9911796707
TMI Blog2025 (2) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... ee for appreciation of the facts nor any cross-examination of the said persons was allowed though specifically demanded; (iii) the AO had made enquiry earlier about the rent paid during the relevant period during the assessment proceedings and came to the conclusion that the rent paid during the relevant period was bonafide expense and no cash against the same was ever returned by Kamal Kapoor. 2. The impugned revisionary order passed by the PCIT(Central), Delhi-3 on 22/12/2023 for which the proceedings were initiated vide notice dated 02/02/2023 and the same was responded to the PCIT by the assessee on 18/02/2023 and thereafter, no proceedings were undertaken by the PCIT (Central), Delhi-3 for almost 10 months and the impugned order was passed. Thus, the impugned order must be quashed. 3. The PCIT failed to meet the prayers made during the impugned revisionary proceedings vide letter dated 18/02/2023, ignoring that the impugned incriminating information does not at all refer to the assessee in any manner. Thus, the impugned order passed u/s 263 of the Act must be cancelled. 4. The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the addition on this account, in absence of any material. The ld AR further argued that the allegation is that the landlord used to return the money in cash to Sh Amit Katyal and not the assessee company. It is the say of the Ld AR that no incriminating material implicating the assessee company was found in the course of search. 8. It is vehemently argued by the ld AR that no statement or material has been supplied along with the show cause notice of the PCIT or any opportunity to cross examine Sh Kamal Kapoor was provided. Therefore, it is argued that the PCIT is barred from assuming jurisdiction u/s 263. The ld AR relied on the decision of DCIT V U.K.Paints (Overseas) Ltd (2023) 0150 taxmann.com 108(SC) and Divyesh Bhupendra Desai V PCIT, Ahmedabad in ITA no 802/Ahd/2024 dated 29.08.2024. 9. Per contra the ld DR argued that the AO did not make any proper enquiry and applied his mind during the assessment proceedings u/s 153C of the Act which is essential to ascertain true and correct particulars of income declared by the assessee in the ITR. The ld DR stated that the Assessing Officer was in possession of the information provided by the Inv. Wing regarding the bogus rental pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Director and major Share Holder of the assessee company. As per the information from investigation and enquiries by the Investigation Wing of the Department, Sh. Amit Katyal was receiving cash in lieu of the rental expenses paid through cheques by the company M/s Angel Infrastructure Pvt. Ltd to Sh. Kamal Kapoor. 13. We find that the ld AR emphasis that the AO had examined the rent debited in the assessee's books of account is not entirely correct. We find that in the course of assessment proceedings, the AO called for the following detail vide notice u/s 142(1) dated 11.04.2021 for the impugned AY 2015-16:- "5. Please provide details of expense debited to P&L A/c on account of Rent paid, Legal & Professional Expenses, brokerage and commission alongwith details of TDS deducted on payments (if any)". The query shows that the AO merely sought several details one of which was rent paid. We can therefore say, without hesitation, that the AO called for detail of rent in a routine manner. The AO never raised any specific query on rental expense especially in context of the information he had in his possession. The assessee's reply merely states that the assessee made payment of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Ltd., 243 ITR 83 that "An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous ". The Hon'ble Bombay High Court in the case of Gabriel India Ltd 203 ITR 108 has held that an erroneous order is one "which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste". It further held that an order which is prejudicial to the interests of the Revenue is one "if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realized". The PCIT in the instant case, in our mind, satisfied the both the twin conditions in both letter and spirit. 16. We find that the decision of U.K.Paints (supra) relied upon by the assessee is not applicable as the issue is on different proposition i.e., no incriminating material is found, assessment u/s 153C can not be made. The instant case is one where incriminating material existed but was not utilized by the AO. Similarly in the case of Divyesh Desai (supra), the ITAT found for a fact that there was no lack of enquiry hence jurisdiction u/s 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay, 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..." 40. Section 263 of the Act, as it reads on date, including Explanation 2 inserted by virtue of Finance Act, 2015, is extracted hereunder: "263. Revision of orders prejudicial to revenue. (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 any order passed therein by the Assessing Officer or the Transfer Pricing Officer, as the case may be, 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,-- (i) an order enhancing or modifying the assessment or cancelling the assessment and di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 263 of the Act, and the PCIT has to form an opinion that the order passed by the AO is "erroneous‟ and "prejudicial to the interests of the Revenue‟. 44. Further, even prior to the amendment, though it was not explicitly explained in the Act as to how the PCIT will reach a conclusion that the AO had passed an "erroneous‟ order which was also "prejudicial to interests of the Revenue‟, the scope of these words was explained by the Hon'ble Supreme Court and the Coordinate Benches of this Court in various decisions. It will be useful to refer to a few decisions, without burdening the present judgment with all the authorities on the said issue. 45. The Hon'ble Supreme Court, in case of Malabar Industrial Co. Ltd. (supra) has ruled that an order passed by an assessing officer can be deemed erroneous if it is based on incorrect assumption of facts or an incorrect application of law, and also if it is passed without applying the principles of natural justice or without application of mind. In the case of Malabar Industrial Co. Ltd. (supra), a resolution passed by the board of the appellant company was not placed before the assessing officer and it was held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings initiated in the assessee's case. The Commissioner had exercised powers under Section 263 of the Act and concluded that the assessing officer had not verified several issues and facts as mentioned in the order passed by him, nor had he carried out necessary investigations to come to a conclusion that penalty was not leviable. Consequently, he had found that the order was erroneous and prejudicial to the interest of the revenue. However, on appeal, the Tribunal had held that the penalty proceedings were not dropped casually by the assessing officer but after verification of full facts disclosed by the assessee in the reply. This Court, in judgment dated 02.04.2008 held that the order passed by the assessing officer was cryptic and non-reasoned. The relevant observations are extracted below: "10. We are unable to appreciate this reasoning given by the Tribunal simply because that the Assessing Officer himself did not say any such thing in his order. There is no doubt that the proceedings before the Assessing Officer are quasi-judicial proceedings and a decision taken by the Assessing Officer in this regard must be supported by reasons. Otherwise every order such as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns taxability and had accepted the submissions of the assessee. 51. However, the critical issue remains whether the inquiry made by the AO in this case can be actually considered as an inquiry required to be conducted by the AO. The fact that the AO neither read the contents of the certificate issued by the Tehsildar, which is discernible from the fact that the certificate did not even mention the distance of the land from the municipal limits which is a criteria for determining the agricultural status of land under the Act, nor sought any additional evidence or document from the relevant authorities like the DTP, Gurugram, undoubtedly, suggests that the AO failed to undertake any inquiry or even apply his mind to the documents submitted by the assessee to arrive at the conclusion regarding the long-term capital gains exemption. 52. There is no cavil that the PCIT would not have jurisdiction to pass an order under Section 263 of the Act solely for the reason that he held a different opinion with the AO. If the AO has applied his mind and had arrived at a plausible view, the same would not be amenable to a revision under Section 263 of the Act. 53. However, if the AO has not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open......" (Emphasis added) 56. In the present case, the AO had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be one where the absence of any effective inquiry and a total non-application of mind by the AO is evident, and thus, the order passed by the AO would clearly fall within the meaning of an "erroneous order‟. The order is also, undisputedly, prejudicial to the interests of the Revenue inasmuch as it results in loss of the Revenue in the form of tax. 59. We are thus of the view that the PCIT had exercised the jurisdiction under Section 263 of the Act correctly and legally, in view of the fact that the order passed by the AO was erroneous and prejudicial to the interest of the Revenue since the same was passed without conducting any enquiries and applying mind to the claims of the assessee. We are also of the view that the learned ITAT erred in setting aside the order passed by the PCIT under Section 263 of the Act on the ground that the PCIT had wrongly exercised jurisdiction under Section 263 of the Act. 60. In view of the above, we set aside the impugned order dated 15.02.2018 passed by the learned ITAT in ITA No. 3888/Del/2017 in as much as for the reasons mentioned in the preceding paragraphs, it is writ large that the order passed by the AO was prejudicial to the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
