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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
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.
2. The assessee has raised the following grounds of appeal:
1. The order of the PCIT is bad and erroneous in law and against the principles of natural justice.
2. The PCIT erred in not considering the written submission in proper perspective.
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.
The facts of the case are that from the perusal of the records, it was noticed 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.
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.
Against this, the assessee is in appeal before us. The Ld. AR submitted that 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 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
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.”
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.
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.
We have heard the rival submissions and perused the record. Section 263 of the 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 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 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.
1. I had received a rent of Rs. 9,350/- per month from M/s Ahalya Foundation on house property at X/X, Market (Po), Kadathy, Muvattupuzha.
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.
I am enclosing a confirmation letter dated 23-08-2016 from my sister regarding gift by her and my mother to me during the F.Y, 2013-14.1 had also extracted and sold gravel earth from property at Kanikachal Village, Changanassery jointly held with my neice Nikitha for about Rs.35 lakhs in F.Y. 2013-14.
Thanking you, 9
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.
I am enclosing a copy of legal heirship certificate issued upon demise of my father, Sri. P.V. Paulose (certificate dated 24-07-2001).
The legal heirs of Sri. P.V. Paulose are: i. Thankamma Paulose (Wife) ii. Chithra Shirilson (Daughter) iii. Mithra Paul (Daughter)
2. Smt. Thankamma Paulose died on 16-01-2016 and the legal heirs of Smt. Thankamma Paulose are as follows:
i. Chithra Shirilson (Daughter) ii. Mithra Paul (Daughter)
Copy of legal heirship certificate is enclosed.
3. Myself, my mother Smt. Thankamma Paulose and Mithra my sister had inherited 1.5 acres of rubber plantation at Valakom Village upon demise of our father Sri. P. V. Paulose. Copy of land tax receipt dt. 21-04-2016 is enclosed.
Rubber plantation was very old and it was reaching its sag end of natural life. Also since rubber plantation was not economical due to fall in prices and scarcity of workers for tapping and maintenance, we opted to clear the rubber 10
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.
5. Other than Mithra, only myself and my mother Thankamma PauJose were the owners.
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.