of those were necessary by the Assessing Officer while making the assessment and dealing with the issue. Since the Principal Commissioner has not suggested the basis of the inquiry or verification to be carried out by the Assessing Officer and its relevancy with the setting off of the short-term capital gain against the short-term loss, the order passed by the Assessing Officer cannot be deemed to be erroneous in so far as it is prejudicial to the interests of the Revenue." 3.19. In the instant case also, the ld. PCIT does not in any manner suggest as to what enquiries the ld. AO should have conducted. In fact, the ld. PCIT does not bring out any basis for arriving at the conclusion as to how the order of the ld. AO dated 02/05/2018 in granting reliefs to the assessee is erroneous. We find that the ld. PCIT had merely directed the ld. AO to directly withdraw the reliefs given by him in the order dated 02/05/2018 in respect of five issues as tabulated supra. We find that this action of the ld. PCIT is grossly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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