BALVINDER SINGH,HARYANA vs. PR,CIT, ROHTAK

PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-

This appeal by the assessee is preferred against the order dated

01.03.2022 framed u/s 263 of the Income-tax Act, 1961 [hereinafter

referred to as 'The Act'] by the PCIT, Rohtak.

the PCIT erred in assuming jurisdiction under section 263 of the Act in

holding that the assessment order dated 03.10.2019 framed under

section 143(3) of the Act is erroneous and prejudicial to the interest of

the revenue.

records carefully perused. Judicial decisions relied upon by the rival

representatives duly considered.

return of income on 23.03.2018 declaring income of Rs. 1,64,10,680/–.

Return was selected for scrutiny assessment and, accordingly,

statutory notices were issued and served upon the assessee.

03.10.2019. Assuming jurisdiction cast upon him by provisions of

section 263 of the Act, the PCIT issued show cause notice dated

09.02.2022 which is as under:

amended/modified u/s 263 of the Income Tax Act, 1961. You are, therefore, required to show cause as to why an appropriate order u/s 263(1) of the Act setting aside the assessment order passed as on 03.10.2019 should not be passed. In this connection, you may send your written reply along-with supporting documentary evidences on the email-id( rohtak.pcit@incometax.gov.in) or through e-proceedings by 16.02.2022. In case of no reply is received, it shall be assumed that you do not wish to say anything in the matter and the matter would be decided as per material on record without any further notice/intimation to you.”

that the assessment order passed by the Assessing Officer is not only

erroneous but prejudicial to the interest of the revenue, in as much as,

the income has been assessed at normal slab rates instead of tax

payable @ 60% under section 115BBE of the Act.

statement of the assessee was recorded on 17.08.2016 in which the

assessee surrendered an income of Rs.1.50 crores, which included cash

Rs.9.50 lakhs, stock Rs.22.50 lakhs, renovation of building Rs.20 lakhs

and undisclosed sales Rs.98 lakhs.

income and paid taxes there on.

but the same was not there in the statute on the date of survey.

Taking a leaf out of the amended provisions, the PCIT was of the

opinion that the tax rate should have been 60% instead of 30% because

of which the assessment order has become prejudicial to the interest

of the revenue.

retrospective, as on the date of survey, the amended provisions were

not there in the statute. In our considered opinion, this is a highly

debatable issue, which cannot be subject matter of assumption of

jurisdiction under section 263 of the Act. Moreover, a perusal of the

assessment order clearly shows that the assessing officer has nowhere

invoked the provisions of sections 68/69 of the Act to impute the tax

rate of section 115BBE of the Act.

income of the assessee includes any income referred to in sections 68,

69, 69A, 69B, 69C or 69D, the income tax payable shall be @ 30% on

income so referred to in the said sections. Further, in terms of

amended provisions of section 115BBE of the Act by Taxation Laws,

Second Amendment Act 2016, it provides that where the total income

of the assessee includes any income referred to in sections 68, 69, 69A,

69B, 69C, and 69D and reflected in the return of income furnished

under section 139 or total income of the assessee determined by the

assessing officer, any income referred to in sections 68, 69, 69A, 69B,

69C, or 69D if such income is not reflected in the return of income

furnished under section 139 of the Act, income tax payable shall be @

60% on income so referred in the said section.

income so referred to in the afore-stated sections so defined which is

either not reflected in the return of income or determined by the

assessing officer and in both the cases it will be covered by the

provisions of section 115BBE of the Act and the rate of taxation has

been increased from 30% to 60% on such specified income.

amended provisions of section 115BBE of the Act that where the

assessee surrenders undisclosed income during search action for the

relevant year, the tax rate has to be charged as per provisions of

section 115BBE of the Act. Therefore, the applicability of the amended

provisions which prompted the PCIT to assume jurisdiction under

section 263 of the Act is highly debatable issue, and therefore, in our

understanding of the law, the PCIT has wrongly assumed jurisdiction.

83, has laid down the following ratio:

"A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-- recourse cannot be had to section 263(1) of the Act. 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 ".

203 ITR 108 has held as under:

“The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, "erroneous judgment" means "one rendered according to course and practice of court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles".

erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income- tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power.

It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority.

The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income- tax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income- tax Officer to re-examine the matter. That, in our opinion, is not permissible. Hence the provisions of section 263 of the Act were not applicable to the instant case and, therefore, the commissioner was not justified in setting aside the assessment order.”

be exercised by the Commissioner on satisfaction of twin conditions,

i.e., the assessment order should be erroneous and prejudicial to the

interest of the Revenue. By 'erroneous' is meant contrary to law. Thus,

this power cannot be exercised unless the Commissioner is able to

establish that the order of the Assessing Officer is erroneous and

prejudicial to the interest of the Revenue. Thus, where there are two

possible views and the Assessing Officer has taken one of the possible

views, no action to exercise powers of revision can arise, nor can

revisional power be exercised for directing a fuller enquiry to find out

if the view taken is erroneous. This power of revision can be exercised

only where no enquiry, as required under the law, is done. It is not

open to enquire in case of inadequate inquiry. Our view is fortified by

the decision of Hon'ble High Court of Bombay in the case of CIT vs.

Nirav Modi, [2016] 71 Taxmann.com 272 (Bombay).

Chemical Works Ltd. 309 ITR 67 has observed as under:

“if assessment order were to incorporate the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment

proceedings for both the Assessment Years, the Assessing . A.Y. 2009-10 Officer issued a query memo to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent- Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the creditworthiness/capacity of the donors, the source from where these funds have come and also the creditworthiness/ capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue cannot be accepted.”

“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or

capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open”.

judicial decisions discussed here in above, we set aside the order of

the PCIT and restore that of the Assessing Officer dated 02.10.2019

framed under section 143C of the Act.

is allowed.

The order is pronounced in the open court on .08.2022.

[ASTHA CHANDRA] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: August, 2022.

VL/