PRABHU KANIMOZHI,,ERODE vs. PCIT, COIMBATORE

The Ld. AR advanced arguments and submitted that the issues flagged in the revisionary order were already subject matter of adjudication before first appellate authority at the time of revision and therefore, doctrine of merger would apply. Considering the same, the revision would be bad in law. The Ld. CIT-DR, on the other hand, controverted the arguments of Ld. AR and submitted that full disallowance should have been made by Ld. AO u/s 40A(3). The Ld. AO invoked the provisions wrongly and therefore, the revision was justified. Having heard rival submissions and after perusal of case records, our adjudication would be as under. Assessment and Revisionary Proceedings 3.1 From the records, it emerges that the assessee was subjected to survey u/s 133A on 03-01-2017 and an assessment was framed for the year u/s 143(3) on 30-12-2019. In the assessment order, Ld. AO made 3 - addition of Rs.202.97 Lacs for discrepancies in stock. The same was considered under the head business income. It was also noted that the assessee purchased old jewellery in cash above prescribed statutory limit of Rs.20,000/- in violation of the provisions of Sec.40A(3) of the Act. The assessee explained that the purchases were nothing but old jewellery acquired by the assessee on exchange basis from the customers. Considering the same, Ld. AO estimated disallowance of 10%. The Ld. AO made another addition u/s 68 on account of chit money received. Finally, the income was assessed at Rs.336.77 Lacs which was subjected to assessee’s further appeal before first appellate authority. 3.2 Subsequently upon perusal of cash records, Ld. Pr. CIT invoked revisionary jurisdiction u/s 263 and put the assessee to show-cause notice on 07-03-2022. It was alleged that unaccounted stock found in the survey was to be taxed u/s 69B r.w.s. 115BBE of the Act and the same was erroneously assessed u/s 28. Further, entire disallowance should have been made u/s 40A(3) as against 10% estimated by Ld. AO. Therefore, there was shortfall in the disallowance. 3.3 The assessee assailed the proposed revision, inter-alia, on the ground that the assessee was in further appeal on impugned issues and appeal was filed against the same before first appellate authority on 12-01-2020 and the order was awaited. Accordingly, jurisdiction u/s 263 would be bad in law in terms of clause (c) of Explanation 1 to Sec.263. Reliance was placed on the decision of Hon’ble Madras High Court in the case of Smt. Renuka Philip vs. ITO (409 ITR 567) as well as the decision of Hon’ble Allahabad High Court in CIT vs. VAM Resorts and Hotels Pvt. Ltd. (418 ITR 723). However, rejecting the same, Ld. AO was directed to redo the assessment afresh after verification of the facts pertaining to both the issues. Aggrieved, the assessee is in further appeal before us. Our findings and Adjudication 4. From the stated facts, it emerges that an assessment was framed based on survey findings. The discrepancy in stock was added under the head business income whereas disallowance u/s 40A(3) for jewellery acquired in cash through exchange was estimated at 10%. It is quite clear that there was clear application of mind on the issues as flagged in the revisionary order. Proceeding further, it could also be seen that the assessee preferred further appeal against both the issues which was pending for adjudication at the time of revision. This being so, the case of the assessee would be covered under Clause (c) of Sec.263(1) which puts a bar on initiation of revision u/s 263 when an appeal is pending before Ld. CIT(A). The cited decision of Hon’ble High Courts clearly supports the case of the assessee.

The Hon’ble Madras High Court in the case of Smt. Renuka Philip vs. ITO (409 ITR 567) held as under: - 22. The above explanation makes it clear that when the appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act is barred. The Commissioner in the order dated 14.03.2012 states that the appeal pertains to the claim made by the assessee under Section 54 of the Act and it has got nothing to do with the order passed by the Assessing Officer under Section 54F of the Act. The said finding rendered by the Commissioner is wholly unsustainable, since the assessee went on appeal against the re-assessment order dated 31.12.2009 stating that his claim for deduction under Section 54 of the Act should be accepted.

Therefore, in the process of considering as to what relief the assessee is entitled to, the Assessing Officer held that the assessee is entitled to claim deduction under Section 54F of the Act and assigned certain reasons for that. Therefore, the larger issue was pending before the Commissioner of Appeals, and in such circumstances, the Commissioner could not exercise power under Section 263 of the Act on account of the statutory bar. Therefore, on this ground also, the assumption of jurisdiction under Section 263 of the Act was wholly erroneous.

Thus, for the above reasons we are fully satisfied that the assumption of jurisdiction by the Commissioner under Section 263 of the Act was wholly without jurisdiction as the twin tests have not been satisfied and consequently, the order dated 14.03.2012 as confirmed by the Tribunal by order dated 13.07.2012 calls for interference.

In the result, the appeal filed by the assessee is allowed and the order passed by the Commissioner dated 14.03.2012, under Section 263 of the Act as confirmed by the Tribunal by order dated 13.07.2012 are set aside, and it is left open to the assessee to pursue her claim before the Assessing Officer. Accordingly, the Substantial Questions of Law are answered in favour of the assessee. Since, the matter has been pending for a quite long number of years and there has been repeated orders of assessment, we direct the Assessing Officer to give effect to the re-assessment order dated 31.12.2009, wherein the Assessing Officer had granted the benefit of Section 54F of the Act to the assessee. No costs. Following the same, similar ratio has been laid down by Hon’ble Allahabad High Court in CIT vs. VAM Resorts and Hotels Pvt. Ltd. (418 ITR 723). Respectfully following the binding judicial precedent, we would hold that the revision u/s 263 was bad-in-law and the same is therefore, liable to the quashed. We order so.

The appeal stand allowed in terms of our above order. Order pronounced on 21st April, 2023.