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Before: Shri V. Durga Rao & Shri G. Manjunatha
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the assessee is directed against the order of the ld. Principal Commissioner of Income Tax/CIT 1, Madurai, dated 05.05.2020 passed under section 263 of the Income Tax Act, 1961 [“Act” in short] relevant to the assessment year 2015-16.
The appeal filed by the assessee is delayed by 662 days in filing the appeal due to outbreak of Covid-19 pandemic and accordingly, the delay in filing the appeal is condoned and admitted for adjudication.
Brief facts of the case are that the assessee is an individual and filed her return of income for the assessment year 2015-16 on 28.03.2017 admitting a total income of ₹.15,000/-. The return of income was processed under section 143(1) of the Act dated 20.04.2017 by CPC, Bangalore. Subsequently, the case was selected for Limited Scrutiny under CASS and notice under section 143(2) of the Act was issued on 20.09.2017 and duly served on the assessee on 22.09.2017. As there was no response to the above notice, a notice under section 142(1) of the Act was issued on 11.10.2017, which was duly served on the assessee on 12.10.2017. The assessee neither appeared nor filed any written submission. As per ITS downloaded from the system, the Assessing Officer has noted that there was a cash deposit of ₹.4,41,28,135/-. Since the assessee did not appeared inspite of various opportunities given, a show cause notice proposing to add 8% of total cash deposit of ₹.4,41,28,135/- has been issued to the assessee on 13.12.2017 and called for her explanation on or before 19.12.2017. The assessee did not appear on 19.12.2017. However, on 22.12.2017, the AR of the assessee filed a reply through ASK seeking 15 days time. The assessee has not shown any income from his business. The assessee also not furnished audit report as mandated under section 44AB of the Act. Accordingly, the Assessing Officer completed the assessment under section 144 r.w.s.
143(3) of the Act dated 29.12.2017 by estimating the net profit at 8% of total cash deposit at ₹.35,30,220/- and brought to tax.
Against the assessment order, the assessee carried the matter in appeal before the ld. CIT(A) and the same is pending for adjudication.
Subsequently, by exercising power conferred under section 263 of the Act, the ld. PCIT issued notice under section 263 of the Act dated 23.07.2019 calling for explanation towards source for the cash deposit of ₹.8.52,06,588/-. In response to the notice, the assessee has filed detailed explanations on dated 31.07.2019 as well as 31.08.23019 along with copies monthly Tamilnadu VAT returns, consolidated statement of sales and bank pass books in support of assessee’s claim. After considering the explanations of the assessee, the ld. PCIT was of the opinion that the assessment order passed by the Assessing Officer was erroneous and prejudicial to the interest of Revenue. Accordingly, the ld. PCIT set aside the assessment order passed under section 144 r.w.s. 143(3) of the Act dated 29.12.2017 and directed the Assessing Officer to redo the assessment after making necessary enquiries and verification.
On being aggrieved against the revision order passed under section 263 of the Act, the assessee preferred an appeal before the Tribunal. The ld. Counsel for the assessee has submitted that the assessment was completed by making addition towards cash deposits and against the assessment order, the assessee preferred further appeal before the ld. CIT(A) and the appeal of the assessee in is pending before the ld. CIT(A) for adjudication. For the same technical ground of “cash deposits”, the ld. PCIT cannot exercise revisional power to set aside the assessment order when the appeal of the assessee is pending before the ld. CIT(A) and prayed for quashing the revision order passed under section 263 of the Act dated 05.05.2020. The ld. Counsel for the assessee has relied on the decision of the ITAT in the case of Kathiravan Ananthalakshmi & Kathiravan Srinivasan v. ACIT in ITA Nos. 340 & 341/ Chny/2022 dated 03.08.2022 and also in the case of Arpan Securities Pvt. Ltd. v. ITO 2023 (2) TMI 121 – ITAT Kolkata
On the other hand, the ld. DR has submitted that the appeal before the ld. CIT(A) is only limited purposes and also submitted that the Assessing Officer has not examined in detail before concluding the assessment order. Therefore, the revision order passed under section 263 of the Act is valid.
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including case law relied on by the ld. Counsel. The assessee has filed her return of income for the assessment year 2015-16 along with tax audit report in Form No. 3CB and 3CD on 29.12.2017. During the course of assessment proceedings, the Assessing Officer has called for the explanation from the assessee for the cash deposit of ₹.4,41,28,135/-. Since the assessee has not furnished details for the cash deposit, after following due procedure, the Assessing Officer estimated the net profit at 8% of the total cash deposits and brought to tax, against which, the assessee preferred further appeal before the first appellate authority. However, subsequently, the ld. PCIT issued notice under section 263 of the Act calling for explanation towards cash deposit of ₹.8,52,06,588/- during the financial year 2014-15 relevant to the assessment year 2015-16. Against the notice under section 263 of the Act, the assessee has furnished detailed explanations along with copies of the acknowledgement towards filing of return of income along with tax audit report in Form No.3CB and Form No. 3CD besides furnishing of copies of monthly Tamilnadu VAT returns for the year ended 31.03.2015 as well as consolidated statement of sales and bank pass books in support of assessee’s claim. However, the ld. PCIT was of the view that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue and accordingly set aside the assessment order and directed the Assessing Officer directed the Assessing Officer to redo the assessment after making necessary enquiries and verification.
8.1 In this case, in the assessment order, the Assessing Officer made addition towards cash deposits and the assessee has filed an appeal before the ld. CIT(A) and the appeal of the assessee in is pending for adjudication. Again for the same reasoning, the ld. PCIT has passed revision order under section 263 of the Act, which appears to be incorrect for the reason that the addition made by the Assessing Officer was subject matter of appeal before the ld. CIT(A), which is to be covered by the concept of doctrine of merger in view of the provisions of clause (c) of Explanation (1) to section 263 of the Act.
8.2 Similar issue on an identical fact was subject matter in appeal before the Tribunal in the case of Kathiravan Ananthalakshmi & Kathiravan Srinivasan v. ACIT and the Tribunal has observed and held as under: “7. We have heard rival contentions and gone through the facts and circumstances of the case. Admitted facts are that the assessee’s income declared from agricultural activities at Rs. 81.85 Lakhs is assessed by Assessing Officer as unexplained income. Admittedly this addition of agricultural income as unexplained income is a matter is being contested before CIT(A) in Appeal No. 10976/2019-20 filed on 31.01.2020. We noted that this issue has been dealt by Hon’ble Madras High Court in the case of Smt. Renuka Philip (Supra) wherein Hon’ble Madras High Court had dealt with exactly identical situation where the addition was subject matter of appeal before CIT(A) was held to be covered by the concept of doctrine of merger in view of the provisions of clause (c) of Explanation (1) to section 263 of the Act. Hon’ble Madras High Court has considered this issue and observed from Para 22 to 25 read 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.
As noticed above, the Assessing Officer while completing the reassessment proceedings has assigned certain reasons for coming to a conclusion that the assessee is entitled for deduction under Section 54F and not under Section 54 of the Act. This reason assigned by the Assessing Officer has been found by us to show due application of mind. As observed, we cannot expect an Assessing Officer to write a judgment. In such circumstances, the view taken by the Commissioner in his order under Section 263 of the Act has to be termed as a change of opinion, or in other words, the Assessing Officer adopted one of the two views possible and in such circumstances, it cannot be stated that the order is prejudicial to the interest of the Revenue as well as erroneous. For the purpose of exercise of jurisdiction under Section 263 of the Act, the twin tests are to be satisfied and even assuming, the re- assessment order is to be held as erroneous, it cannot be stated to be prejudicial to the interest of Revenue as every erroneous order cannot be subject matter of Revision under Section 263 of the Act. Furthermore, if the order passed by the Commissioner under Section 263 of the Act as confirmed by the Tribunal is allowed to stand, then the very purpose of the remand order against the original re- assessment proceedings would become a fait accompli.
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.” 8. Even this issue has been decided by Hon’ble Allahabad High Court in the case of Vem Resorts & Hotels (P) Ltd (supra) and particularly in Para 25 Hon’ble Allahabad High Court observed as under: “25. As, Clause (c) of Explanation 1 to Section 263 of the Act provides that when an appeal is pending before the Commissioner, the exercise of jurisdiction under Section 263 of the Act by CIT is barred. Thus, in the present case, the CIT wrongly exercised jurisdiction under Section 263 of the Act by remanding back the matter to assessing authority on 25.3.2013, while the appeal was decided by CIT (A) on 5.6.2013. Thus, the order passed by the ITAT does not suffer from any irregularity and needs no interference.” 9. In view of the above facts situation that the addition of agricultural income by the AO as unexplained income is contested before the CIT(A) by the assessee and once this being contested before CIT(A), in view of the provisions of clause (c) of Explanation (1) to section 263 of the Act, the doctrine of merger will apply and the PCIT cannot take any cognizance of the matter while adjudicating u/s. 263 of the Act. Even otherwise also the CIT(A)’s powers are co-terminus with those of the AO and he can do what the AO could do and can also direct the later to do what the later failed to do on that very issue. In fact, an appeal is merely continuation of the original proceedings and unless some fetters are placed upon the powers of CIT(A), he exercise the same powers as that by the AO. In the present case, the CIT(A) can also rectify charging of higher rate of tax during appeal proceedings, in case the provisions of the Act so provides and income of the assessee declared as agricultural income is upheld to be assessed as unexplained income. Accordingly, we are of the view that the revision order passed by PCIT u/s.263 of the Act is bad in law and without jurisdiction. Hence, we quash the revision order passed by PCIT and allow the appeal of the assessee.” 8.3 In the present case also, against the addition towards unexplained cash deposits, the assessee has preferred an appeal before the ld. CIT(A) and once this being contested before the ld. CIT(A), in view of the above decision of the Tribunal by following the decision of the Hon’ble Madras High Court in the case of Smt. Renuka Philip (supra), we are of the considered opinion that as per the provisions of clause (c) of Explanation (1) to section 263 of the Act, the doctrine of merger will apply and the ld. PCIT cannot take any cognizance of the matter while passing revision order under section 263 of the Act. Under the above facts and circumstances of the case, the revision order passed under section 263 of the Act is quashed.
In the result, the appeal filed by the assessee is allowed. Order pronounced on 15th February, 2023 at Chennai.