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TMI Blog2022 (8) TMI 1496X X X X Extracts X X X X X X X X Extracts X X X X ..... led to enquire the 'cash deposited in bank' thoroughly, while all the aspects related to 'Cash deposited during the year including demonetization period', were enquired by the AO in the assessment proceedings and Section 131 proceedings. b) On the facts and circumstances of the case, the Ld. PCIT has erred both on facts and in law in ignoring the fact that the issue raised by her in notice u/s 263 was before the AO and as such the jurisdiction on this issue under section 263 cannot be assumed by her. c) On the facts and circumstances of the case, the Ld. PCIT has erred both on facts and in law assuming jurisdiction u/s 263 in the absence of twin conditions of the order passed by the A.O. being erroneous as well as prejudicial to the interest of the Revenue, being satisfied. d) On the facts and circumstances of the case, the Ld. PCIT has erred both on facts and in law in ignoring the fact that the proceedings u/s 263 cannot be used for sustaining opinion of the A.O. by that of the PCIT. e) On the facts and circumstances of the case, the Ld. PCIT has erred both on facts and in law in setting aside the matter to the file of the AO without giving a finding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al ground at this stage. 5.2 We have heard rival contentions and perused the material brought on record in the prayer petition filed by the assessee for raising the additional ground before us. The bench of the view that since, the additional ground being technical and legal ground be admitted in the interest of justice and the same is thus admitted as it does not involve any factual issue for this additional ground. 6. Since, the additional ground raised by the assessee is purely on the legal issue challenging the jurisdiction of the ld. Pr. CIT and as the controversy goes to the root of the case we are inclined to entertain this ground first. The foremost controversy raised by the Assessee relates to initiation of proceeding based on the report of the AO is validly initiated proceeding u/s. 263 of the Act, or not? 7. On this legal ground the ld. AR for assessee submitted a detailed written submissions which is reiterated here in below :- "2.1 Section 263 reads as follows: 263. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 1(4),Jaipur _____________________________________________________ Above letter from AO to Ld. PCIT clearly brings out that AO, who completed the assessment proceedings and passed an order u/s 143(3) is revealing to Ld. PCIT that his order is erroneous and prejudicial to the interest of revenue. 2.1.4 Office of the Ld. PCIT-1, Jaipur has reverted back to the Addl. CIT with the following reply vide letter No. 22 dated 24/06/2020 (Please see attachment No. 3) ______________________________________________________ No. : Pr. CIT-1/ITO(T&J)/JPR/2020-21/122 Dated 24/06/2020 The Addl. Commissioner of Income Tax, Range-1, Jaipur Sir, Subject: Approval for taking remedial action in the case of Om Prakash Agarwal-ABWPA2846D AY 2017-18 reg Kindly refer to your proposal for approval for taking remedial action u/s 263 of the IT Act vide letter No. 324 dated 11/06/2020 In this regard, I am directed to convey that after due consideration, the PCIT has prima facie agreed to take remedial action u/s 263 of the IT Act, 1961 in this case. You are therefore, required to submit detailed proposal for the same at the earliest. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Please see attachment No. 7 to 12) (iii) Rajesh Chandrakant Shah (HUF) Vs. PCIT-6, Pune AY 2011-12 ITA No. 1028/PUN/2016 pronounced on 06/02/2019 (iv) Hindustan Lever Ltd. Vs. CIT, Kol-II, High court of Calcutta ITA No. 193 of 2002 judgement on 04/02/2011 (Please see attachment No. 13 to 16) 2.1.8 The fact remains that a notice such as the one issued in the above case is ultra vires the provisions of the Income-tax Act 1961, and also does violence to the mandate of the Supreme Court in the case of Bhavnagar University v. Palitana Sugar Mill (P.) Ltd. [Appeal (Civil) 8003 of 2002, dated 3-12-2002]. "....It is well settled that when a statutory authority is required to do a thing in a particular manner, the same must be done in that manner or not at all. The State and other authorities while acting under the said Act are only creatures of statute. They must act within the four corners thereof." In other words, statutory power can only be exercised by the authority on whom it is conferred and by no one else. 2.1.9 It is fairly settled that the substantive power enshrined in the Act cannot be held hostage to procedural requirements, yet it bears a recall that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax under section 263 of the Act which has been affirmed by the Tribunal below and direct the assessing officer to act accordingly. The appeal is, thus, allowed." 9. Per contra, the ld. DR relied on the orders of the lower authorities and submitted that review of the case was done by JCIT and not AO. Based on the JCIT review the AO send a proposal as this is administrative process to review the work done by the subordinate officer. The finding is of the JCIT and AO has followed the direction given by the higher officer and he has not his own done the review. Merely based on the proposal the proceeding u/s. 263 is not completed. The proposal received by him is duly considered and the Pr. CIT as per provision of the section 263 of the evaluate the order of the lower authorities and after that the Pr. CIT issues the show cause notice to the assessee. Based on the reply of the show cause notice the Pr. CIT decide the case. To initiate the proceeding u/s. 263 source is not material and in this case the proposal has been moved at the instance of JCIT. The ld. DR explained the difference between the proceeding u/s. 263 & 264. In section 264 the application can be moved by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and has also given convincing reasons in the order passed by him which fully support the order of the CIT. 3.6 The learned Sr. DR also submitted that the Explanation b inserted below section 263, which defines 'records' include all records relating to any proceedings under the Act available at the time of examination by the Commissioner. The proposal sent by the ACIT vide letter dated 23rd June, 1995 to the CIT was a part of 'record' and the CIT could take into consideration the said proposal at the time of initiating action under section 263. 4. We have carefully considered the submissions made by the learned representatives of the parties and have gone through the order of the learned CIT as well as all other documents to which our attention was drawn during the course of hearing. We have also carefully gone through all the judgments which were cited by the learned representatives of both sides. 4.1 The provision of section 263 (1) and the relevant Explanation (b) are reproduced hereunder : "263. (1) The Commissioner may call for and examine the record of any proceedings under this Act, and if he considers that any order passed therein by the Assessing officer i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and directing a fresh assessment. It will be worthwhile to compare the language of section 263 with the language used in section 264 of the Act. In section 264, the Commissioner may, either of his own motion or on an application by the assessee for revision, call for the records of any proceeding under this Act. However, in section 263 the expression "on his own motion" is absent. It is nowhere provided as to under what circumstances and on the basis of what type of information and source, the CIT may call for and examine the record of any proceedings for the purposes of section 263. In the absence of any express provision in section 263, providing that CIT can act under section 263 only on his own motion or suo motu and also in view of the fact that there is no restrictions or limitations on the power of the Commissioner to call for and examine the record of any proceeding pursuant to the report given by the Assessing Officer or by other Departmental officer, we are of the view that the CIT could validly call for and examine the record of the assessee for the relevant year under consideration pursuant to a letter received from the Assessing Officer containing a proposal under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent assessment is vested by section 9(2) (b) in the assessing authority and has to be exercised in the manner provided. It would not be open to the revising authority to assume that power. The revisional power has to be exercised for ascertaining whether the order passed is illegal or improper or the proceeding recorded is irregular and it is in aid of that power that such orders may be passed as the authority may think fit......." 4.9 The Hon'ble Gujarat High Court in the case of Orient Trading Co. v. CIT [1985] 152 ITR 26, 20 Taxman 330 at page 35 has also held as under : "However till a reassessment order is made by the ITO, it is open to the Commissioner to revise the assessment order. In the present case, admittedly, no reassessment was made by the ITO in pursuance of the proceedings initiated under sections 147 and 148 of the Act when the Commissioner in exercise of his revisional power under section 263 set aside the original assessment order. Therefore, as held by the Delhi High Court, it was open to the Commissioner to revise the assessment order under section 263 of the Act. To this extent, we are in agreement with the Delhi High Court. However, with respect, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. Moreover, the AO cannot exercise the route of 263 when he has specific power of 154 or 147 in the present case. The ld. AR also submitted that when two views are possible the view that is favourable to the assessee be taken considering the Apex Court decision in the Vegetable Products and based on the decision relied upon the view which is favorable be taken. 11. We have gone through the rival submission placed on record, contentions raised before us during the hearing and the decisions relied upon by both the parties. As it is evident from the forwarding letter of the assessing officer, he has in detailed mentioned the review on the assessment records and after that he has written as under which is important in this case and thus the same is extracted from the letter of the AO dated 10.06.2020 2. The assessment record was examined and comments given by the Addl. CIT was gone through with reference to issues raised in the review, are agreed. 11.1 From the fact, we noticed that in the case of the assessee verification of "Cash Deposits during demonitisation" was conducted by the AO by way of examination of all evidences including books of account, in pursuance to the proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted on 23/03/2017. 1.2 Indepth inquiry was conducted by the AO also during the scrutiny proceedings u/s 143(3) as revealed from the notices issued u/s 142(2) from time to time: First Notice u/s 142(1) No: ITBA/AST/F/142(1)/2018-19/1014983216(1) Dtd05/02/2019 (Please See PB No. 22-23) 1) Please furnish a brief note regarding business/income earning activities. 2) Please furnish copy of Audit Report u/s 44AB of the IT Act, 1961 along with its enclosures for the relevant period. 3) Please furnish computation of total income for the relevant period. 4) Please furnish copy of bank statement of all bank accounts maintained by you during the year under consideration with reconciliation statement. 5) Please furnish a comparative chart showing total sales/turnover/GP/GPrate/NP/NP rate of the relevant assessment year and previous two years giving justification for difference if any. 6) Please furnish complete details of cash deposited during demonetization period with supporting evidences and source of the cash deposits. 7) Regarding new cash credits/squared up a/c's, please ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entries of earlier year and assessment year i.e. 2015-16 and 2016-17 and tallied the cash deposited during the assessment year. iii) New loans were taken while cash was available on the date of loan Yes, examined. Taking or repaying business loans is a matter of prudence of businessmen. All loan transactions have taken place thru bank and duly signed confirmations of lendersalongwith address, PAN etc. were submitted to AO. TDS was deducted on Interest payment. iv) On 08/11/2016, assessee had withdrawn Rs. 1.50 Lacs from ICICI Bank and Rs. 1.10 Lacs from SBBJ. If the assessee really had cash of Rs. 1.27 Crore, he would have not required to to withdraw money Yes, examined. There were heavy receipts from cash sale and corresponding deposit of cash in the bank account. As on 31/12/2016, cash balance was just Rs. 3.81 Lacs, thereby, clearing all doubts about the existence of actual cash balance. v) Assessee had bank loan of Rs.1.64 Crore from ICICI Bank and Unsecured Loan of Rs. 62.60 Lacs. No prudent person would borrow such heavy loans and would pay such heavy interest out of his hard earned money if he really had daily average cash balance of above Rs. One crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33-41). However, the Ld. PCIT had mentioned in her order on page No. 4 that : "....in view of the above discrepancies, the A. O. failed to examine properly the cash deposited during the demonetisation period and thus, the order passed by the AO appeared to be erroneous and prejudicial to the interest of the revenue" Ld. PCIT reiterates in the para (vii) on the page No. 6 of her order: "(vii) In view of the above mentioned discrepancies the AO failed to examine thoroughly the cash deposited during the demonetisation period during the assessment proceedings" The above conclusion proves that AO had examined the so called discrepancies but in the opinion of Ld. PCIT, such examination was not `thorough'. In other words, the inquiry was made but the same was not `adequate' in the opinion of Ld. PCIT. Such views of the Ld. PCIT renders the revisionary proceedings u/s 263 unsustainable. Merely because from a perfectionist point of view, it is felt that some more enquiries and verifications could have been made by the AO, assessment order cannot be declared to be erroneous and prejudicial to the interests of revenue [Delhi Tribunal Special Bench in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s on which registration was granted and returns were made - Subsequently, Commissioner acting under section 263 cancelled assessment and directed ITO to make fresh assessment - Petitioner had not filed any appeal against such order of Commissioner nor it had given any explanation as to why he did not file appeal against order under section 263 nor any exceptional circumstances were shown to persuade High Court to depart from normal rule that writ petition complaining against order of Commissioner would not be entertained in absence of such adequate explanation by petitioner - Whether on facts, writ petition was to be dismissed in limine - Held, yes Case law is not remotely applicable upon the facts of the assessee 2. Jagdish Kumar Gulati 269 ITR 71 (Allahabad) 2004 Whether where Assessing Officer completed assessment proceedings under section 143(3) and admitted that he could not make proper enquiries as assessment was becoming timebarred, there was valid assumption of jurisdiction under section 263 by Commissioner, and Tribunal, in such a situation, did not commit any error in law in confirming order of Commissioner in setting aside assessment and directing Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (SC) SLP of the revenue dismissed against thejudgement in the case of by [2018] 100 taxmann.com 357 (Andhra Pradesh & Telangana) PCIT-I v. V. Dhanna Reddy & Co. Hon'ble High Court held at para 5 of the judgement: " In our opinion, as the AO had opined that renting of the godowns is integral inthe business of the assessee and as the decision arrived at by the Tribunal being on appreciation of facts and the reason for invocation of Section 263 being that there is a possibility for estimating the income at a higher rate, without there being a finding of error in the Assessment Order, a resort to Section 263 of the Act cannot be made . In the absence of any other material placed before this Court, in the facts of the present case, question No.1 is required to be answered in favour of the assessee and against the Revenue" 1.8.5 CIT, Central-III v.Nirav Modi [2017] 77 taxmann.com 78 (SC) SLP of revenue dismissed against the judgement in the case of [2016] 71 taxmann.com 272 (Bombay) CIT, Central-III v Nirav Modi Hon'ble High Court held at para 6 of the judgement: "....Thus, this power cannot be exercised unless the Commissioner is able to establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed enquiries and taken a view which was a plausible view The Tribunal, therefore held that the Commissioner erroneously exercised the revision powers" 1.8.8 PCIT v. Shreeji Prints (P.) Ltd. (2021) 282 Taxman 464 (SC) SLP filed against decision of High Court was dismissed by Hon'ble Supreme Court in the case of PCIT v. Shreeji Prints (P) Ltd. (2021) 130 taxmann.com 293 (Guj.)(HC)) Hon'ble High Court held at para 6 of the judgement: "Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue" 1.8.9 CIT, Gujarat-II v. Kwality Steel Suppliers Complex [2017] 84 taxmann.com 234 (SC). Hon'ble Supreme court in Para 9 Held : "Where two views are possible and the Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court in the case of CIT vs. Max India Ltd. (2007) 213 CTR (SC) 266: (2007) 295 ITR 282 (SC) wherein it was held that: "The phrase 'prejudicial to the interests of the Revenue' in s. 263 of the IT Act, 1961, has to be read in conjunction with the expression 'erroneous' order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when the AO adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the AO is unsustainable in law." 11.4 Thus, based on this decision it is also noteworthy to mention that one of the pre-requisite before invoking S. 263 and the allegation of the Ld. Pr. CIT is that there has been incorrect assumption of fact and law by the Assessing Officer. However, despite our deep and careful consideration of the material on record including the finding recorded in the subjected Assessment order dated 03.07.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of the assessment proceedings and thereafter considering the assessment order erroneous and prejudicial to the interests of the revenue. The AO recommending a revision to the CIT has no statutory sanction and is a course of action unknown to the law. If AO, after passing an assessment order, finds something amiss in it to the detriment of the Revenue, he has ample power to either reassess the earlier assessment in terms of section 147 or carry out rectification u/s 154 of the Act. He can‟t usurp the power of the CIT and recommend a revision. No overlapping of powers of the authorities under the Act can be permitted. As the revision proceedings in this case have triggered with the AO sending a proposal to the ld. CIT and then the latter passing the order u/s 263 of the Act on the basis of such a proposal, we hold that it became a case of jurisdiction deficit resulting into vitiating the impugned order. Without going into the merits of the case, we quash the impugned order on this legal issue itself. 6. In the result, the appeal is allowed." 11.5 Being consistent with the finding given by a co ordinate bench and the detailed finding given by us we allow the additional gr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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