TMI Blog2022 (8) TMI 1496X X X X Extracts X X X X X X X X Extracts X X X X ..... ews are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this process even the AO has no power to revie his own order taking the route of proceeding under section 263 of the Act. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. [ 2000 (2) TMI 10 - SUPREME COURT] The facts are not disputed that the assessee has submitted the books of accounts and documents related there upon and has been verified by the AO. AO has recorded his satisfaction in the assessment order that he has verified the books of account and other records produced before him and the same is verified in the light of the reasons for selection of the case under CASS. This itself shows that the AO has applied his mind on the reasons and has verified the records produced before him by the assessee and the assessee has filed a detailed submission in this proceeding that the AO has verified each and every aspect of the issue on hand and looking the facts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, and as such the order passed is bad in law and liable to be quashed. 2. That the appellant craves leave to reserve to itself the right to add, alter, amend, substitute, withdraw and/or any ground(s) of appeal at or before the time of hearing 3. The assessee has raised the following additional ground vide application dated 22.06.2022 which is reproduced as under:- That the Learned Pr. Commissioner of Income Tax, Jaipur-1 invoked revision proceedings u/s 263 exclusively based on the proposal/suggestion made by the Assessing Officer thereby failed to apply her mind independently, which causes the entire revision proceedings illegal/illegitimate and needs to be quashed . 4. Brief facts of the case are that the assessee earned income from trading in Ghee, Vansapati Oil and Edible oil. The return declaring total income at Rs. 8,90,270/- was e-filed on 31.10.2017, which was processed u/s 143(1) of the Income Tax Act, 1961[ here in after referred to as Act]. The case was selected for scrutiny under CASS. Notice U/s 143(2) was issued on 29.09.2018, which was duly served upon the assessee. Thereafter, notice u/s 142(1) was issued on 05.02.2019 and 03.05.2019 requiring certain details from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 modifying the assessment, or cancelling the assessment and directing a fresh assessment.(Emphasis supplied). 2.1.1 The provisions of section 263 require the PCIT to himself call for and examine the records of any proceedings under the Act. He is, as per the provisions in the Section, neither empowered nor expected to assign the task of reviewing the proceedings/order passed under the Act to any subordinate officer viz the AO or the Additional CIT. 2.1.2 Revision proceedings under appeal, are bad in law as the Pr. Commissioner of Income Tax without applying her independent mind initiated the proceedings u/s 263 on the proposal initiated by the Assessing Officer. 2.1.3 Appellant takes the liberty to draw the valued attention of the bench towards the following extracts in the letter addressed by the AO to Ld. PCIT vide Letter No. ITO/W-1(4)/JPR/2020-21/124 dated 10/06/2020: ___________________________________________________ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from Ld. PCIT to Addl. CIT conclusively proves that no independent application of mind was made by the Ld. PCIT and lower authorities were in de facto exercising the powers u/s 263 of PCIT. 2.1.5 It is a well-settled law that for invoking the provisions of section 263 the Commissioner of Income Tax has to apply his independent mind after examining the records and has to form his independent opinion that the order passed by the Assessing Officer is erroneous and prejudicial to the revenue. The provisions of section 263 cannot be invoked merely on asking of Assessing Officer or proposals initiated by the Assessing Officer to substitute his original opinion. In the instant case, it is found that the Assessing Officer initiated the proposal for invoking the provisions of section 263 merely under the pressure of the Addl. CIT. The proposal of the AO is solely based on the views/opinion of his superior i.e. Addl. CIT. The provisions of section 263 cannot be allowed to be misused by the Assessing Officer to super-impose his opinion different from the one taken at the time of assessment proceedings. 2.1.6 As is evident from the documents on the record being submitted as Annexures 1 to 6 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... straints of the statute as an alternative safeguard to rules of natural justice where the function is administrative. 2.1.10 If the AO were permitted by the Income-tax Act 1961, to review his own orders, for enabling him to send a proposal on an order being found erroneous, the AO shall be found bestowed with the power of the constitutional courts - that of reviewing their own orders; which power is not available even to the Hon ble Tribunal benches, let alone the authorities under the Act. As the revision proceedings, in this case, have triggered with the AO sending a proposal to the Ld. PCIT and then the later passing the order u/s 263 of the Act on the basis of such a proposal, it becomes a case of jurisdictional deficit resulting in vitiating the impugned order. 8. In addition to the above written submission on legal ground the ld. AR of the assessee drawn our attention page 3 of his paper book where in the assessing officer has forwarded a proposal u/s. 263. Thus, the ld. AR submitted the AO cannot exercise such power of review thought the proceeding under section 263 of the Act. Section 263 nowhere provide that AO will assist to the PCIT in the proceeding it is the PCIT revie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further argued that if the view is so adopted then the provision of section 263 become redundant and therefore, the additional ground raised by the assessee shall be rejected. The decision relied upon by the ld. AR of the assessee are on different in facts and in law. The ld. DR has relied upon the following decision: [1998] 65 ITD 263 (Delhi) Apollo Tyres Ltd. vs. Assistant Commissioner of Income-tax [2016] 67 taxman.com 41 (Kolkata Trib.) Stewarts Lloyds of India Ltd. vs. Commissioner of Income-tax, Circle-1, Kolkata. 9.1 The ld. DR from the above decision drawn our attention to para 3.3, 3.6, 4.1, 4.2, 4.3 4.9 of the decision of Delhi ITAT in the case of Apollo Tyres Ltd. Vs. ACIT reported at 61 TTJ 365. The relevant extract of these paras are as under : 3.3 The learned Sr. D.R. submitted that the CIT could validly act on the basis of the facts reported to him by the Assessing officer vide his letter dated 23rd June, 1995. It is not necessary for the CIT that he should suo motu call for the records and examine it with a view to find out whether the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue. The CIT is entitled to initiate procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting a fresh assessment. Explanation. For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a)*********** b) 'record' shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner. A plain reading of the aforesaid section clearly indicates that the Commissioner may call for and/ examine the records of any proceedings under the Act. For this purpose, he is not required to show as to what reasons prompted him to call for and examine the record of any proceeding under this Act. The provisions also do not prescribe any limitation that the CIT should suo motu call for and examine the record and he cannot take into consideration or rely upon any report or information which may be supplied to him by the other officers of his Department or on the basis of any information which he may obtain from any other sources. The Authority of the CIT to call for and examine the record on the basis of any information from any source or suo motu is purely an administrative matter. Thereafter, the CIT has to consider as to whether any order passed und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to consider whether the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of the revenue. After such consideration, the CIT gave a show-cause notice under section 263 to the assessee and afforded a proper and reasonable opportunity before passing the Impugned order. The order of the CIT cannot, therefore, be cancelled or treated as invalid simply because the CIT called for and examined the records pursuant to a letter sent by the ACIT for this purpose. 4.2 We will now consider an important question of law argued by the learned Counsel for the assessee, namely, that the CIT cannot exercise revisionary jurisdiction in relation to items of income which escaped levy of tax in the original assessment for which the Assessing officer could take action under section 147 of the Act. The learned Counsel vehemently contended that a new source of income, which had escaped assessment in the original assessment cannot be brought to tax by exercising revisional jurisdiction under section 263 because the CIT can only revise an assessment but cannot reassess an income which had altogether escaped taxation. The escapement of income is covered by section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 of the second decision of kolkotta HC relied upon. The same is also extracted here in below: 13. We have heard the submissions of the learned counsel for the Assessee and the learned DR. The first argument of the learned counsel for the Assessee was that u/s. 263 of the Act it is only the CIT who can suo motu initiate proceedings and in this case the AO has mooted the proposal for revision u/s. 263 of the Act and therefore the order u/s. 263 of the Act has to be held to be invalid, illegal. We are of the view that this argument is liable to be rejected. It is no doubt true that the CIT in the show cause notice u/s. 263 of the Act has set out the proposal of the AO that his order suffered from an error and by reason of such error his order was prejudicial to the interest of the revenue. In para 3 of the show cause notice the CIT has clearly set out that he has perused the proposal and the assessment record and has also expressed satisfaction that the AO has failed to make proper verification and that there was an error in his order which was prejudicial to the interest of the revenue. There is no prohibition u/s. 263 of the Act for the CIT to act on the basis of proposal by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidences. Assessee was also required to produce the books of accounts including cash books for the two financial years i.e. FY 2015-16(AY 2016-17) and 2016-17(AY 2017-18), along with vouchers/bills for detailed examination by the AO. Besides the other issues, main focus of the assessment proceedings was to verify the Cash Deposits during demonetisation'. After detailed examinations of facts, records and evidence, AO accepted the returned income vide assessment order dated 03/07/2019. Thus, the assessee was subjected to detailed inquiry of Cash deposit by two different in two different periods and both found the cash deposit transactions in order. 11.2 Even on merits we have perused the submission made by the assessee and the same is extracted here in below for the sake of brevity of the cash. 1.1 Inquiry for cash deposit began with the summon u/s 131 dated 20/03/2017 issued by the AO (ITO, Ward 1(4), Jaipur), which required following records to be produced on 22/03/2017alongwith the personal appearance of the assessee(Please See PB No. for 19 summon): (Books of accounts of current year along with stock register) _______________________________________________________ Note : En ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of increase of sundry creditors along with a list of sundry creditors added during the relevant F.Y. 2016-17 Assessee submitted the reply to said queries vide letter dated 03/05/2019 (Please see PB No.29 ) 1.3. Issues raised in the Show Cause notice(Please see PB No. 30-32 for SCN)issuedin pursuance to Section 263 proceedings stood examined by the AO. The following tabular analysis compares the issues raised in the SCN/Order u/s 263 by Ld. PCIT and coverage thereof by the AO during the assessment proceedings: S. No. Discrepancies pointed out by Ld. PCIT in her SCN/order u/s 263 Whether alleged discrepancy examined by AO during scrutiny proceedingsu/s 143(3) ? i) It was failure, while completing the original assessment, to examine the genuineness of opening cash balance of Rs. 45.13 Lacs as on 01/04/2016 (related topreceding AY 2016- 17). On 01/03/2016 cash was Rs.15.65 Lacs which increased to Rs.45.13 Lacs on 31/03/2016. Yes,AO examined the books of accounts of FY 2015-16 and 2016-17 alongwith complete bills/ vouchers(as mentioned in his assessment order also).If there was any doubt for the opening balance as on 01/4/2016, then the Assessment Year 2016-17 should had been also bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assumption of PCIT is without understanding the intricacies of the business of the assessee, whose annual turnover is Rs. 33 Crore. vi) Sundry Creditors of assessee increased from Rs. 69.47 Lacs as on 31/03/2016 to Rs. 1.30 Crore as on 31/03/2017 Fully examined. This issue was thoroughly examined by the AO by issuing notice u/s 142(1) dated 03/05/2019. Assessee has submitted the PAN, Address and Balance of each Sundry Creditors as on 31/3/2016 and 31/03/2017 vii) Assessee had two bank accounts having average utilisation of Rs.1.50 Crore . He has paid heavy interest. No prudent person would pay heavy interest of keeping debit balance in Current Account if he had These business decisions are made as per the prevailing situation, knowledge and intelligence of the assessee. Assessee deals in edible oil/ghee commodity which undergoes frequent fluctuationsin prices, influenced by the national and international factors. viii) Assessee had shown receipt of 10 New loans of Rs.21.99 Lacs during the year. Out of 10 Loans, 8 loans have not claimed interest. AO has examined the genuineness of the loans. Confirmations from all lenders were submitted. Most of the loans were from relatives an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill felt the need for further inquiry u/s 263 proceedings. It is a settled law that assessment order, in any case, cannot be revised on the ground that the deeper enquiry ought to have been made or proper exercise was not done while making assessment. 1.6 It is humbly submitted that every business has its own requirements of cash and bank balance and how anyone can say that how much is sufficient or surplus. The business expediency and prudence is to be judged by the assessee only. It is further submitted that the Ld. PCIT cannot sit in the armchair of businessman and decide what the assessee has to do to maximize his profits. It is for the assessee to run the show and he is the best judge to manage the affairs of the business. Moreover, there are no guidelines in any business regarding levels of cash and bank balance, loans, inventory, Debtors/Creditors etc. to be maintained by such business. It is to be worked out individually and it keeps on changing as per the business requirement. 1.7 Ld. PCIT had relied upon following case laws to support the invocation of Section 263 (as mentioned on page No. 7 of the order dated 26/03/2022) Citation of the Case Factual Matrix and whether ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law 1.8.2 CIT v. Max India Limited [2007] 295 ITR 282 ) (SC) Held at para No. 1: Suffice it to state that in this particular case when the order of the Commissioner was passed under section 263 of the Income-tax Act two views on the said word 'profits' existed. In our view the matter is squarely covered by the judgment of this Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 as also by the judgment of the Calcutta High Court in the case of Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229 1.8.3 Greenworld Corporation [2009] 181 Taxman 111 , 314 ITR 81 (SC) Held at para No. 29: The scope of provisions of section 263 of the Act is no longer res integra. The power to exercise of suo motu of revision in terms of section 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oper inquiries with respect to assessee's onmoney receipts. The assessee carried the issue before the Tribunal. The Tribunal, by the impugned judgment, reversed the order of the Commissioner. In such judgment, the Tribunal observed that in the order of assessment, the Assessing Officer had raised multiple queries calling upon the assessee's response. The Tribunal was of the opinion that the Assessing Officer had carried out detailed inquiries. The Commissioner was incorrect in holding that no inquiries were carried out. The revisional powers, therefore, could not have been exercised 1.8.7 PCIT v. SumatichandTolamalGouti [2019]111taxmann.com 287 (SC)SLP filed against decision of High Court was dismissed by Hon ble Supreme Court in the case of PCITv. Sumatichand Tolamal [2019] 111 taxmann.com 286 (Bombay) Hon ble High Court held at para 2 of the judgement: The Commissioner took the order of the assessment in revision under Section 263 of the Income Tax Act, 1961 ( the Act for short) on the ground that the Assessing Officer had not carried out any enquiries as to the nature of expenditure being capital or not. The assessee carried the matter in Appeal before the Tribunal. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der is erroneous as also prejudicial to Revenue's interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this process even the AO has no power to revie his own order taking the route of proceeding under section 263 of the Act. In this regard, we draw strength from the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1: (2000) 243 ITR 83 (SC). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the exercise of the power under section 263 via AO is nothing but a change of opinion which is not permitted in the eyes of the law. We have precisely gone through the para of the judgement relied upon by the ld. DR that the AO has power to refer the matter to PCIT where he establishes that there is an error apparent on record where in this case merely the AO has agreed to review the order in his proposal which is not permitted under the law and therefore, the facts relied upon by the ld. DR are factually different and with the fact of this case and thus, based on our detailed observations and relying on the decision of co ordinate bench of Pune ITAT in the case of Alfa Laval Lund AB in ITA no. 1287/PUN/2017 where in the bench in para 5 observed as under:- 5. It is trite that a power which vests exclusively in one authority, can‟t be invoked or cause to be invoked by another, either directly or indirectly. Section 263 of the Act confers power on the CIT to revise an assessment order, subject to certain conditions. Instantly, we are confronted with a situation in which the revision was initiated on the basis of the AO sending a proposal to the CIT and not on the CIT suo mot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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