SMT.MITHRA PAUL,MUVATTUPUZHA vs. THE ITO,WD-1, THODUPUZHA

Per CHANDRA POOJARI, AM:

This appeal by the assessee is directed against the order of the Pr. CIT, Kochi

passed u/s. 263 of the I.T. Act dated 21/02/2019 and pertain to the assessment

year 2014-15.

I.T.A. No 421/Coch/2019 3. The PCIT erred in not considering the vital issue that the order dated 07/10/2016, stated to be erroneous and prejudicial to the interest of the Revenue as per the Show Cause Notice dated 26/10/2018 and 21/01/2019, does not exist at all and the reply/objection by the assessee vide submission dated 16/02/2019 to that effect, was not at all considered by the PCIT.

that the order u/s. 143(3) dated 11-11-2016 for the assessment year 2014-15

passed by the Assessing Officer was erroneous in so far as it was prejudicial to the

interest of revenue for the reasons mentioned below:

i) Cash deposit made by the assessee during the period amounting to Rs.95,00,000/- were not disclosed by the assessee in the return of income for the AY 2014-15. This amount was deposited into bank by sale of laterite and gravel earth from her land and no accounts were maintained by the assessee. As a consolidated turnover is less than one crore, income can be computed as per sec. 44AD. However, assessee offered 10% of the turnover and addition was made amounting to Rs.9,50,000/-. During the relevant previous year, the assessee admitted the receipt of Rs.35,00,000/- on sale of laterite and gravel earth and also Rs.60,00,000/- as gift from sister. Her sister also confirmed transfer of Rs.60,00,00/- as gift to the assessee vide letter dated 23/08/2016. The assessee had not revealed these receipts tantamount to Rs.95,00,000/- in the return of income. The Assessing Officer added back an amount of Rs.9,50,000/- as undisclosed income, which is 10% of these receipts. As there were no expenses involved in the sale of laterite, gravel earth and gift, the entire amount of Rs.35,00,000/- which stands undisclosed in the return of income of the assessee should be added back and assessed in the hands of the assessee u/s. 69B and the tax should be levied @30% u/s. 115BBE of the Income Tax Act.

ii) The gift received from assessee’s sister and mother amounting to Rs.60,00,000/- was also not found properly examined by the Assessing Officer while framing the assessment order.

Hence, the PCIT invoked the provisions of section 263 of the Act proposing for

revision of assessment.

I.T.A. No 421/Coch/2019 4. The PCIT observed that these issues were not considered by the Assessing

Officer while framing the assessment order. According to the PCIT, the relevant

issues, i.e. Rs.25,00,000/- out of the receipt of Rs.35,00,000/- on sale of laterite

and gravel earth and also the gift received from assessee’s sister and mother

amounting to Rs.60,00,000/- remained to be added back and also tax was to be

computed on undisclosed income @ 30% u/s. 115BBE. The PCIT observed that in

respect of the above, the Assessing Officer had neither made any finding nor

obtained any supporting documents from the assessee while allowing. Thus, the

PCIT observed that no requisite disallowance/verification had been made by her

while completing the assessment. Accordingly, the PCIT held that the assessment

order was erroneous in so far as it was prejudicial to the interests of the Revenue.

Accordingly, the PCIT set aside the assessment order to the file of the Assessing

Officer for de novo examination and to pass a speaking order in accordance with

law and per time limit specified u/s. 153 of the I.T. Act, after affording due

opportunity to the assessee.

section 263 can be invoked only when the assessment order is erroneous in so far

as it is prejudicial to the Revenue. It was submitted that perusal of the assessment

order, in unequivocal terms, showed that there has been enquiry by the Assessing

Officer with regard to cash deposits in the bank account and that the Assessing

Officer, having called for the records, has examined the same, more particularly, in

the assessment order, it has been mentioned so twice. Hence, it was submitted that

I.T.A. No 421/Coch/2019 once the matter, in the assessment proceedings, had been examined by the

Assessing Officer, resort to issue of notice u/s.263 was not legally tenable. It was

submitted that the assessee had submitted confirmation letter from her sister and

also evidences of seeking permission for extraction of laterite and gravel earth from

the Mining and Geology department which formed part of the record of the case. It

was submitted that the claim was considered and after examination, the same was

allowed by the ITO on being satisfied with the explanation of the assessee. The Ld.

AR submitted that such decision of the ITO cannot be held to be 'erroneous'

simply because in the assessment order the ITO did not make an elaborate

discussion in that regard. The Ld. AR relied on the judgment of the Bombay High

Court (203 ITR 108).

5.1 The Ld AR submitted that section 263 cannot be invoked to correct each and

every or error committed by the Assessing Officer; it is only when an order is

erroneous, that section will be attracted and incorrect assumption of facts or an

incorrect application of law will satisfy the requirement of the order being

erroneous. Reliance was placed on the judgment of the Supreme Court in the case

of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 wherein it was held as

under:

“ Every loss of Revenue as a consequence of an order of the Assessing officer cannot be treated as prejudicial to the interests of Revenue. For example, when an Income-tax officer adopted one of the courses permissible in law and it has resulted in loss Of Revenue; or where two views are possible and the Income-tax officer 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 Income-tax officer is unsustainable in law". 4

I.T.A. No 421/Coch/2019 It was submitted that since material was on record and material was considered by

ITO and particular view was taken, the mere fact that a different view may be taken

should not be basis for action under 263 of the Act.

5.2 The Ld. AR relied on the judgment of the Gujarat High Court in 259 ITR 502

and 313 ITR 65. In case reported in 259 ITR 502 it was held as follows:

"Coming to the facts of the present case, it is the finding of fact given by the Tribunal that the assesse has produced relevant material and offered explanations in pursuance of the notices issued under section 142(1) as well as section 143(2) of the act and after considering the materials and explanation, the Income-tax Officer has come to a definite conclusion . The Commissioner of Income tax did not agree with conclusion reached by the Income-tax Officer. Section 263 of the Act does not empower him to take action on these facts to arrive at the conclusion that the order passed by the Income-tax Officer is erroneous and prejudicial to the interests of the Revenue. Since the material was there on record and said material was considered by the Income -tax Officer and a particular view was taken, the mere fact that a different view can be taken, should not be the basis for an action under section 263 of the Act and it cannot be held to be justified".

5.3 The Ld. AR submitted that the decision was applicable here as also the

principles enunciated in the decision reported in 313 ITR 65. In this case it was

held as follows:

“In support of his submission, Mr. Saparkar has relied on the decision of this court in the case of CIT vs. Arvind Jewelers (2003) 259 ITR 502 wherein it is held that the finding of the fact given by the Tribunal was that the assessee had produced relevant material and offered explanation in pursuance of the notices issued under section 142(1) as well as section 143(2) of the Act and after considering the material and explanation, the income-tax officer had come to a definite conclusion. Since material was there on record and material was considered and a particular view was taken, the mere fact that different view can be taken should not be the basis for action under section 263. This court, therefore, took the view that the order of revision was not justified.”

I.T.A. No 421/Coch/2019 5.4 With regard to gift from mother and sister it was mentioned in notice dated

21-01-2019 and not in the earlier notice dated 26-10-2018 that "The gift received

from assesse’s sister and mother amounting to Rs.60, 00,000/- is also not found

properly examined by the Assessing Officer while framing the assessment order

dated 11-11-2016". It was submitted that during the course of assessment

proceedings the evidence of gifts and how they were made were made clear in the

letter of the donors. It was submitted that 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 upon

conclusion of the assessment proceedings. It was submitted that once the

Assessing Officer is satisfied with the explanation offered on inquiry, it is not open

to the Commissioner in exercise of revisional power to take a view that further

enquiry has to be done. At the very highest, it was submitted that the case of the

revenue is that this is a case of inadequate inquiry and not of ‘no enquiry’. It was

submitted that the jurisdiction under section 263 can be exercised by the

Commissioner only when it is a case of lack of enquiry and not one of inadequate

enquiry. The Ld. AR referred to the notice u/s. 263 wherein it was mentioned that

"The gift received from assesses sister and mother amounting to Rs.60,00,000/-

was also not found properly examined by the Assessing Officer while framing the

assessment order dated 11-11-2016". Thus, it was submitted that this was not a

case of no inquiry, warranting order under section 263.

I.T.A. No 421/Coch/2019 5.5 In the present facts, it was submitted that the Assessing Officer was satisfied,

consequent to making an enquiry and examining the evidences produced by the

assessee and this is a case where a view has been taken by the Assessing Officer on

enquiry. Reliance was placed on 390 ITR. 292 (Bom). Thus, it was submitted that

the Assessing Officer had made due enquiries with regard to cash deposits into the

bank account, more particularly, after examining the details/explanation filed in the

course of assessment proceedings. Hence, it was prayed that the order passed u/s.

263 of the Act by the PCIT may be dropped.

Income-tax Act seeks to remove the prejudice caused to the revenue by the

erroneous order passed by the Assessing Officer. It empowers the Commissioner to

initiate suo moto proceedings either where the Assessing Officer takes a wrong

decision without considering the materials available on record or he takes a decision

without making an enquiry into the matters, where such inquiry was prima facie

warranted. The Commissioner is well within his powers to treat an order as

erroneous on the ground that the Assessing Officer should have made further

inquiries before accepting the wrong claims made by the assessee. The Assessing

Officer cannot remain passive in the face of a claim, which calls for further enquiry

to know the genuineness of it. In other words, he must carry out investigation

where the facts of the case so require and also decide the matter judiciously on the

basis of materials collected by him as also those produced by the assessee before

him. The Assessing Officer was statutorily required to make the assessment under

I.T.A. No 421/Coch/2019 Section 143(3) after scrutiny and not in a summary manner as contemplated by

Sub-section (1) of Section 143. The Assessing Officer is therefore, required to act

fairly while accepting or rejecting the claim of the assessee in cases of scrutiny

assessments. The Assessing Officer should protect the interests of the revenue and

to see that no one dodged the revenue and escaped without paying the legitimate

tax. The Assessing Officer is not expected to put blinkers on his eyes and

mechanically accept what the assessee claims before him. It is his duty to ascertain

the truth of the facts stated and the genuineness of the claims made in the return.

The order passed by the Assessing Officer becomes erroneous when an enquiry has

not been made before accepting the genuineness of the claim which resulted in loss

of revenue. Further, the Ld. AR pointed out certain defects in the issue of notice

u/s. 263 of the I.T. Act regarding mentioning the date of assessment order in the

notice issued u/s. 263 of the I.T. Act by the PCIT. It is a clerical error which cannot

make the order u/s. 263 as bad in law.

6.1 In the present case, at the time of assessment proceedings, the Assessing

Officer had called for details from the assessee and the assessee has replied vide

two letters dated 27/08/2016 and 23/08/2016 which contained the following

details:

From, Mithra Paul 8/243, Pottayail House Mekkadampu (PO) Muvattapuzha Ernakulam- 682316

To, 8

I.T.A. No 421/Coch/2019 The Income Tax Officer Ward-1 Thodupuzha

Dear Sir/Madam,

Sub: PA No. ANGPP 7357Q Assessment Year 2014-15 Continuation of hearing conducted on 19-08-2016

Further to the above I am furnishing the details called for at the time of hearing.

I had also received rent of Rs. 7,500/- per month from Sri. Muralidharan for an attached annexe building.

The total rent received for the F.Y. 2013-14 amounted to Rs, 1,82,650/- as follows: From Ahalya Foundation 92,650 From Sri. Muralidharan 90,000 1,82,650 The income from house property would work out as follows: Rental Income 1,82,650 30% Standard Deduction 54,795 1,27,855 Less: Interest on loan taken for the house property from ICICl Bank 7,97,115 Income (-) 6,69,260

Since the net income from the house property was a loss, I have not included the same in the return.

Thanking you, 9

I.T.A. No 421/Coch/2019

Yours faithfully sd/- Mithra Paul

From, Chithra Shirilson 8/243,. Pottayil House, Mekkadampu(PO) Muvattupuzha, Ernakulam- 682316.

To, The Income Tax Officer, Ward - 1 Thodupuzha.

Dear Sir/Madam

Sub: Confirmation of gift to my sister Mithra Paul

I hereby confirm the following facts.

The legal heirs of Sri. P.V. Paulose are: i. Thankamma Paulose (Wife) ii. Chithra Shirilson (Daughter) iii. Mithra Paul (Daughter)

i. Chithra Shirilson (Daughter) ii. Mithra Paul (Daughter)

Copy of legal heirship certificate is enclosed.

I.T.A. No 421/Coch/2019 plantation and level the hilly slope into a plain ground. In the process we extracted substantial quantity of hard laterite (vettukal) and loose earth. The sale proceeds at the same in F.Y. 2013-2014 amount to approximately Rs. 60 lakhs.

I confirm that myself and Smt. Thankamma Paulose allowed Mithra, my sister to enjoy the proceeds of the sale of hard laterite (vettukal) by herself and made a gift of our share of sale proceeds to her. Since Thankamma Paulose is no more and I am the only other heir to the property, I confirm the above facts on behalf of my deceased mother Smt. Thankamma Paulose also.

Thanking you. Yours faithfully sd/- Chithra Shirilson

6.3 Further, the Assessing Officer passed the assessment order dated 11/11/2016

by observing as follows:

“2. The case was selected for scrutiny to verify the aspect of cash deposits in savings bank account. Details have been called for and examined.

I.T.A. No 421/Coch/2019

3.1. Assessee concealed particulars of his income for the year and therefore penalty u/s 271(1)(c) of the Act is attracted in the case. Addition: 9,50,000/-“

6.4 As seen from the above, , the Assessing Officer while framing the assessment

u/s. 143(3) of the I.T. Act considered the deposits made into the Bank account with

Dhanalakshmi Bank Ltd., Muvattupuzha at Rs.95,00,000/- and called for explanation

from the assessee. It was submitted by the assessee at the time of assessment

that the assessee carried out the sale of laterite and gravel earth from the lands

owned by her in Muvattupuzha and Changanassery and the cash deposits made into

her bank account were out of sale of said laterite and gravel earth business. Since

the assessee’s turnover was less than Rs.1 crore during the previous year, the

Assessing Officer had taken a clue from the provisions of section 44AD of the I.T.

Act and applied 10% of the total income as income of the assessee from the said

business and made an addition of Rs.9,50,000/- to the returned income of the

assessee.

6.5 The PCIT was not agreeing with this view of the Assessing Officer. According

to him, the impugned amount deposited into the bank account is to be re-examined

by the Assessing Officer. In our opinion, since the Assessing Officer while framing

the original assessment, had considered the entire material, was satisfied with the

above factual aspect and thereafter, estimated the income of the assessee at 10%

and made an addition of Rs.9,50,000/-. The Assessing Officer had taken one

possible view where two views are possible. When the PCIT does not agree, the

I.T.A. No 421/Coch/2019 assessment cannot be treated as erroneous in so far as it is prejudicial to the

interests of the Revenue, since the view taken by the Assessing Officer is not

unsustainable in law. In other words, when an Assessing Officer adopts one of the

courses permissible in law which results in loss of revenue or where two views are

possible and the Assessing Officer has taken one view with which the

PCIT/Commissioner does not agree, the assessment order cannot be treated as

erroneous order in so far as it is prejudicial to the interests of the Revenue, unless

the view taken by the Assessing Officer is unsustainable in law. Any and every

erroneous order cannot be the subject matter for revision u/s. 263 of the I.T. Act

unless the second requirement of section 263 of the Act being prejudicial to the

interests of the Revenue prevails. In this case, there was no material to show as to

how the order of the Assessing Officer was erroneous in so far as it would become

prejudicial to the interests of the Revenue to invoke the jurisdiction u/s. 263 of the

Act. To take this view, we rely on the judgments of the Supreme Court in the case

of Malabar Industrial Co. Ltd. vs. CIT (243 ITR 83), CIT vs. Max India Ltd. (295 ITR

282) and CIT vs. Gabriel India Ltd. (203 ITR 108) [Bombay]. Being so, the

Assessing Officer after applying her mind has taken conscious decision on this issue

raised by the PCIT in his above order u/s. 263 of the Act. The PCIT cannot

substitute his view on the issue considered by the Assessing Officer which is not

justified. In our opinion, invoking of provisions of section 263 of the Act for making

roving enquiry is unjustified. Accordingly, we quash the order of the PCIT passed

u/s. 263 of the Act. Thus, the grounds of appeal of the assessee are allowed.

I.T.A. No 421/Coch/2019 7. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 20th September, 2019.

(GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 20th September, 2019 GJ Copy to: 1. Smt. Mithra Paul, 8/243, Pottayil House, Mekkadambu P.O., Muvattupuzha-682 316. 2. The Income Tax Officer, Ward-1, Thodupuzha. 3. The Pr. Commissioner of Income-tax, Kochi. 4. D.R., I.T.A.T., Cochin Bench, Cochin. 5.. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin