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Income Tax Appellate Tribunal, “DB” BENCH, JABALPUR
O R D E R
PER PAVAN KUMAR GADALE JM:
The assessee has filed the appeal against the order of the Principal Commissioner of Income Tax (Pr.CIT) Jabalpur passed u/sec 263 of the Act. The assessee has raised the following grounds of appeal:
Sudeep Pandya L/H Ila Jayesh Pandya Jabalpur. - 2 -
1 The learned PCIT has erred in law and on facts of the case in passing an order under section 263 against a dead person, the notice of hearing where issued in the name of deceased and were not served on the legal here the order passed under section 263 is illegal without jurisdiction and void ab-intio same should be placed into toto.
2 The learned PCIT is not justified in holding that interest on PPF and dividend income should have been considered for the purpose of assessment during the course of assessment proceedings both these incomes are exempt under section 10 of the income tax act, the capital gains on sale of shares is not chargeable to income tax, therefore on facts also the order made under section 263 is illegal as no error has been committed by the AO that may be prejudicial to the interest of revenue the order under section 263 should be annulled.
3 That no notice under section 263 was issued in the name of legal here or served on legal here therefore the order is framed without providing an opportunity of hearing to the Appellant, the order suffers for want of natural justice and is illegal should quashed.
4 The appellant craves permission to raise additional ground or grounds as may arise at the time of hearing of the appeal.
The Brief facts of the case are that, the assessee was engaged in the business of dealership of HPCL and trading of cement. The return of income was e-filed for the A.Y 2017-18 on 29.03.2018 by the L/H of the assessee Shri Sudeep Pandya disclosing a total income of Rs.54,42,040/- Subsequently the case was selected for scrutiny and notice
Sudeep Pandya L/H Ila Jayesh Pandya Jabalpur. - 3 - u/sec 143(2) and u/sec 142(1) of the Act along with the questionnaire are issued. In compliance to the notices the L/H of the assessee has filed information/ written submissions through ITBA System. In the course of assessment proceedings, legal heir of the assessee has submitted the details of purchase and sale of goods in credit and cash for the F.Y 2016-17.The Assessing Officer ( AO) has dealt on the facts with respect to transactions and on comparison with the sales disclosed in the profit & Loss account and VAT calculation, there is a difference of Rs.11,08,372/- and the A.O has issued show cause notice referred at page 3 Para 4 of the order and was provided opportunity to explain the difference. Since there was no compliance to the notice nor any explanations were filed by the assessee, the AO has made addition of difference in sales of Rs.11,08,372/-. On the second disputed issue, the AO found that in the course of survey u/sec133A of the Act carried out in the assessee premises on 9-12-2016, the assessee has declared the income of Rs.40 lakhs in the A.Y 2017-18,Whereas as per the trading & profit and loss account, the amount was offered Rs.31,28,000/-, therefore the AO has made an addition of difference amount of Rs. 8,72,000/- which was not offered by the assessee in the Sudeep Pandya L/H Ila Jayesh Pandya Jabalpur. - 4 - return of income. Finally the A.O has assessed the total income of Rs.74,22,420/- and passed the order u/s 143(3) of the Act dated 16.12.2019.
3. Subsequently, the Pr. CIT on perusal of the records and information found that the order passed by the AO under section 143(3) of the Act is erroneous and prejudicial to the interest of the revenue as the A.O has failed to conduct proper enquiries and observed as under:
“2. On perusal of the records, it is noticed that a survey proceeding under section 133A of the Act was carried out in the business premises of the assessee on 09/12/2016. The assessee after verification of details has surrendered Rs.31,28,000/- after adjusting the amount debited in the books of account for construction expenses and adopting valuation at Rs.40,00,000/- as surrendered. Further, it is observed from the audited Profit & Loss Account for the F.Yr.2016-2017 an amount of Rs.31,28,000/- was shown as surrendered during Income Tax survey. It revealed from the said audited Profit & Loss Account and Computation of Income that the undisclosed income was surrendered under section 68 on account of construction expenses on which tax has been paid by the assessee at the normal rate instead of provisions of section 115BBE of the Act. In view of provisions of section 115BBE the tax was leviable at the rate of 60 (sixty) percent and surcharge at the rate of 25 (twenty five) percent of tax on surrendered income surrendered under section 68 on account of various head on which tax was paid at normal income instead of provisions of section 115BBE, which was not levied.
Sudeep Pandya L/H Ila Jayesh Pandya Jabalpur. - 5 - 2.1 On going through the records, it has been noted that in the item. number 5f of Schedule A- Ol of ITR there was an amount of Rs.24,53,813/- If there wa has been found mentioned which includes Rs.94,268/- on account of any other item of income and Rs.23,59,545/- on account of capital receipts. Substantial amount has not been credited to Profit & Loss Account and thereby has not been reported as income. The AO has completely ignored to examine this issue while completing the assessment.
3. From the above, it is amply clear that A.O. has failed to conduct proper enquiries on the issues as discussed in para 2 above. Therefore, the order of the A.O. passed under section 143(3) of the Income Tax Act, 1961 dated 16/12/2019 is erroneous in so far as it is prejudicial to the interest of revenue, since the enquiry which was expected from the A.O. has not been conducted. This clearly falls under Explanation 2, to section 263 of the Act. The A.O. has simply relied and accepted the ITR along with audit report filed by the assessee on the portal”
4. The Pr.CIT has issued e-notice U/sec 263 of the Act but there was no compliance and observed at Para 4 & 5 of the order as under:
Therefore, proceedings under section 263 of the Income Tax Act were initiated by issuing a show-cause e-notice dated 01/12/2021 through ITBA with DIN giving the assessee an opportunity of being heard on 16/12/2021. The physical copy of the said e-notice was also sent through speed post and the same was got delivered on 13/12/2021. Looking to the non- compliance of the assessee further e-notice was issued on 04/01/2022 -fixing the case for 11/01/2022. Even after
Sudeep Pandya L/H Ila Jayesh Pandya Jabalpur. - 6 - providing ample opportunity the assessee failed to comply with a single statutory e-notice.
5. In the instant case the e-notices under section 263 of the Income Tax Act, 1961, dated 01/12/2021&04/01/2022were issued, wherein the case fixed for hearing on 16/12/2021&11/01/2022respectively, both the e-notices were sent on the available e-mail address & also sent through the speed post on the communication address available on e-portal being last known last updated latest available address in the data base of the department of the assessee, as enlighten in the provisions of Rule 127 of the Income Tax Rules, 1962. The e-notices sent through e-portal or e-mail was delivered and the physical copies of e-notices were also delivered. However, till the date no compliance with reference to said e-notices is made by the assessee, thus it's inferred that the assessee has nothing to say or submit in the matter of proposed revision proceedings under section 263 of the Income Tax Act, 1961
Whereas the Pr.CIT observed that there is no compliance to the notices issued and dealt on the material on record and observed that the order passed by the AO is erroneous and prejudicial to the interest of the revenue and set aside the order U/sec143(3) of the Act passed on 16-12- 2019 and directed the Assessing Officer to pass a fresh assessment order observed at Page 6 Para 8.2 to 10 of the order as under:
“8.2 In continuation to the above, it is revealed from the item number 5f of Schedule of ITR there was an amount of Rs.24,53,813/- has been found mentioned which includes Rs.94,268/- on account of any other item of income and Sudeep Pandya L/H Ila Jayesh Pandya Jabalpur. - 7 - Rs.23,59,545/- on account of capital receipts The same particulars of income or receipts were also found in the audited financials namely in column number 16(d) - Any other item of income to the tune of Rs.94,268/- and column number 16(e) Capital receipts, if any to the tune of Rs.23,59,545/-.
8.3 Astonishingly no substantial amount has not been credited to Profit & Loss Account and thereby has not been reported as income and resultantly remained to be taxed in the hands of the assessee for the year under consideration. It is worthwhile to mention here that certain capital receipts are non-taxable as normal income but may be taxed under the head of Capital gains .In the instant case, PPF interest of Rs.94,218/- and dividend of Rs.50/- may be taxed as normal income being income from other sources. However, Share sold long term profit of Rs.22,85,781/- and LIC receipts of Rs.73,764/- may be taxed under the head Capital Gains. Accordingly, the questioned Capital Receipts or Other Income are to be examined thoroughly and may be taxed as per the prevailing provisions of the Act.
In the light of the aforesaid facts and circumstances of the case and legal findings, as the Assessing Officer has failed to make enquiries as well as apply his mind and proper application of law it is held that the assessment order under section 143(3) of the Income Tax Act, 1961 dated 16/12/2019 is erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, the said order is SET ASIDE FOR DE- NOVO CONSIDERATION, with the direction to the Assessing Officer to pass a fresh Assessment Order. The A.O. is further directed to pass a suitable order by making proper investigation and enquiries and applying the correct provisions of the Act, after giving adequate opportunities of being heard to the assessee.
Sudeep Pandya L/H Ila Jayesh Pandya Jabalpur. - 8 -
The assessment order is accordingly set-aside with the above directions.” 6. Aggrieved by the revision order, the assessee has filed an appeal before the Hon’ble Tribunal.
At the time of hearing the Ld. AR submitted that the Pr. CIT has erred in considering the order of the AO is erroneous and prejudicial to the interest of revenue. Irrespective of the fact that the assessee’s L/H has complied with the notices and the AO having verified and examined the facts has made certain disallowances and assessee has filed the appeal with the CIT(A) on the validity of the order and the additions by the A.O. Further the Ld.AR submitted that Pr.CIT has issued notice on the name of the deceased person and such proceedings are void ab-intio and the interest on PPF and dividend income on shares are exempted U/sec10 of the Act. The Ld.AR substantiated the submissions with the judicial decisions and prayed for allowing the appeal.
Per Contra, the Ld.DR submitted that the AO has not considered the facts of exempted income of the assessee in the proceedings and has not conducted any enquiry. The Ld. DR relied on the order of the Pr.CIT.
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9. We heard the rival submissions and perused the material on record. The Ld.AR envisaged that the order passed by the Pr.CIT is bad in law as the order revised under revision proceedings passed by the Pr. CIT is not erroneous and not prejudicial to the interest of the revenue. The contentions of the Ld. AR that, the AO has considered the submissions and information on the disputed issues by issue of notice and the L/H of the assessee has filed the details and clarifications and the assesseement order was passed. The Ld. AR further submitted that the Pr.CIT has only considered the fact that the AO has not conducted enquiry but there are no specific reasons and findings are recorded. The Ld.AR made submissions on the validity of issue of notice U/sec 263 of the Act on the deceased person. Further such notices were not served on the Legal Heir of the assessee and the A.O has verified the financial statements and passed the order U/sec 143(3) of the Act with the disallowances. The Pr. CIT has not considered the facts that interest on PPF and dividend income is not taxable and is exempted u/s 10 of the Act. The assessee has filed the appeal with the CIT(A) on the validity of the order passed on the name of the deceased assessee and the additions by the A.O and the same is pending The Ld.AR
Sudeep Pandya L/H Ila Jayesh Pandya Jabalpur. - 10 - demonstrated the Ground of appeal no 1.”The assessment framed in the name of deceases person is illegal. The entire assessment should be annulled” in Form.No.35 appeal to the CIT(A), which is not disputed. We find the Hon’ble High Court of Madhya Pradesh in the case of CIT Vs. Kumari Prabhawati Gupta and Ors, [1998] 231 ITR 188 (MP) has observed as under:
“2. The brief facts giving rise to this reference are thus: The assessee, the late H. Gupta, died on 28th Oct., 1976, and the ITO, Jabalpur, completed the assessment f the year 1970-71 on 24th March, 1977, on an income of Rs. 45,000 witho impleading the legal representatives of the assessee. Aggrieved against the order of th ITO, Smt. Sundarbai Gupta, widow of the deceased assessee, filed an appeal before t CIT(A) with the contention that the assessment was void ab initio since passed again a dead person and, therefore, it should be quashed. The CIT(A) held that th assessment was completed on 24th March, 1976, when the assessee did not appe before the ITO and nothing more remained to be done except passing the assessme order. Thus, the CIT(A) upheld the order of the ITO. Thereafter, an appeal w preferred before the Tribunal and the Tribunal quashed the assessment order and he that the assessment order was ab initio void as passed against a dead person. It w observed that the assessment had not been completed on 24th March, 1976. It wa also observed that in fact, on 23rd March, 1976, the ITO required the assessee furnish certain information and the case was fixed for hearing on 24th March, 197 The next date, i.e, on 24th March, 1976, the ITO had recorded that none appeared ar assessed the income of the deceased assessee at Rs. 45,000. Therefore, it was he that the case was not fixed on 24th March, 1976, for final disposal, but no Sudeep Pandya L/H Ila Jayesh Pandya Jabalpur. - 11 - proceeding took place and as such it cannot be said that the proceedings were concluded and on the assessment order remained to be passed. Therefore, the Tribunal held that the proceedings were incomplete; hence under the provisions of s. 159(2) of the Income tax Act, it was incumbent on the ITO to have brought the legal heirs of the decease assessee on record, but it was not done. Therefore, the Tribunal found that the order passed by the ITO is ab initio void and the order passed by the Commissioner of Inc tax in appeal filed by the assessee is also bad for remanding the case back to the IT denovo assessment. Hence, the Tribunal allowed the appeal. Thereafter, the Rev approached this Court for calling for the reference under s. 256(2) of the Income-ta: and on that basis, reference was called and the aforesaid questions of law were fram answer of this court.
We have heard learned counsel for the parties and perused the records. It is admitted fact that the assessee died before the proceedings for assessment completed. Since the proceedings had not been completed and it was yet to completed, therefore, it was incumbent under s. 159(2) of the Act on the ITO to 1 brought the legal representative of the deceased on record and proceeded from the st where it was left at the time of death of the deceased. According to the findings of Tribunal, the proceedings had not been completed before the death of the assessee therefore, the Tribunal has rightly held that the assessment should be completed w s. 159(2) of the Act. In this view of the matter, we are of the opinion that the view ta by the Tribunal is correct and both the questions are answered against the Revenue and in favour of the assessee”
10. The Ld.AR submitted that the Pr.CIT has not considered the facts that the A.O has called for the information and decided the case. We find that the Sudeep Pandya L/H Ila Jayesh Pandya Jabalpur. - 12 - A.O has considered one of the possible views based on the information and it is not necessary that the A.O should put all the discussions/observations in the assessment order, as per explanation (2) to sec 263 of the Act the authority has to invoke provisions only when there is no verification and enquiry conducted by the A.O. Whereas the A.O has applied his mind and verified the facts. Prima Facie the asseeement order U/sec 143(3) of the Act dated 16-12-2019 demonstrated by the Ld.AR is in the name of deceased assessee though the Legal heir was brought on record. The asseessee has challenged the validity of assesseement order framed in the name of deceased person before the CIT(A) and is pending. But the copy of notice U/sec 263 of the Act alleged to be issued on the name of the deceased assessee was not brought to the knowledge of the bench in the course of hearing by the parties.
We Considering the overall facts, circumstances, and the details submitted in the course of hearing are of the view that the if any query is raised in the assessement proceedings and it was responded by the assessee, mere fact that it is not dealt within by the Sudeep Pandya L/H Ila Jayesh Pandya Jabalpur. - 13 - A.O. in the order cannot implied that there is no application of mind and the A.O. has applied one of the possible view. Hence, the action of the Pr.CIT cannot be acceptable as the order passed by the A.O. does not satisfy the twin conditions of erroneous and prejudicial to the interest of the revenue. Accordingly, we set aside the order of the Pr.CIT and allow the grounds of appeal in favour of the assessee.
In the result, the appeal filed by the assessee is allowed.
Order pronounced Under Rule 34(4) of the Income Tax Appellate Tribunal Rules, 1963