SANTOSH GOLECHHA, BHILAI,DURG vs. PCIT, RAIPUR-1, RAIPUR

Following grounds of appeal were raised by the assessee:

The relevant facts giving rise to this appeal are that the assessee runs petrol pump. He filed his Income Tax Return (‘ITR’) on 09.03.2022 declaring income of Rs.4,28,71,220/-. The case was scrutinised and the consequential assessment was completed at returned income of Rs.4,28,71,220/- vide order dated 20.12.2022 passed under section 143(3) r.w.s. 144B of the Act. Meanwhile, the assessment order dated 07.12.2022 was revised under section 263 of the Act by the Ld. PCIT, who set aside the assessment order and directed the Ld. Assessing Officer (‘AO’) to make afresh assessment as under:

1 The Ld. PCIT noticed that the assessee had claimed deduction under section 54B of the Act on purchase of a new property whose actual purchase price was Rs.1,64,00,000/- though its value for stamp duty purposes was Rs.2,63,92,000/-. For claiming deduction under section 54B of the Act, the assessee adopted the value of Rs.2,63,92,000/- for stamp duty purpose instead of its actual cost of Rs.1,64,00,000/- , which was allowed by the Ld. AO. The Ld. PCIT appeared having formed his opinion that the deeming provisions under section 50C and 56(2) of the Act could not be applied for exemption under section 54B of the Act as deeming fictions were created with specific purposes and the same could not be extended beyond the purposes for which those were enacted and explicitly mandated in such sections of the Act. Therefore, The Ld. PCIT opined that the excess claim of deduction of Rs.99,92,000/- under section 54B of the Act had been allowed by the Ld. AO, which was not only erroneous but prejudicial to the interest of Revenue. Further, the Ld. PCIT also noticed that the assessee, running Reliance Petrol Pump, had claimed excess evaporation loss of petrol and diesel than those permissible by Public Sector Oil Companies in similar business. The Ld. PCIT; therefore, opined that the assessee’s claim of evaporation loss of petrol and diesel by 1273 Ltrs. and 12811 Ltrs., over and above the permissible evaporation loss of petrol and diesel by Public Sector Oil Companies in similar business was not justified as the same was not only erroneous but prejudicial to the interest of Revenue. Based on the above, the Ld. PCIT show- caused the assessee under section 263 of the Act. The relevant part of the said notice under section 263 of the Act [Page 1 and 2 of the Paper Book(PB)] reads as under:

2 In response to the show-cause notice issued under section 263 of the Act; the assessee submitted that the issues raised by the Ld. PCIT had already been examined; therefore, he requested the Ld. PCIT to drop the proceedings initiated under section 263 of the Act. In support of his claim, the assessee placed reliance on various judicial decisions in the cases of Anil Kumar Sharma [2010 SCC Online Del 838], Clix Finance India Ltd. ITA No. 1428/2018, Sunbeam Auto Ltd. [2009 SCC Online Del 4237 and Purna Purshottam Exports [2025 (2) TMI 764]. The relevant part (Page 9 to 12 of the PB) of the assessee’s submission is scanned hereunder:

3 The assessee questioned the revisionary proceedings under section 263 of the Act by submitting that the Ld. AO had already applied his mind on the issues of deduction under section 54B of the Act and the evaporation loss of petrol and diesel and therefore, the proceedings under section 263 of the Act were due to change of opinion on the same issues which had been once looked into by the Ld. AO. The assessee submitted during the proceedings under section 263 of the Act that the Ld. AO, after analysing the detailed submissions furnished in response to notice u/s 142(1) of the Act, did not find anything adverse; hence, he did not draw any adverse inference thereon. Accordingly, the assessee submitted that the revisionary proceedings initiated under section 263 of the Act were nothing but a case of change of opinion only. He therefore, prayed for dropping the proceedings initiated under section 263 of the Act.

4 The Ld. PCIT, analysing the sale deeds submitted by the assessee, further noticed that the land sold for consideration of Rs.18,28,14,161/- resulting Capital Gains was not used for agricultural purposes for the period of two years before its sale/transfer. Hence, the transfer of said land would not entitle the assessee to claim deduction under section 54B of the Act on purchase of new agricultural land. Thus, the Ld. PCIT opined that the deduction of Rs.4,95,08,860/- under section 54B of the Act was not justified. Accordingly, the Ld. PCIT inferring that the excess claim of deduction of Rs.4,95,08,860/- under section 54B of the Act had been allowed by the Ld. AO was not only erroneous but prejudicial to the interest of Revenue. Hence, the Ld. PCIT, vide impugned order, also directed the Ld. AO to examine the deduction under section 54B of the Act in this regard.

5 The Ld. PCIT; however, being unsatisfied with the explanation of the assessee, set aside the assessment passed under section 143(3) r.w.s. 144B of the Act and remanded the above mentioned issues to the Ld. AO with the specific directions as mentioned above.

Before us, Shri Yash Jain, Ld. Authorised Representative (‘AR’) of the assessee, drew our attention to the notice issued under section 142(1) of the Act, wherein the Ld. AO had called various details (Page 278 of the PB). He emphasized on the question no. 1 & 2 of the notice issued under section 142(1) of the Act on 29.11.2022, which reads as under:

The Ld. AR, referring page no. 281 of the PB, drew our attention to the reply on the issue of deduction under section 54B of the Act filed before the Ld. AO. The relevant submission of the assessee, on the issue of deduction under section 54B of the Act mentioned at page no. 281 of the PB reads as under:

On the issue of claim of evaporation loss of petrol and diesel, the Ld. AR placed emphasized on the quantitative details of these goods. He, placing reliance on the decision of Chandigarh Tribunal in case of R K Fuel Centre, ITA No. 912/CHD/2012, submitted that the loss was within the permissible range. On our specific query that whether the Ld. AO had examined this aspect either by raising specific query in this regard vide notice issued under section 142(1) of the Act or otherwise through order sheet entry, his reply was not corroborated by any cogent material. He submitted that the Ld. AO had verified the stock details and found nothing adverse. Hence, the AO did not point any abnormality in this regard. The Ld. AR reiterated the submissions/contentions/arguments filed/taken before the Ld. PCIT.

The Ld. AR questioned the order passed under section 263 of the Act on reasoning that it was a case of change of opinion. He placed reliance on the following decision:

The Ld. AR, drawing our attention to the notice issued under section 263 of the Act, assailed that the Ld. PCIT, without pointing it out in the show-cause notice under section 263 of the Act, had raised the 3rd issue; i.e. the non-justification of deduction of Rs.4,95,08,860/- under section 54B of the Act on the reasoning that the land sold for sale consideration of Rs.18,28,14,161/- resulting Capital Gains was not used for agricultural purposes for the period of two years before its sale/transfer. It was categorically submitted by the Ld. AR that this issue was never raised during the proceedings under section 263 of the Act; hence, the impugned order on this score was unjustified in violation of the principle of natural justice.

On the other hand, Mrs. Manish Kinnu, Ld. CIT-DR defended the impugned order by reiterating the details mentioned therein. The Ld. CIT-DR contended that the assessment order passed under section 143(3) rws 144B of the Act was not completed after proper investigations as emerged from the notice issued under section 263 of the Act; therefore, the Ld. PCIT was legally competent and was bound to hold the order erroneous and prejudicial to the interest of revenue as the Ld. AO required to examine all aspects of the ITR, under legal obligation, had failed to examine the issues of (i) excess claim of deduction under section 54B of the Act by adopting the value of Rs.2,63,92,000/- for stamp duty purpose instead of its actual purchase cost of Rs.1,64,00,000/- of the property, (ii) claim of evaporation loss of petrol and diesel by 1273 Ltrs. and 12811 Ltrs. and (iii) excess deduction of Rs.4,95,08,860/- under section 54B of the Act.

The Ld. CIT-DR, placing reliance on the decisions of the Hon'ble Supreme Court in the case of Amarchand N. Shroff 48 ITR 59 and Mother India Refrigeration Industries (P.) Ltd. 155 ITR 711, wherein it had been held that a deeming provision could not be extended beyond the purpose for which the same was enacted as the legal fictions were created only for some definite purpose and these must be limited to that purpose and should not be extended beyond their legitimate field, submitted that the excess claim of deduction under section 54B of the Act by adopting the value of Rs.2,63,92,000/- for stamp duty purpose instead of its actual purchase cost of Rs.1,64,00,000/- of the property was not examined at all as the Ld. AO had not called specific details in this regard. Further, she contended that the Ld. AO had just called general details and did not analyse/examine the same in proper perspective. This issue was not examined at all by the Ld. AO as there was no specific mention of this issue in the notice issued under section 142(1) of the Act or otherwise.

On the issue of claim of evaporation loss of petrol and diesel by 1273 Ltrs. and 12811 Ltrs., the Ld. CIT-DR contended that this issue was not examined at all by the Ld. AO as there was no mention of this issue in the notice issued under section 142(1) of the Act or otherwise. Further, she contended that the Ld. AO had not called even the general details what to say any specific detail in this regard. Even stock details break-up was not called during the assessment proceedings.

On the issue of claim of excess deduction of Rs.4,95,08,860/- under section 54B of the Act, the Ld. CIT-DR contended that this issue was not examined at all by the Ld. AO as there was no specific mention of this issue in the notice issued under section 142(1) of the Act or otherwise. Further, she contended that the Ld. AO had just called general details as evident from the notice issued under section 142(1) of the Act and did not analyse/examine the same in proper perspective.

The Ld. CIT-DR, therefore, contended that the assessment order was rightly held erroneous and prejudicial to the interest of revenue to the extent of issues raised in the order under section 263 of the Act. The Ld. PCIT, vide notice under section 263 of the Act had raised the issue of deduction under section 54B of the Act and that was why the submission filed before him at point 11 (page 9 of the PB) specifically admitted that there were two issues raised in notice under section 263 of the Act: i. Deduction under section 54B of the Act and ii. Excess shortage of petrol and diesel She therefore, contended that the issue of Deduction under section 54B of the Act comprised of two sub-issues (a) the excess deduction of Rs.99,92,000/- under section 54B of the Act and (b) the excess deduction of Rs.4,95,08,860/- under section 54B of the Act. Hence, there was no merit in the submission of the Ld. AR that there was violation of the principle of natural justice with respect to the issue of excess deduction of Rs.4,95,08,860/- under section 54B of the Act.

The Ld. CIT-DR placed emphasis on explanation-2(d) of section 263 of the Act and submitted that an assessment order passed without making the requisite inquiries or verifications should be deemed to be erroneous and prejudicial to the interest of revenue. It was categorically submitted by the Ld. CIT-DR that since the Ld. AO had failed to make requisite inquiries/verifications which she/he should have done; therefore, the impugned order of the Ld. PCIT required to be upheld. The Ld. CIT-DR, after explaining the entire facts, submitted that the Ld. AO did not make any enquiry regarding the issue highlighted by the Ld. Pr. CIT. Therefore, in terms of Explanation 2 inserted in section 263 of the Act, the assessment order had to be deemed to be erroneous insofar as prejudicial to the Revenue, contended the Ld. CIT-DR. She relied on the case laws mentioned in the impugned order. She therefore, prayed for dismissal of the appeal.

We have heard both parties and have perused the material available on the record. We perused the show-cause notice issued by the Ld. PCIT and the assessee’s reply to the said show-cause notice.

As far as the issue of maintainability of the impugned order on the argument that this is a case of change of opinion, we find that it is nowhere borne out from the record that the Ld. AO has properly verified the issues raised by the Ld. PCIT in the impugned order. Before us, the Ld. AR contended that the Ld. AO had enquired the issues raised in the show-cause notice under section 263 of the Act and thereafter the Ld. AO did not draw any adverse inference. However, we do find any whisper about any specific enquiry or verification done by the Ld. AO on the following issues: i. Deduction under section 54B of the Act and ii. Excess shortage of petrol and diesel There is no categorical justification mentioned on accepting these issues. The Ld. AO was required to carry out detailed enquiry and verification on these issues during the assessment proceedings. However, we find that the Ld. AO has not carried out any enquiry or verification on these issues.

The relevant part of the section 263 of the Act is extracted hereunder: - “Explanation 2. — For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, — (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the juri ictional High Court or Supreme Court in the case of the assessee or any other person.”

From perusal of the reassessment order, it is not discernible that whether the Ld. AO has carried out the requisite inquiries or verification which should have been made as there is no mention of the issues pointed out in the impugned order of the Ld. PCIT. The order under section 263 of the Act clearly shows that the Ld. AO has not carried out the requisite inquiries or verification on the issues raised therein though the same should have been made. From perusal of the assessment order, it is not evident that the Ld. AO has called very general details and has gone through various details, documents, etc. furnished by the assessee during the assessment proceedings but the Ld. AO did not examine and analyse those documents and submission of the assessee and did not carry out any enquiry/investigation/ verification, which should have been made before concluding the assessment.

The Hon'ble Supreme Court, in the case of Paville Project Pvt. Ltd. in Civil Appeal No. 6126 of 2021 order dated 06.04.2023 has held that the scheme of the Income Tax is to levy and collect tax in accordance with the provisions of the Act which is entrusted to the Revenue. If due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The Hon’ble Supreme Court upon perusing the assessment order and the order passed by the Commissioner of Income Tax and relying upon Malabar Industries Company Ltd. (2000) 2 SCC 718 has held that the order passed by the AO is erroneous as well as prejudicial to the interest of the Revenue. The relevant part of the order of the Hon’ble Supreme Court in the case of Paville Project Pvt. Ltd. reads as under:

2 Thus, even as observed in paragraph 9 by this Court in the case of Malabar Industrial Co. Ltd. (supra) that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. It is further observed that if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. However, only in a case where two views are possible and the Assessing Officer has adopted one view, such a decision, which might be plausible and it has resulted in loss of Revenue, such an order is not revisable under Section 263. 7.3 Applying the law laid down by this Court in the case of Malabar Industrial Co. Ltd. (supra) to the facts of the case on hand and even as observed by the Commissioner, the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the Revenue. Having gone through the assessment order as well as the order passed by the Commissioner of Income Tax, we are also of the opinion that the assessment order was not only erroneous but prejudicial to the interest of the Revenue also. In the facts and circumstances of the case, it cannot be said that the Commissioner exercised the juri iction under Section 263 not vested in it. The erroneous assessment order has resulted into loss of the Revenue in the form of tax.

In view of the above and for the reasons stated above, present appeal succeeds. The impugned judgment and order passed by the High Court is hereby quashed and set aside and that the order passed by the Commissioner passed in exercise of powers under Section 263 of the Income Tax Act is hereby restored.”

We find that the Ld. PCIT has amply demonstrated in the impugned order that the issues under reference were not properly enquired/investigated/verified by the Ld. AO. This inference also gets support from the fact that the Ld. AO has not raised any specific query on these issues. Only general details were called by the Ld. AO, which were also not analysed and examined thereafter and that was why no subsequent queries/clarifications were raised by the Ld. AO. We have perused the record and are of the considered view that the Ld. AO has failed to carry out requisite inquiry and verification on the issues raised by the Ld. PCIT. Had the Ld. AO examined these issues properly, the assessee would have submitted his replies/justification thereafter. Here, in this case, the Ld. AO has not found having carried out any specific requisite enquiry on the issues raised in the impugned order. Even calling details and not examining in right perspective will invite revisionary proceedings under section 263 of the Act [Paville Project Pvt. Ltd. (SC) (supra)]. The case laws relied upon by the Ld. AR are held distinguishable on the facts and not relevant for the case in hand. Building of a case by emphasizing part of the decisions and observations therein is not justified when the facts of the said decisions have not been appreciated in entirety.

We have perused the record and are of the considered view that when the Ld. AO has failed to carry out requisite inquiry and verification on the issues raised by the Ld. PCIT, the assessment order dated 22.12.2022 passed under section 143(3) rws 144B of the Act in the case in hand has become erroneous and prejudicial to the interest of the Revenue. Explanation 2(a) to section 263 of the Act, in an unambiguous manner states that where the order is passed without making enquiries or verification which should have been made, the same shall be deemed to be erroneous and in so far as it is prejudicial to interest of revenue. Applying the law laid down by the Hon’ble Supreme Court in the case of Paville Project Pvt. Ltd. (supra) to the facts of the present case mentioned in the impugned order and keeping in view the above discussions, we hold that the Ld. PCIT has rightly exercised his juri iction under section 263 of the Act in setting aside the assessment order of the Ld. AO being erroneous in so far it is prejudicial to the interest of the Revenue. Accordingly, we uphold the order of the Ld. PCIT and dismiss the appeal of the assessee.

In the result, appeal of the assessee is dismissed as above.