PARASHNATH INVESTMENT LTD.,KOLKATA vs. PCIT-2, KOLKATA

This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2011-12 is directed against the order passed u/s 263 of the Income Tax Act, 1961 (in short the I.T.A. No.: 188/KOL/2021 Assessment Year: 2011-12 Parashnath Investment Ltd. “Act”) by ld. Pr. Commissioner of Income Tax, Kolkata-2, Kolkata [in short “ld. Pr. CIT”] dated 04.03.2021.

Registry has informed that the appeal filed by the assessee is time barred by 33 days. At the time of hearing, ld. Counsel for the assessee stated that the delay was on account of COVID-19 restrictions. We, therefore, in view of the judgment of The Hon’ble Supreme Court vide Miscellaneous Application No. 21 of 2022 find that the limitation period in filing appeal between 15.03.2020 till 28.02.2022 has been excluded for calculating the limitation period. Since the period of limitation in the case of the Revenue falls during this period, the same deserves to be extended and we, therefore, condone the delay and admit the appeal for adjudication. 3. The assessee is in appeal before this Tribunal raising the following grounds: “1) For that on the facts and circumstances of the case Ld. Pr. CIT, Kolkata-2 grossly erred in setting aside the assessment dated 18.12.2018. 2) For that on the facts and circumstances of the case the order of Ld. Pr. CIT, Kolkata-2 setting aside the assessment order dt. 18.12.2018 is highly arbitrary, unjustified, unwarranted to the facts and untenable in law. 3) For that on the facts and circumstances of the case, Ld. Pr. CIT, Kolkata-2 wrongly assumed the jurisdiction U/s 263 to set aside the assessment when twin condition prescribed in sec 263 i.e. order being erroneous so far as prejudicial to the interest of revenue, for assuming jurisdiction U/s 263 was not satisfied. 4) For that on the facts and circumstances of the case Ld. Assessing Officer after verification taken a possible view and Ld. Pr. CIT cannot I.T.A. No.: 188/KOL/2021 Assessment Year: 2011-12 Parashnath Investment Ltd. find fault in such circumstances when such possible view is not unlawful. 5) For that on the facts and circumstances of the case, order U/s 263 passed by Ld. PCIT, Kolkata-2 is bad in law and liable to be cancelled. 6) We may add, alter, amend or withdraw any grounds of appeal

On the other hand, ld. D/R vehemently argued supporting the order of ld. Pr. CIT.

We have heard rival contentions and perused the records placed before us. The assessee has challenged the jurisdiction assumed by ld. Pr. CIT u/s 263 of the Act and also challenged the finding holding the assessment order framed u/s 143(3) r.w.s. 147 I.T.A. No.: 188/KOL/2021 Assessment Year: 2011-12 Parashnath Investment Ltd. of the Act dated 18.12.2018 as erroneous and prejudicial to the interests of the Revenue.

Since the issue before us pertains to the invocation of jurisdiction u/s 263 of the Act we find that the provision of Section 263 of the Act has direct bearing on the issue raised before us, therefore, it is pertinent to take note of this section which reads as under: "263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; I.T.A. No.: 188/KOL/2021 Assessment Year: 2011-12 Parashnath Investment Ltd. (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded." 9.1. On a bare perusal of the sub section-1 would reveal that 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 I.T.A. No.: 188/KOL/2021 Assessment Year: 2011-12 Parashnath Investment Ltd. Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 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 4th 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. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. 9.2. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) has laid down following ratio with regard to provisions of section 263 of the Act: “There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, I.T.A. No.: 188/KOL/2021 Assessment Year: 2011-12 Parashnath Investment Ltd. when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). [Emphasis Supplied]”

On examining the facts of the case, we notice that ld. Pr. CIT in para 2 of the impugned order has stated that the reopening proceedings were initiated by ld. AO issuing notice u/s 148 of the Act for the reason that the assessee is alleged to have taken accommodation entry from M/s. Marigold Vinijya Pvt. Ltd. at Rs. 15,41,050/- towards bogus loss on currency derivatives. So, it remains an established fact that the assessee’s case was reopened to examine the very same issue about taking bogus loss on currency derivatives from M/s. Marigold Vinijya Pvt. Ltd. at Rs. 15,41,050/-. However, on perusal of the assessment order dated 18.12.2018 we notice that ld. AO has made no addition on account of the reason for which reopening was made and this in itself renders the reassessment proceedings as bad in law and for this proposition, we place reliance on the judgment of Hon'ble Bombay High Court in the case of Jet Airways (I) Ltd. (supra) which reads as under: “16. Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148 setting out the reasons for the belief that income had escaped assessment. Those judicial decisions had held that I.T.A. No.: 188/KOL/2021 Assessment Year: 2011-12 Parashnath Investment Ltd. when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance Act (No. 2) of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income ("such income") which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which, comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.

We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter of first principle, based on the language used in section 147(1) and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147(1) as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income "and also" any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words "and also" are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion of Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words "and also" by the Rajasthan High Court in Shri Ram Singh's case (supra). Parliament has not taken away the basis of that decision. While it is open to