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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI V. DURGA RAO, HON’BLE & SHRI MANJUNATHA. G, HON’BLE
आदेश / O R D E R PER MANJUNATHA.G, AM: This appeal filed by the assessee is directed against the order of the
Principal Commissioner of Income Tax, Coimbatore-1, dated 15.03.2022
and pertains to assessment year 2017-18.
At the outset, we find that there is a delay of 275 days in filing of the
appeal before the Tribunal, for which, a petition along with Affidavit
explaining the delay in filing of the appeal, has been filed. The Ld.Counsel
referring to petition filed by the assessee submitted that the assessee was
under bona fide belief that there is no necessity to file appeal against the
order of the PCIT u/s.263 of the Income Tax Act, 1961 (in short “the Act"),
ITA No.181/Chny/2023 :: 2 ::
because, during the course of assessment proceedings, sufficient details
have been filed and the AO accepted the explanation furnished by the
assessee and get relief. However, when the PCIT has passed order u/s.263
of the Act, with a direction to the AO, the assessee felt that it is necessary
to file appeal against order passed by the PCIT u/s.263 of the Act, because,
it has good grounds to challenge said order. In that process, there is a
delay of 275 days which is neither intentional nor wanton of any undue
benefit, but purely beyond the control of the assessee. Therefore, the delay
may be condoned and appeal may be admitted in the interest of natural
justice.
2.1 The Ld.DR present for the Revenue opposed petition filed by the
assessee and argued that reasons given by the assessee does not come
under reasonable cause as provided under the Act, for condonation of delay
and thus, appeal filed by the assessee should be dismissed as unadmitted.
2.2 We have heard both the parties and considered relevant contents of
petition filed by the assessee for condonation of delay and we find that by
not filing the appeal within the time allowed under the Act, the assessee
neither gets any benefit nor derive any undue benefit. But, in fact, the
assessee himself put in a trouble. Therefore, when the assessee has given
reasons for not filing the appeal within the time allowed under the Act, and
such reasons are bona fide, then, the appellate authority should exercise
their discretionary powers and condone the delay in filing of the appeal for
advancement of substantial justice. Therefore, considering the reasons
ITA No.181/Chny/2023 :: 3 ::
given by the assessee in his Affidavit, we condone the delay in filing of the
appeal and admit appeal filed by the assessee for adjudication.
The assessee has raised the following grounds of appeal:
The order of the learned PCIT is bad and erroneous in law. 2. The learned PCIT erred in invoking Section 263 and passing orders directing the Assessing Officer to re-do the assessment afresh on issues other than the one selected for LIMITED SCRUTINY. 3. The learned PCIT exceeded his powers by invoking Section 263, when the appellant filed all the details called for which had been carefully considered and verified by the Assessing Officer. 4. The learned PCIT erred in not considering the scope and effect of Section 270AA(4), making the very Section 270AA otiose. And for other reasons that may be adduced at the time of hearing, it is prayed that the delay be condoned, appeal be admitted, considered and justice be rendered.
The brief facts of the case are that the assessee is an individual filed
his return of income for the AY 2017-18 on 31.10.2017 declaring total
income of Rs.10,27,800/-. The case has been selected for limited scrutiny
under CASS for verification of cash deposits during demonetization period
and mismatching receipts and accordingly, notice u/s.143(2) of the Income
Tax Act, 1961, dated 24.09.2018 and notice u/s.142(1) of the Act, dated
15.10.2019 was issued and served on the assessee. The assessment has
been completed u/s.143(3) of the Act, on 13.12.2019 and assessed total
income of Rs.58,90,777/- by making additions towards interest income of
Rs.48,62,977/- received on FD from IOB & SBI. In the assessment order,
the AO has discussed the issue of cash deposits during demonetization
period and also interest received on Fixed Deposits (in short “FDs") in light
of various evidences filed by the assessee and completed the assessment.
ITA No.181/Chny/2023 :: 4 ::
The AO had also issued notice u/s.274 r.w.s.270A of the Act, on
13.12.2019, and called upon the assessee to explain ‘as to why’ penalty
shall not be levied for under reporting of income.
The case has been, subsequently, taken up for revision proceedings
by the PCIT, Coimbatore, and notice u/s.263 of the Act, dated 25.02.2022,
has been issued and served on the assessee. In the said show cause notice,
the PCIT observed that the assessment order passed by the AO is erroneous
in so far as it is prejudicial to the interest of the Revenue on the issue of
initiation of penalty proceedings u/s.270A of the Act, on the ground that
the AO has omitted to record reasons for initiation of penalty. The PCIT
further observed that although, there is an increase in interest income for
the assessment year in consideration when compared to previous
assessment year, the source of income for the deposits made with IOB &
SBI, for which, interest received was not verified at the time of assessment
proceedings. Therefore, the PCIT was of the opinion that the AO has
completed the assessment without carrying out necessary enquiries, he
ought to have been carried out, which rendered assessment order passed
by the AO to be erroneous in so far as it is prejudicial to the interest of the
Revenue. In response to show cause notice, the assessee submitted that
the assessment order passed by the AO is neither erroneous nor prejudicial
to the interest of the Revenue, because, the assessment has been taken
up for limited scrutiny to verify certain issues and said issue has been
examined by the AO during assessment proceedings u/s.143(3) of the Act,
ITA No.181/Chny/2023 :: 5 ::
which is evident from the assessment order passed by the AO. Therefore,
it cannot be said that the AO has not carried out required enquiries he ought
to have been carried out in the given facts and circumstances of the case,
which rendered the assessment order is erroneous and prejudicial to the
interest of the Revenue.
The PCIT after considering relevant submissions of the assessee and
also taken note of certain judicial precedents opined that the assessment
order passed by the AO is erroneous in so far as it is prejudicial to the
interest of the Revenue, because, the AO has completed assessment
u/s.143(3) of the Act, without initiating penalty proceedings u/s.270A of
the Act, with a proper satisfaction recorded as required under the law.
Although, the AO has initiated penalty proceedings and dropped the same
after considering relevant submissions of the assessee, but, fact remains
that he ought to have recorded reasons why penalty proceedings have been
initiated for under reporting of income. Since, the AO has failed to record
satisfaction as required under the law, which caused prejudice to the
Revenue. In so far as source for deposits, on which, interest income has
been earned by the assessee, although, the AO has made addition towards
interest income, but he failed to examine source for said interest.
Therefore, non-verification of necessary facts with regard to source of
income for deposits caused prejudice to the interest of the Revenue.
Therefore, set aside the assessment order passed by the AO and direct the
AO to re-examine the issue with regard to initiation of penalty proceedings
ITA No.181/Chny/2023
:: 6 ::
and source for deposits with bank. The relevant findings of the PCIT are as
under:
The impugned assessment order dated 13.12.2019 passed in the assessee's case for the instant assessment year u/s.143(3) of the Act suffered from certain errors that were required to be rectified as these erros were prejudicial to the interest of revenue. First, the AO while passing the said assessment order, failed to record due satisfaction before initiating the penalty proceedings u/s.270A of the Act, though the penalty notices were served on the assessee. In reply thereto, the assessee stated that the out of the sale proceeds of the land held by him in his capacity as Power of Attorney Holder for the nephews, who are mentally incapacitated and their parents being no more, the proceeds were deposited and interest income was received by him as he had given his PAN to the bank and hence, stated that though he accepted the addition made in the assessment order, there is no revenue loss on this account. The assessee submitted that he did not prefer any appeal against the impugned assessment order and that entire taxes were paid and hence, there is no loss on this account too. With regard to omission on the part of recording the reasons for initiation for penalty, the assessee stated that the penalty proceedings were dropped as per section 270AA(5) and the order u/s 270AA(4) is final. With regard to the above submissions, it is an admitted fact that the addition on undisclosed interest income received by the assessee was made in the assessment order and this is clearly a case of concealing his true income and the AO ought to have recorded satisfaction before initiation of penalty proceedings u/s 270A of the Act. Perusal of the records reveal that the same has not been done by the AO. As held by the CIT vs. Surendra Prasad Agarwal (2005) reported in 275 1TR 113, the Hon'ble Allahabad High Court had held that
"18. It is well-established that the AO has to initiate proceedings for imposition of penalty during the course of the assessment itself. If he fails to initiate or record his satisfaction for the initiation of the penalty proceedings during the course of the assessment proceedings, it would be a case where the assessment order can be said to be erroneous as he has not decided a point nor recorded a finding on an issue which ought to have been done, or decides it wrongly as held by this Court in the case of Saraya Distillery (supra). Thus, the omission of the ITO to initiate penalty proceedings during the course of the assessment renders the assessment order erroneous and prejudicial to the interest of the Revenue."
There are umpteen number of decisions delivered by the Hon'ble Courts and appellate authorities, which categorically state that recording of satisfaction is a prerequisite before issue of notice initiating penalty proceedings. However, perusing the aforesaid submissions and the impugned assessment order reveals that the said assessment order dated 13-12- 2019 was passed without considering the above legal proposition. The order so made, suffers in as much as it is erroneous and prejudicial to the interest of revenue, requiring an intervention to cure the order made erroneous and prejudicial to the interest of the Revenue.
With regard to the second issue of non-verification of the sources for the interest income earned to the tune of Rs.48,62,977/-, the assessee in the course of present proceedings had stated that the sale proceeds of the agricultural lands belonging to the legal heirs of his sister was deposited in the bank accounts and from out of the interest earned therefrom, the same was detected by the AO from the Form No.26AS and addition made to the returned income. Here again, the submissions of the assessee and the impugned assessment order have been carefully perused and that it is noticed that the AO had made the addition, but it appear that there was no mention about examination of the sources for receipt of such interest income. The assessment order so made without proper investigation and collation of the facts renders it as erroneous and prejudicial to the interest of revenue.
In order to remedy the said error in the order of assessment in the instant case made on 13-12-2019 for the assessment year 2017-18, the recourse would be to resort to provisions of sec.263 of the Act. Accordingly, the order of the AO dated 13-12-2019 for the assessment
ITA No.181/Chny/2023 :: 7 ::
year 2017-18 in the case of the captioned assessee is, set aside, in exercise of the powers vested in me u/s.263 of the Act. 8. The Assessing Officer, is hereby, directed to re-do the assessment afresh after verification of the facts discussed above. The assessment order is set aside to consider the issue of proper recording of the satisfaction before initiation of relevant penalty provisions and also to examine the sources for the interest income earned for the instant AY. The AO may satisfy himself in accordance with law and come to a logical conclusion in respect of the above issues and pass appropriate orders in the assessee's case. The Assessing Officer shall give adequate opportunity of being heard to the assessee in this regard before passing the fresh assessment order. The Assessee is also given yet another opportunity to present its case and shall provide the relevant details with material evidence, so as to facilitate the Assessing Officer to arrive at a logical conclusion.
The Ld.Counsel for the assessee submitted that the PCIT is erred in
assumption of jurisdiction u/s.263 of the Act, on the issue which has not
been subject matter of assessment u/s.143(3) of the Act, because, in the
limited scrutiny regime, the AO does not have power to go beyond the
issues specified in the notice and thus, when the AO cannot question other
issues, the PCIT cannot step in and assume his powers on other issue,
which was not subject matter of assessment proceedings. In this regard,
he relied upon certain judicial precedents, including the decision of ITAT
Chennai Bench in the case of Subbunadar Chandra Sekar v. ITO in ITA
No.612/Chny/2021 order dated 06.12.2022. The Ld.Counsel for the
assessee further submitted that even otherwise, the assessment order
cannot be considered as erroneous in so far as it is prejudicial to the interest
of the Revenue, because, the issues questioned by the PCIT has been
examined by the AO in assessment proceedings, which is evident from the
fact that the AO has initiated penalty proceedings u/s.270A of the Act, and
dropped the same after considering relevant submissions of the assessee.
In so far as source for cash deposits, the AO has made additions towards
interest income on very same deposits, which means, the AO was aware of
ITA No.181/Chny/2023 :: 8 ::
the deposits in bank and source for said deposits. Therefore, merely for
the reason that the AO was not discussed the issue in the assessment order,
it cannot be said that the AO has not considered the issue.
The ld.CIT-DR, R.Mohan Reddy, supporting the order of the
Ld.CIT(A), submitted that the assessment order passed by the AO is
erroneous in so far as it is prejudicial to the interest of the Revenue, which
is evident from the fact that the AO has completed assessment without
carrying out required enquiries, he ought to have been carried out in the
given facts of the case. He further submitted that although, the AO has
initiated penalty proceedings u/s.270A of the Act, but, such proceedings
have been mechanically initiated without recording any satisfaction ‘as to
how’ penalty is leviable in the given facts of the case. Further, it is a well
settled principle of law by the decision of the Hon’ble Supreme Court in the
case of Daniel Merchants (P) Ltd. v. ITO reported in [2018] 95 taxmann.366
(SC) that if the AO did not make any proper enquiry while making
assessment and accepting the explanation of the assessee in so far as
receipt of share application money was concerned, Commissioner rightly
set aside such assessment order u/s.263 of the Act. The Ld.CIT(A) had
also relied upon the decision of the Hon’ble Allahabad High Court in the
case of CIT v. Associated Contractors Corporation reported in [2005] 275
ITR 123 (Allahabad) and argued that non-initiation of penalty proceedings
by assessing authority in course of assessment proceedings renders order
ITA No.181/Chny/2023 :: 9 ::
erroneous and prejudicial to the interest of the Revenue, and therefore, can
be subject matter of revision proceedings u/s.263 of the Act.
We have heard both the parties, perused the materials available on
record and gone through orders of the authorities below. The PCIT has
invoked their jurisdiction u/s.263 of the Act, and set aside the assessment
order passed by the AO u/s.143(3) of the Act, dated 13.12.2019. According
to the PCIT, the assessment order passed by the AO is erroneous in so far
as it is prejudicial to the interest of the Revenue, on the issue of initiation
of penalty proceedings u/s.270A of the Act, and further, on the issue of
source for FDs with bank, on which, interest income earned by the
assessee. The PCIT was of the opinion that although, the AO initiated
penalty proceedings u/s.270A of the Act, but, such proceedings have been
mechanically initiated without recording satisfaction as required under the
law. The PCIT further was of the opinion that although, the AO has made
addition towards interest income from FDs with two banks, but, he has
failed to verify source for FDs with said banks, which rendered the
assessment order passed by the AO is erroneous in so far as it is prejudicial
to the interest of the Revenue.
The provisions of Sec.263 of the Act, empowers the PCIT to invoke
suo moto revision proceedings, in case, he satisfies that the assessment
order passed by the AO is erroneous in so far as it is prejudicial to the
interest of the Revenue. In other words, before initiating revision
proceedings u/s.263 of the Act, the PCIT must satisfy from the records that
ITA No.181/Chny/2023 :: 10 ::
an erroneous order passed by the AO caused prejudice to the interest of
the Revenue. In this case, if you go through the reasons given by the PCIT
in the order passed u/s.263 of the Act, we find that the PCIT has questioned
the assessment order passed by the AO on two issues. The first issue
questioned by the PCIT was initiation of penalty proceedings u/s.270A of
the Act. If you go through the reasons given by the PCIT on this issue, and
the assessment proceedings, we find that the AO has issued notice u/s.274
r.w.s.270A of the Act, on 13.12.2019 and called upon the assessee to
explain ‘as to why’ penalty should not be levied for under reporting of
income. From the notice itself it can be ascertained that the AO has
satisfied that he has proceeded with initiation of penalty proceedings for
under reporting of income. Therefore, we are of the considered view that
the PCIT is completely erred in coming to the conclusion that the AO has
not initiated penalty proceedings u/s.270A of the Act, with a proper
satisfaction. Thus, on this issue, the assumption of jurisdiction by the PCIT
fails.
In so far as the second issue questioned by the PCIT on source for
FDs with two banks, we find that the very purpose of scrutiny assessment
is to verify interest income reported in Form 26AS with return of income
filed by the assessee. During the course of assessment proceedings, the
AO has verified interest earned on FDs with two banks and made additions
of Rs.48,62,977/- in respect of interest income received from IOB & SBI.
From the above, it is very clear that the issue of FDs with two banks was
ITA No.181/Chny/2023 :: 11 ::
in the knowledge of the AO. Although, the AO specifically did not discuss
the issue of source for FDs, but, after considering the explanation of the
assessee that source for FDs is out of sale proceeds of a property in the
capacity of power of attorney holder and said sale of property was
assessable in the hands of the original owners of the property, the AO has
accepted the claim of the assessee and completed the assessment, which
is evident from the fact that the AO has made additions towards interest
income from very same FD, but does not made any addition towards source
for said deposit. Therefore, we are of the considered view that on this issue
also the assumption of jurisdictional by the PCIT fails.
In so far as various case laws cited by the Ld.Counsel for the assessee
and the Ld.DR, we find that the case laws cited by the Ld.Counsel for the
assessee are on the issue of limited scrutiny and powers of the PCIT u/s.263
of the Act, and thus, we are of the considered view that there is no necessity
to discuss those case laws, because, said case laws are not specifically
applicable to the facts of the present case. In so far as case laws relied
upon by Ld.DR, we find that in the said case, it was the case of the Revenue
that there was no proper enquiry while making assessment, but, in the
present case, it is abundantly clear that the AO made necessary enquiries
and has taken a view. Therefore, the case law cited by the Ld.DR is not
applicable to the facts of the present case. In so far as the case law relied
upon by the Ld.DR in the case of Associated Contractors Corporation
(supra), we find that said decision is on the issue of non-initiation of penalty
ITA No.181/Chny/2023 :: 12 ::
proceedings by assessing authority in the course of assessment
proceedings, but, in the present case, the AO has initiated penalty
proceedings and later dropped on being satisfied with explanation of the
assessee. Therefore, above case laws is also not applicable to the facts of
the present case.
In this view of the matter and considering the facts and
circumstances of the case, we are of the considered view that the
assessment order passed by the AO is neither erroneous nor prejudicial to
the interest of the Revenue. The PCIT without satisfying ‘as to how & why’
the assessment order passed by the AO is erroneous in so far as it is
prejudicial to the interest of the Revenue, invoked jurisdiction u/s.263 of
the Act, and set aside the assessment order. Thus, we quashed the order
of the PCIT u/s.263 of the Act.
In the result, appeal filed by the assessee is allowed.
Order pronounced on the 06th day of April, 2023, in Chennai.
Sd/- Sd/- (वी. दुगा� राव) (मंजूनाथा.जी) (MANJUNATHA.G) (V. DURGA RAO) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 06th April, 2023. TLN आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 4. आयकर आयु�/CIT 2. ��यथ�/Respondent 5. िवभागीय �ितिनिध/DR 3. आयकर आयु� (अपील)/CIT(A) 6. गाड� फाईल/GF