C I T KOTA vs. SHRI PARMANAND PROP RANGBARI

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ITA/137/2014HC RajasthanRJHC02043591201407 November 20173 pages
AI SummaryDismissed

What did the High Court hold?

The High Court agreed with the view taken by the Tribunal. The Tribunal had held that the Assessing Officer (AO) cannot initiate the process under Section 263 by proposing that his own order is erroneous and prejudicial to the interest of the revenue. The Tribunal considered this procedure unwarranted and not in accordance with the provisions of Section 263, which vests the power of revision in the Commissioner. The Tribunal also found that on merits, the case involved reopening, and the AO had duly verified the issues raised. The assessee had provided clear explanations for debit and credit entries, cost of improvement, and land status. The Tribunal concluded that the AO's verification was proper and that the twin conditions stipulated in Section 263 (erroneous and prejudicial to the interest of the revenue) did not co-exist. Consequently, the Tribunal set aside the order of the CIT and allowed the assessee's appeal. The High Court affirmed this decision, answering both issues in favour of the assessee.

What were the facts?

The appeal was filed by the Commissioner of Income Tax (CIT), Kota, against an order of the Income Tax Appellate Tribunal (ITAT). The ITAT had allowed the appeal of the assessee, Shri Parmanand, and set aside the order of the CIT(A). The substantial questions of law framed by the High Court pertained to the validity of the notice issued by the CIT under Section 263 of the Income Tax Act, 1961, and whether the twin conditions for exercising revisional power were met. The ITAT had observed that the Assessing Officer (AO) cannot propose his own order to be erroneous and prejudicial to the interest of the revenue for revision under Section 263, deeming such a procedure unwarranted and illegal. The ITAT also held that the AO had conducted proper verification during the reopening and that the twin conditions of Section 263 did not co-exist.

What were the issues?

1. Whether the Tribunal was legally justified in holding that the notice issued by the CIT under Section 263, exercising revisional power, was a case of reopening and not one by holding the order of the Assessing Officer to be erroneous and prejudicial to the interest of the revenue due to the AO not conducting proper inquiries. The assessee contended that the AO cannot propose his own order as erroneous and prejudicial to the revenue for revision under Section 263, citing ITAT decisions in Jheendu Ram vs. CIT and Rajeev Arora vs. CIT. The revenue argued that the AO's failure to conduct proper inquiries made the order erroneous and prejudicial, justifying the CIT's revision. 2. Whether the Tribunal was legally justified in holding that the twin conditions as per the provision of Section 263 did not co-exist and the Assessing Officer could not propose his own order to be erroneous and prejudicial to the interest of the revenue. The assessee argued that the AO's verification was proper and the twin conditions of Section 263 were not met. The revenue contended that the AO's order was indeed erroneous and prejudicial to the revenue's interest, satisfying the conditions for revision.

Which sections of the Income-tax Act were involved?

Section 263

AI-generated summary — verify with the full judgment below

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 137 / 2014 Commissioner of Income Tax, Kota ----Appellant Versus Shri Parmanand, Prop., Parmanand Contractor, Rangbari, Kota ----Respondent _____________________________________________________ For Appellant(s) : Ms. Parinitoo Jain For Respondent(s) : Mr. Muzaffar Iqbal for Mr. Siddharth Ranka _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 07/11/2017

1.

By way of this appeal, the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has allowed the appeal of the assessee and set aside the order of CIT(A). 2. This Court while admitting the matter framed the following substantial questions of law:- “i) Whether the Tribunal was legally justified in holding that the notice u/s 263 issued by the CIT(A) exercising the revisional power conferred u/s 263 was a case of reopening and not one by holding the order of the Assessing Officer to be revenue since the Assessing Officer did not conduct proper inquiries. ii) Whether the Tribunal was legally justified in holding that the twin conditions as per provision of section 263 did not co-exist and the Assessing

(2 of 3) [ITA-137/2014] Officer could not propose his own order to be revenue?” 3. The Tribunal while deciding the matter has observed as under:- “2.7. Adverting to the facts of the case, we are afraid that the AO himself can find his order as Revenue and can make such proposal to the ld. CIT u/s 263 of the Act. The power of revision as discussed above widely vests in Commissioner who may call and examine the record of any proceeding under the Act and if he considers that any order passed therein by the AO is erroneous and prejudicial to the interest of the Revenue. He may after giving the assessee a particular opportunity of being heard or after making any such enquiry revise that order. Therefore, it is very clear from the provision of Section 263 of the Act that the AO has to examine the record himself to come to a conclusion that the order is Revenue. There is no such procedure laid under this Section wherein the AO himself can propose the order to file u/s 263 of the Act. This action of the AO is unwarranted and not legal. On the basis of such proposal, the ld. CIT cannot take action as he has taken in this regard. The decision of ITAT Lucknow Bench in the case of Jheendu Ram vs. CIT, 130 TTJ (Luck) and ITAT Jaipur Bench in the case of Rajeev Arora vs. CIT 135 TTJ 01 (JP.) are relevant. The ratio decidendie of the above two orders is that the AO cannot propose his own order by treating it as erroneous and prejudicial to the interest of Revenue for getting it revised by the ld. Commissioner u/s 263 of the Act. This procedure is unknown to the Income Tax. Accordingly, on this very basis, the appellate order is struck down and quashed. 2.8. On merits also, this is a case of reopening and during reopening both the issues raised by the AO himself have been duly verified by him. The assessee has clearly explained the debit and credit entries as discussed in the written submission and also explained the cost of improvement shown by the assessee and the status of the land etc. Therefore, this is not a case of no verification or no proper verification. The verification done by the AO is also to be

(3 of 3) [ITA-137/2014] treated as proper unless some specific instruction or prescription of a particular section of the Act has not been carried by the AO or else the AO has not conducted enquiry as demanded by law. In our considered opinion, this is not such a case. The twin conditions of Section 263 as discussed above in detail are not found to co- exist. Therefore, we set aside the impugned order dt. 07.03.2013 passed by the ld. CIT and allow the appeal of the assessee.” 4. We are in complete agreement with the view taken by the Tribunal. 5. Hence, both the issues are required to be answered in favour of the assessee and against the department. 6. The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S. JHAVERI)J. A.Sharma/37

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