SHRI RAM SWAROOP BAIRAGI, DEWAS,DEWAS vs. PCIT UJJAIN, UJJAIN

PER MANISH BORAD, A.M

The above captioned appeals filed at the instance of the assesse(s) pertaining to Assessment Year 2009-10 are directed against the orders of Ld. Pr. Commissioner of Income Tax, Ujjain (in short ‘Ld.PCIT], Ujjain dated 19.03.2019 u/s 263 of the Act.

2. Assessee(s) have raised following grounds of appeal:-

Ramswaroop Bairagi Assessment Year 2009-10 1. The order passed by the Ld. PCIT is illegal and bad in law and hence be set aside.

2.The Ld. PCIT has erred in passing the order u/s 263 on the ground that the order passed by the Ld. A.O. is erroneous and prejudicial to the interest of the revenue. 3.It was proved before the Ld. PCI'T that the assessment was framed after Ramswaroop Bairagi & Others 636 & 639/Ind/2019 due scrutiny of facts and after verification of the details. The assessment was reopened on the ground of AIR information that the assessee had deposited in bank the amounts in cash of more than Rs.10,00,000/-. The papers about the agreement to sale along with the family settlement(partition) memorandum were filed. After verification and detailed scrutiny the Ld. A.O framed the assessment and as such the same cannot be treated as erroneous and prejudicial and as such action u/s 263 is bad in law.

4. The order passed by the Ld. PCIT be quashed.

Shriram Vaishnav Assessment Year 2009-10

1. The order passed by the Ld. PCIT is illegal and bad in law and hence be set aside.

2.The Ld. PCIT has erred in passing the order u/s 263 on the ground that the order passed by the Ld. A.O. is erroneous and prejudicial to the interest of the revenue.

3.It was proved before the Ld. PCI'T that the assessment was framed after due scrutiny of facts and after verification of the details. The assessment was reopened on the ground of AIR information that the assessee had deposited in bank the amounts in cash of more than Rs.10,00,000/-. The papers about the agreement to sale along with the family settlement(partition) memorandum were filed. After verification and detailed scrutiny the Ld. A.O framed the assessment and as such the same cannot be treated as erroneous and prejudicial and as such action u/s 263 is bad in law.

4. The order passed by the Ld. PCIT be quashed.

Ramswaroop Bairagi & Others 636 & 639/Ind/2019

Shailendra Vaishnav (Bairagi) Assessment Year 2009-10

2.The Ld. PCIT has erred in passing the order u/s 263 on the ground that the order passed by the Ld. A.O. is erroneous and prejudicial to the interest of the revenue.

3.It was proved before the Ld. PCI'T that the assessment was framed after due scrutiny of facts and after verification of the details. The assessment was reopened on the ground of AIR information that the assessee had deposited in bank the amounts in cash of more than Rs.10,00,000/-. The papers about the agreement to sale along with the family settlement(partition) memorandum were filed. After verification and detailed scrutiny the Ld. A.O framed the assessment and as such the same cannot be treated as erroneous and prejudicial and as such action u/s 263 is bad in law.

4. The order passed by the Ld. PCIT be quashed.

3. As all the issues raised in the instant appeals relates to the same group of assessee(s) and the facts giving arise to the order u/s 263 of the Act are also same therefore these were heard together and been disposed off by this common order for the sake of convenience and brevity.

Ramswaroop Bairagi & Others 636 & 639/Ind/2019 4. As the issues and facts of these four appeals remain the same, we will take up the facts and issue raised in the case of Shri Ramswaroop Bairagi raised vide for the purpose of adjudication which shall be applicable mutandis mutandis to other assessee(s) also since the issues raised in other two appeals are same.

In this case, notice U/S 148 was issued on 23.03.2016. In compliance, the assessee filed return of income on 27.09.2016 declaring total income of Rs.66,650/-. The assessment was completed u/s Ramswaroop Bairagi & Others 636 & 639/Ind/2019 143(3)1147 on 12.12.2016 by the AO (ITO-I, Dewas) at the returned income, which is considered erroneous and prejudicial to the interest of revenue for the following reasons :-

On perusal and examination of records, it is noticed that the assessee has deposited cash of Rs.19,05,600/- in the saving banks account. However, on going through the record, it is further noticed that _

(1) In respect of cash deposited in the savings bank account, the assessee stated before the Aa that the said amount was received as per family partition deed dated 21.05.2008 prepared by his father Shri Ramcharan Das. His father Shri Ramcharan Das sold agricultural land for a consideration of Rs.l,39,40,000/- as per sale agreement with Shri Santosh Patel dated 05.01.2008. The said amount was distributed amongst seven sons. .

(2) No details and documents are found on record which can establish that dates on which the above amount of Rs.19,05,500/- are received by the assessee from his father.

(3) The Assessing Officer did not examine on oath the assessee in connection with the veracity of the transactions.

In the light of entire facts discussed above, I am of the considered view that the assessment order passed u/s 143 (3)/147 on 12.12.2016 for the A. Y. 2009·10 in your case is erroneous as well as prejudicial to the interest of revenue, which requires to be revised u/s 263. However, before I proceed to invoke the powers u/s 263 and pass an appropriate order, I deem it proper to give you an opportunity of being heard in the matter.

Ramswaroop Bairagi & Others 636 & 639/Ind/2019 6. The assessee duly replied to the above show cause notice submitting as under:-

The assessee is an individual. He is earning income from bonk interest only. The assessee is not engaged in business or profession. The asssessee has received Rs. I9,15,000/- from father out of sale proceeds of ancestral agricultural land. He has deposited cash of Rs. 19, 05,000/· in bank account out of above receipts. The father of the assessee had expired on 19/02/2016.

In view of the above submissions, the assessee has proper sources of cash deposits into bank account the same may please be accepted.

The father of the assessee is no more alive and as such the documents of agreement to sale and the memorandum of family settlement should be treated as conclusive proof

In view of above submission and on the facts and circumstances the order of the Assessing officer is not prejudicial to the interests of the revenue. Also your honour an order cannot be termed as erroneous that the order should have been written more elaborately.

It is humbly submitted your honour that relying on the following decisions of Hon'ble Courts both conditions must co-exit for proceedings under section 263 of Income Tax Act,1961.

Tara Devi Aggarwal (Smt.) vs. CIT 88fTR 323 (SC).

CIT vs. Max India Ltd. 295fTR 282 (SC)

Ramswaroop Bairagi & Others 636 & 639/Ind/2019 CIT vs. Ratlam Coal Ash Co. 171 fTR 141 (MP).

CIT vs. Shri Govindram Seksariya Charity Trust 166 ITR 580 (MP) CIT vs. GabrialIndia Ltd. 203ITR 109 (Born). CIT vs. Smt. Minalben S.Parikh 215 fTR 81 (Guj). CIT vs. Sohana Woollen Mills 296ITR 238 (P& H).

It is therefore prayed your honour that the proceedings may please be dropped.

3.2 In respect of. the cash amount received of Rs.19,05,000/- from the father, being the share of the assessee, on sale consideration of agricultural land of Rs.1 ,39,40,000/-, the assessee did not furnish any details and documents except copy of family partition deed, sale agreement dated 05.01.2008 and death certificate of Shri Ramcharan Das. The assessee also did not file copy of registered deed of such' agricultural land, after a lapse of nearly 11 years of such sale agreement Therefore, the contention of the assessee is not acceptable. Thus, the assessee has not properly explained the source of cash deposited of Rs.19,05,500/- in the savings bank account. Accordingly, the AO is required to examine this issue in detail in order to ascertain the true state of the facts. In view of the above, the assessment order is erroneous and prejudicial interest of revenue. 9 Ramswaroop Bairagi & Others 636 & 639/Ind/2019 4. The relevant explanation to section 263 is reproduced as below :-

Explanation 2 ~ "For the purpose of this section, it. is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, .if in the opinion of the Principal Commissioner or Commissioner- .

( a) The order, is: passed without making inquiries or verification which should have been made;

(b) The order is passed allowing any relief without. inquiring into the claim:"

As such the provisions of section 263 are applicable on the issue of the case.

5. Thus, the order is erroneous and prejudicial to the interest of revenue in respect to the above issue.

Assessee received 1/7 portion. Ld. PCIT while initiating proceedings u/s 263 of the Act mentioned that “ no details and documents are found on record which could establish that the dates on which the above amount of Rs.19,05,000/- was received by the assessee from his father and also the Ld. A.O did not examined the assessee on oath in connection with the veracity of the transaction”.

13. On a bare perusal of the sub-section (1) would reveal that the powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would 14 Ramswaroop Bairagi & Others 636 & 639/Ind/2019 come. The learned Commissioner would issue a show-cause notice pointing out the reasons for the formation of his belief that action under section 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the fourth compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order.

14. It is well settled law that for invoking the provisions of section 263 of the Act both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts.

Under section 263(1) two pre-requisites must be present before the Ramswaroop Bairagi & Others 636 & 639/Ind/2019 Commissioner can exercise the revisional jurisdiction conferred on him. First is that the order passed by the ITO must be erroneous.

Second is that the error must be such that it is prejudicial to the interests of the revenue. If the order is erroneous but it is not prejudicial to the interests of the revenue, the Commissioner can not exercise the revisional powers under section 263(1) of the Act. There cannot be any prejudice to the revenue on account of the ITO's failure to follow the procedure prescribed under section 144B, and unless the prejudice to the interests of the revenue is shown, the jurisdiction under section 263(1) cannot be exercised by the Commissioner, even though the order is erroneous. The argument that such an order may possibly be challenged in appeal by the assessee, and for this reason it is prejudicial to the interests of the revenue, has no merit. Section 263(1) clearly contemplates that the order of assessment itself should be prejudicial to the interests of the revenue and this prejudice has to be proved by reference to the assessment order only. It cannot be argued that there is some possibility of the assessment order being challenged or revised in appeal and, therefore, on account of this contingency, the order becomes prejudicial to the interests of the revenue.” [emphasis supplied] 16 Ramswaroop Bairagi & Others 636 & 639/Ind/2019 16. Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. – [2000] 243 ITR 83 – order pronounced on 10.02.2000 – HEAD NOTE – "Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interests of revenue - Assessment year 1983-84 - Whether in order to invoke section 263 Assessing Officer's order must be erroneous and also prejudicial to revenue and if one of them is absent, i.e., if order of Income-tax Officer is erroneous but is not prejudicial to revenue or if it is not erroneous but is prejudicial to revenue, recourse cannot be had to section 263(1) - Held, yes - Whether if due to an erroneous order of ITO, revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to interests of revenue - Held, yes - Assessee-company entered into agreement for sale of estate of rubber plantation - As purchaser could not pay installments as scheduled in agreement, extension of time for payment of installments was given on condition of vendee paying damages for loss of agricultural income and assessee passed resolution to that effect - Assessee showed this receipt as agricultural income - Resolution passed by assessee was not placed before Assessing Officer - Assessing Officer accepted entry in statement of account filed by assessee and accepted same - Commissioner under 17 Ramswaroop Bairagi & Others ITA No.633, 636 & 639/Ind/2019 section 263 held that said amount was not connected with agricultural activities and was liable to be taxed under head 'Income from other sources' - Whether, where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263(1) was justified - Held, yes

Parikh – [1995] 215 ITR 81 – order pronounced on 17.10.1994 – Para 12 – “From the aforesaid, it can well be said that the well- settled principle in considering the question as to whether an order is prejudicial to the interests of the revenue or not is to address oneself to the question whether the legitimate revenue due to the exchequer has been realised or not or can be realised or not if his orders under consideration are allowed to stand. For arriving at this conclusion, it becomes necessary and relevant to consider whether the income in respect of which tax is to be realised, has been subjected to tax or not or if it is subjected to tax, whether it has been subjected to tax at a rate at which it could yield the maximum revenue in accordance with law or not. If income in question has been taxed and legitimate 18 Ramswaroop Bairagi & Others 636 & 639/Ind/2019 revenue due in respect of that income had been realised, though as a result of erroneous order having been made in that respect, in our opinion, the Commissioner cannot exercise powers for revising the order under section 263 merely on the basis that the order under consideration is erroneous. If the material in that regard is available on the record of the assessee concerned, the Commissioner cannot exercise his powers by ignoring that material which links the income concerned with the tax realization made thereon. The two questions are inter-linked and the authority exercising powers under section 263 is under an obligation to consider the entire material about the existence of income and the tax which is realizable in accordance with law and further what tax has in fact been realised under the alleged assessment orders.[emphasis supplied]

Krishnamurthy – [1985] 20 Taxman 65 – order pronounced on 19.03.1984 – Para 10 – “Section 263 can be invoked by the Commissioner only when he prima facie finds that the order made by the ITO was erroneous and was prejudicial to the interests of the revenue. Both these factors must simultaneously exist. An order that is erroneous must also have resulted in loss of revenue or prejudicial 19 Ramswaroop Bairagi & Others 636 & 639/Ind/2019 to the interests of the revenue. Unless both these factors co-exist or exist simultaneously, the Commissioner cannot invoke or resort to section 263. It cannot be exercised to correct every conceivable error committed by an ITO. Before the suomoto power of revision can be exercised, the Commissioner must at least prima facie find both the requirements of section 263, namely, that the order sought to be revised is prima facie erroneous and prejudicial to the interests of the revenue. If one of the other factor was absent, the Commissioner cannot exercise the suomoto power of revision under section 263.”

[emphasis supplied]

Ltd. v. CIT [2000] 243 ITR 83 (Se) and has propounded the following Ramswaroop Bairagi & Others 636 & 639/Ind/2019 broader principle to judge the action of the Commissioner of Income-tax taken under section 263.

(i) The Commissioner of Income-tax must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. Both the conditions must be fulfilled.

(ii) Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it was only when an order is erroneous that the section will be attracted.

(iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.

(iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.

(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax does not agree. If cannot be treated as erroneous order, unless the view taken by the Assessing Officer is unsustainable under law . 21 Ramswaroop Bairagi & Others 636 & 639/Ind/2019 (vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the Commissioner of Income-tax, while exercising his power under section 263 is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer.

(vii) The Assessing Officer exercises quasi-judicial power vested in him and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the Commissioner of Income-tax does not feel satisfied with the conclusion.

(viii) The Commissioner of Income-tax, before exercising his jurisdiction under section 263 must have material on record to arrive at a satisfaction.

(ix) If the Assessing Officer has made enquiries during the course assessment proceedings on the relevant issues and the assessee has detailed explanation by a letter in writing and the Assessing allows the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be simply because in his order he does not make an elaborate discussion in that regard.

Ramswaroop Bairagi & Others 636 & 639/Ind/2019 20. In the light of the above decision and the ratios laid down therein and examining the facts of the case we find that the Ld. A.O vide his notice dated 3.10.2016 issued u/s 143(2) of the Act enclosed a Annexure and through point No.13, the assessee was required to explain the source of cash deposit in his saving bank account. In reply filed on 5.12.2016 the assessee has given complete details of the transaction in Para 13 & 14 in his reply and the same is reproduced below:-

In view of the above submissions, the assessee has proper sources of cash deposits into bank account the same may please be accepted.

Copy of sale deed dated 05.01.2008 is also available. Family partition agreement is dated 21.05.2008. The financial year in question is 2008-09. Cash is deposited on 22.5.2008, which is a day after the date of family partition agreement. The nexus of cash deposit is proved with copy of sale deed, partition deed and bank pass book. We therefore in the given facts and circumstances of the case are of the considered view that specific information was called by Ld. A.O about the alleged cash deposits and the assessee has satisfied the Ld. A.O with complete details giving the source of cash deposit in the bank account. Therefore it is neither a case of no enquiry or inadequate enquiry. Thus the order of Ld. A.O u/s 143(3) r.w.s. 148 of the Act dated 12.12.2016 framed in the case of S/Shri Ram Swaroop Bairagi, Shriram Vaishnav and Shailendra Vaishnav are neither erroneous nor prejudicial to the interest of revenue. Therefore in our considered view Ld. PCIT has wrongly assumed jurisdiction u/s 263 of the Act and the impugned order deserves to be quashed. We therefore allow respective ground raised in 636 & 639/Ind/2019 and restore the order

25. Ramswaroop Bairagi & Others ITA No.633, 636 & 639/Ind/2019 of Ld. A.O u/s 143(3) r.w.s. 148 of the Act dated 12.12.2016 in the case of all the three assessee(s).

The order pronounced in the open Court on 24.11.2020.