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Income Tax Appellate Tribunal, DELHI BENCH : A : NEW DELHI
Before: SHRI R.K. PANDA & MS SUCHITRA KAMBLE
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : A : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.2552/Del/2017 Assessment Year: 2014-15 Ambawatt Buildwell Pvt. Ltd., Vs Pr. CIT (C), Kh 267, 1st Floor, 7th Floor, HSIIDC Building, Chatterpur Enclave, Udyog Vihar, Phase-V, Mehrauli, Gurgaon. New Delhi. PAN: AAGCA0991B (Appellant) (Respondent) Assessee by : Shri P.C. Yadav, Advocate Revenue by : Shri Satpal Gulati, CIT, DR Date of Hearing : 10.03.2021 Date of Pronouncement : 21.05.2021 ORDER PER R.K. PANDA, AM: This appeal filed by the assessee is directed against the order dated 17th February, 2017 passed u/s 263 of the Act by the CIT, Central, Gurgaon, relating to assessment year 2014-15.
Facts of the case, in brief, are that the assessee is a company engaged in the business of real estate. It filed its return of income on 30th September, 2014, declaring nil income. The case of the assessee was selected for compulsory scrutiny and a notice u/s 143(2) of the Act was issued to the assessee on 20th
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September, 2015. Notice u/s 142(1) along with a questionnaire was also issued on 12th May, 2016. In response to the statutory notices issued by the AO, the assessee appeared before him from time to time and furnished replies which were kept on record. The AO, on the basis of various details furnished before him, disallowed an amount of Rs.3,91,936/- u/s 40A(3) out of car repairs and maintenance and determined the total loss of the assessee at Rs.94,25,270/- as against the returned loss of Rs.98,17,203/-.
Subsequently, the ld.PCIT called for the records and examined the same and noted that no revenue from operations has been shown by the assessee during the relevant financial year and the assessee has only shown ‘Other income’ of Rs.4,50,030/- which consists of exempted agricultural income of Rs.2 lakh and ‘Other income’ of Rs.2,00,030/-. However, the assessee has claimed depreciation of Rs.71,11,250/-, finance cost of Rs.14,92,076/- and ‘Other expenses’ of Rs.17,32,848/-. Further, the ‘Other expenses’ of Rs.17,42,000/- includes Rs.7,91,514/- towards vehicle running and maintenance expenses. He further noted that the assessee has received unsecured loan from the Director Shri Vinod Kumar of Rs.15,40,80,000/- and has also given inter-corporate loans/advances to sister concerns. He further noted that the AO has not examined the application of the provisions of section 2(22)(e) of the Act in the context. He, therefore, issued a show cause notice to the assessee u/s 263 of the IT Act, 1961, the contents of which read as under:-
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The assessee appeared before the PCIT and filed its submission. However, the ld.PCIT was not satisfied with the arguments advanced before him and held that the AO has passed the assessment order without making proper enquiries/ verification/ investigations which should have been made before accepting the issues stated in his order. Thus, the order is erroneous and prejudicial to the interest of the Revenue. He, therefore, set aside the order passed by the AO with a direction to pass the same denovo.
Aggrieved with such order of the CIT, the assessee is in appeal before the Tribunal by raising the following grounds:- “1. That on the facts and circumstances of the case and in law, the proceedings u/s 263 of the Act have been initiated on the basis of incorrect facts and the impugned order passed pursuant thereto is illegal, invalid and bad in law. 2. That on the facts and circumstances of the case and in law, the Ld. PR. CIT has failed to appreciate that all the issues raised in the notice under section 263 of the Act were fully examined and explained during assessment proceedings and there is no basis or reasoning given for holding that the order is erroneous and prejudicial to the interest of revenue. 3. That on the facts and circumstances of the case and in law, the Ld. Pr. CIT had erred in holding that the AO had failed to carry out the enquires called for whereas the fact is that detailed enquiries on all 6
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the issues were made before completing the assessment. 4. That on the facts and circumstances of the case and in law, the Ld. Pr. CIT has erred in setting aside the assessment order without recording any finding as to how the view taken by the Assessing Officer on various issues is erroneous and prejudicial to the interest of revenue within the meaning of section 263 of the Act as held in various judicial pronouncements. 5. That on the fact and circumstances of the case and in law, the views expressed by the Ld. Pr. CIT are mere ‘change of opinion’ or taking a view different from the view taken by the AO after detailed examination of various issues. 6. That in the facts and circumstances of the case, the order passed by the Ld. Pr. CIT is perverse and bad in law as he has not considered and/or dealt with the detailed submissions made during the proceedings under section 263 of the Act and has gone by extraneous, irrelevant and incorrect facts and contrary to the material placed on record during proceedings u/s 143(3) and section 263 of the Act. The action of the Ld. Pr. CIT is wholly unreasonable, uncalled for and bad in law. 7. The Appellant craves leave to add, amend, alter vary and / or withdraw any or all the above grounds of appeal. 8. The appellant prays that the Order passed by the learned Pr. CIT u/s 263 of the Income tax Act, 1961 may be ordered as illegal, invalid and void ab- initio.”
The assessee has also filed the following additional grounds:- “1. On the facts and circumstances of the case the Assessment Order passed under section 143(3) and further revised by the CIT under section 263 of the Act is void, as the impugned year is the year of search and the AO ought to have framed the assessment under section 153B (1) (b)/143(3), which provisions are exclusively applicable for framing the assessment of the year of search. 2. On the facts and under the circumstances of the case, the jurisdiction assumed by the CIT u/s 263 against the order of the AO dated 30.08.2016, passed under section 143(3) is void ab initio as no notice of section 153C has ever been issued by the AO for assessing the impugned year, and the order of assessment has been framed in complete disregard of the provision section 153C.”
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The ld. counsel for the assessee, referring to the additional grounds raised by the assessee submitted that the assessee had filed the appeal before the Tribunal on 28.04.2017 against the order of the PCIT dated 17th February, 2017 wherein the assessee has challenged the order of the PCIT as illegal, invalid and bad in law. He submitted that the Tribunal while adjudicating the appeal for A.Y. 2012-13 vide order dated 18th September, 2018 in ITA No. 2592/Del/2015, has categorically held that the year of search for the assessee would be assessment year 2014-15 as the material pertaining to the assessee was received by the AO of the assessee on 29th August, 2013. The case of the assessee along with the case of the searched person were centralized on 23rd October, 2013 to CIT, Faridabad. He submitted that till date the Revenue has not supplied the note of satisfaction which is evident from record. However, the assessee came to know of the satisfaction only when the order of the Tribunal was pronounced on 18th September, 2018 in assessee’s own case for the preceding years. Therefore, the delay in raising the present grounds of appeal is bona fide and, therefore, the additional grounds should be admitted for adjudication.
The ld. Counsel for the assessee, referring to the decision of the Hon’ble Supreme Court in the case of CIT vs. Varas International reported in 284 ITR 80 and in the case of NTPC Ltd. vs. CIT reported in 229 ITR 383 and the decision of the Special Bench of the Tribunal in the case of DHL Operators reported in 108 TTJ 152 (SB), submitted that an assessee can raise a legal additional ground or
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even fresh legal plea at any stage of the proceedings. He submitted that during the A.Y. 2010-11 which is also impugned before the ITAT and pending adjudication vide ITA No.2591 of 2015, the assessee had raised the issue of satisfaction from the beginning of the proceedings at CIT(A) level. However, the issue of satisfaction in the impugned year has skipped the attention of the assessee since the assessee was under the bona fide belief that the impugned assessment year does not fall under the ambit of section 153C of the Act. Now, being advised, the assessee is raising this categorical ground and prays that the same should be admitted in the interest of justice. He accordingly submitted that the delay in raising the additional grounds should be condoned and the same should be admitted for adjudication.
8.1 After hearing the ld. DR and considering the argument of the assessee for admission of the additional grounds, we admit the same for adjudication.
The ld. Counsel for the assessee submitted that the assessee is a private limited company incorporated on 15.12.2006 and is engaged in real-estate business. A search and seizure action was conducted by the department on Krrish Group on 9.11.2011. Accordingly the revenue has reopened the assessment of assessee for AYs 2006-07 to 2012-13 which is evident from the copy of satisfaction note placed at Page No-2 of the Paper Book. The ld. Counsel for the assessee drew the attention of the Bench to following dates which according to him go to the root of the matter: -
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DATE Sequence of event j Page no of PB 30.09.2014 Assessee Company filed its ROI for the impugned year Admitted fact declaring NIL Income. para-1 of the assessment order. 09.11.2011 Search and seizure action has been undertaken by revenue Page No-2 of in Krrish Group. Paper book. 29.08.2013 Seized documents belonging to assessee were received by Page No-30- of Central Circle. Paper Book, ITAT order for AY 2010-11 03.10.2013 Satisfaction note has been recorded by the AO of the Pg No-30 of the assessee and notice under section 153C of the Act was also PB ITAT order . issued on this date. for AY 2010-11 •
9.1. He submitted that the above dates would show that documents pertaining to the assessee were handed over to the AO after . 29.08.2013, and hence as per the provisions of proviso to section 153C, the date of search in the case of the present assessee is 29.08.2013. which date falls under AY 2014-15.
9.2 Referring to the provisions of section 153C of the IT Act, 196 the ld. Counsel for the assessee submitted that by virtue of 1st proviso, embodied with section 153C, the date of handing over the documents would become the date of search in the case of other person and previous six year period would have to be reckoned from this date. This according to him means the relevant assessment year of search in the case of assessee would be AY 2014-15 as the date 29.08.2013 falls under ( AY 2014-15) and not AY 2012-13 as assumed by the AO.
9.2.1 Referring to the decision of coordinate Bench of the Tribunal in assessee’s own case in ITA No 2592/Del/2015 for AY 2012-13, he submitted that the ITAT has held that the year of search for assessee would be AY 2014-15 and six years to 10
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be reopened are 2013-14 to 2008-09. Referring to the following decisions, he submitted that the courts have held that by virtue of the first proviso of section 153C, the year of search would be the year in which documents pertaining to other person were received.
a. Jasjit Singh Vs ACIT ITA No-1436/Del/2012 order dated-05.11.2014( Affirmed by High Court) b. CIT Vs RRJ Securties -380 ITR 612(Del) c. CIT Vs Swar Agencies- 397 ITR 400(Del)- Delhi High Court. Wherein it has been held that amendment brought by legislature w.e.f from 1.04.2017 which says that year of assessment of searched person and other person covered under section 153C is prospective.
9.3 The ld. Counsel for the assessee submitted that now a question may arise as to what is wrong in the present assessment as the same has also been framed under section 143(3) and the year of search is also to be assessed u/s 143(3). He submitted that assessment of search year for the person covered by 153A and 153C are to be framed by the AO who has assessed the Block period and not by the AO who was regularly assessing the assessee before Centralization of cases. The ld. Counsel for the assessee submitted that in the case of assessee, the assessments of years which were framed after centralization were framed by the AO of Central Circle-1, Faridabad (Copy of orders of AO at Page No 15 of Paper book-2) and the impugned year assessed by the AO Central Circle-1, Gurgaon. Therefore it is abundantly clear that impugned year has not been considered as part of block of 7
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years rather assessed as normal year, which is patently wrong, in the light of the provisions of section 153B and 153D. He submitted that in the present case the AO has framed the assessment under section 143(3), which provisions are exclusively meant for regular assessments and not for assessments covered by the provisions of section 153A. He submitted that assessments covered u/s 153A are governed by the time limit provided in 153B since the heading of the section is very clear and unambiguous. He submitted that 153B(1) has two clauses i.e (a) and (b). Perusal of clause (a) would show that the previous 6 years which . are to be reopened are to be passed in the limitation period provided in clause(a). And the year of search would have to be passed within the limitation of clause(b). This exclusive time limit for 6 previous years and search year would show that the legislature in its wisdom has kept the block of seven years out of the purview of other assessments as held by Hon’ble Delhi High Court in the case of S.K.Jain Vs PCIT 171 DTR. He submitted that the Hon'ble Delhi High Court has held that provisions of section 153B are non-obstantive provisions and exclude the operations of section 153. which are meant for regular assessments. It has been held categorically that provisions of section 153B are applicable for 7 years.
“The special provision under Section 153B of the Act in the opinion of the Court carves out a special period of limitation without which search/block assessments would not be completed. The entire provisions under Chapter XIV relating to block assessment, have been termed by the Supreme Court to be a complete code. At the same time, a specific period of limitation prescribed is for completion of original block assessments for the search and seizure proceedings. The period for issuing notice and completion of block assessment for all the concerned years (7 years) is within two years"
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9.3.1 He accordingly submitted that if we read section 153B in the light of the judgment of Hon’ble Delhi High Court in the case of S.K.Jain(Supra) then it is clear that the original order of assessment, against which impugned order u/s 263 was before the Bench was dated 30.8.2016 (Pg. No-15 of the appeal set) and the same was barred by limitation and hence the action of 263 is void ab initio. He submitted that section 153B has two limbs for years of search covered under section 153C of the Act.
9.3.2 According to ld. Counsel for the assessee, the date of search in this case is 29.08.2013, as upheld by the ITAT in assessee’s own case and financial year is 2013-14. Therefore, if we compute the limitation in view of clause (a) of section 153C then limitation ends on 31.03.2016. Similarly, if we compute limitation in view of the proviso to section 153C the limitation of the case would expire on 31.03.2015. However, the order has been passed by the AO on 30.08.2016 which is the subject matter of 263 proceedings.
9.4 The ld. Counsel for the assessee accordingly submitted that entire exercise of 263 is bad in law on account of the assessment order being barred by limitation. Referring to the decision of the co-ordinate bench of the Tribunal in the case of NKG Infrastructure Ltd Vs PCIT - ITA No-3825/Del/3827 he submitted that the Tribunal has held that since the original order of assessment is time barred, action of 263 is a nullity.
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9.5 The ld. Counsel for the assessee in his next plank of argument submitted that as the impugned year is a search year, as held by the ITAT in assessee’s own case, therefore the AO ought to have framed the assessment in the manner provided for assessing search year and one of the most important condition for assessing the year of search is approval of JCIT as per the provisions of section 153D of the Act. He submitted that the AO in the present case has not obtained any approval from the JCIT before passing the order of the assessment of impugned year and hence the entire order was bad in law and hence the order passed u/s 263 was also bad in law. He accordingly submitted that the appeal of the assessee may kindly be allowed on legal grounds itself and the order of PCIT should be declared as non-est.
So far as merits of the case is concerned, the ld. Counsel for the assessee submitted that there are four basic allegations of Ld. PCIT on the basis of which, he had held that order of the AO is erroneous and prejudicial to the interest of revenue. a. Expenses and depreciation not properly examined by the AO. b. AO has not examined the applicability of section 2(22)(e) on inter- corporate deposits. c. AO has not disallowed proportionate interest on advance made to sister concerns, though assessee has paid interest on loans/ advances. d. AO has not examined the credits received from Mr Vinod Ambawatta
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10.1 He submitted that during the course of assessment proceedings the AO has issued notice of 142(1) on 12.05.2016( Copy at Page NO-5-6 of the PB). Perusal of the questionnaire issued by the AO would show that the AO has sought reply of assessee on each and every point of the accounts of assessee. In fact the questionnaire is a very detailed one and it consists of around 20 main questions which were further divided into sub questions. Therefore the AO has duly played the role of an investigator. Referring to paper book pages 8 to 152, he submitted that after the receipt of the questionnaire, the assessee vide its reply dated 22.07.2016, filed all the necessary documents along with documentary evidences. He submitted that assessee had pointed to the AO, that there was no current year credits from any outsider/ or third party. Impugned year credits are only from the directors of the company. The assessee in order to prove the ingredients of section 68 has filed following documents. a. Confirmations of the directors. b. Proof of identity. c. Copy of ITR d. Bank details etc.
10.1.1 So far as the allegation of the PCIT that the AO has not enquired about the credits received from Vinod Ambawatta is concerned, he submitted that:
a. Vinod Ambawatta is a director of this Company, assessee has filed all documents for proving his identity, credit worthiness, and genuineness of the
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transaction vide its letter dated 26.07.2016. 10.2 Referring to the following chart, the ld. Counsel submitted that the assessments of Shri Vinod Ambawatta were completed u/s 153C, by Central Circle Faridabad along with that of assessee:- A.Y Income Declared Income Assessed u/s 143(3) Status of proceedings 2006-07 7,16,440/- 7,16,440/-(28.02.2014) Income Assessed u/s 143(3) of the Act 2007-08 45,82,141/- 45,82,141/-(28.02.2014) Income Assessed u/s 143(3) of the Act 2008-09 3,66,359/- 3,66,359/-(28.02.2014) Income Assessed u/s 143(3) of the Act 2009-10 2,65,639/- 2,65,639/-(28.02,2014) Income Assessed u/s 143(3) of the Act 2010-11 37,08,227 37,08,227/-(28.02.2014) Income Assessed u/s 143(3) of the Act 2011-12 11,28,562/- 11,28,562/-{28.02.2014) Income Assessed u/s 143(3) of the Act 2012-13 4,62,24,040/- 43,23,48,069/- (05.02.2014) Assessment was quashed by the ITAT following RRJ Security judgment in ITA No- 2550/Del/2015 2013-14 3,10,05,770/- 3,96,37,197/- Matter is sub- judice before the ITAT
10.3 He submitted that the assessments would prove beyond doubt, about the identity and credit worthiness of the loan creditor. So far as comments of PCIT on some transactions entered into by Vinod Ambawatta with third parties is
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concerned, he submitted that those transactions have nothing to do with these proceedings. Further the view of the AO for not making any addition u/s 68 vis-a- vis credits from Vinod Ambawatta is fortified by the settled position of law that, assessee cannot be forced to inform about the source of source and when the unsecured loans are taken from Directors then yard stick applicable for entry operator cases would not be applied. Referring to various decisions, he submitted that if the share application money or unsecured loan is received from associates concerns/ directors, which concerns are duly assessed to tax then addition cannot be made u/s 68.
The ld. Counsel for the assessee submitted that even after search and survey of assessee nothing incriminating was found, which would show that Vinod Ambawatta or any of his concerns were indulged in providing bogus accommodation entries or the advances given to the present assessee were unexplained cash credits or the assessee has received its own unaccounted income via Vinod Kumar.
11.1 Referring to page number-12 of the paper book, the ld. Counsel submitted that the opening balance of Vinod Kumar was 4.44 crore and closing balance was 11.5 Crore and assessee has repaid 8.26 Crore (which figure is accepted by the PCIT). He submitted that these entries coupled with the fact that assessments of Vinod Kumar were completed u/s 143(3) would prove beyond doubt the credit worthiness and identity of Sh Vinod Kumar. Hence the view taken by the AO
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cannot be termed as erroneous or prejudicial to the interest of revenue. All these above assessments were framed before the issuance of notice for the impugned year dated 20.09.2015. Therefore as an adjudicator the AO has acted well within the four corners of law. His view cannot be said to be erroneous & prejudicial to the interest of revenue
11.2 He submitted that assessee has filed each and every detail of advances received back during the year and given during the year. In other words voluminous evidences were filed. Therefore it cannot be said that the AO has not done anything while acting as an investigator on this point. It is also not a case where the AO has simply passed the order immediately after the filing of documents, as is evident from the fact that the assessee has filed its replies on 26.07.2016 and the AO has passed the assessment order on 30.08.2016, which means after one month.
So far as the issue of inter corporate deposits are concerned, the ld. Counsel for the assessee referring to the following table submitted that all above deposits were given by assessee in previous years and not in the relevant assessment years:- Party name Amount Date when advance is given Page Number of P8-1 Ambawatta 2,61,000/- 160 of PB-1( All these Towers 16.12.2009-2,500—AY:2010-11 years were assessed 29.09.2010-200000 -- AY:2011-12 u/s 153C read with 22.11.2011-5802—AY: 2012-13 143(3) SS Greens 8,41,05,000/- First four entries of Pg-161 are of 161-162 of PB-1, all Homes Pvt AY 2011-12 and rest of the entries the Ltd of Pg 161-162 are of AY 2012-13 AY were assessed u/s 143(3)
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Sunil 15,00,000/- 14.08.2012- AY 2013-14 Assessment was Kumar framed u/s 143(3} of the Act. Tauras 16,54,22,176/- AY2011-12& 2012-13 164-165- Build well Sigma 52,50,000/- 19.02.2008- 50,00,000— AY Infracon 2008-09 11.03.2008- 2,50,000 AY 2008- 09 12.1 On the contrary it is an admitted position of fact that in the impugned year assessee has received back the deposits from the concerned parties. The position of closing balance of the impugned year is mentioned at Page Number-6 of the PCIT order.
12.2 He submitted that provisions of deemed dividend are not applicable on assessee, since the assessee has not received any funds in the shape of loan or advances rather given the funds in previous years. Therefore the applicability of deemed dividend concept, if any, would be in the hands of the persons to whom advances were given and not in the hands of assessee.
12.3 The ld. Counsel for the assessee submitted that beside the above inter corporate deposits the assessee has also given deposits to ‘ some other persons in earlier years (details were given to AO - page no-24 of the PB which is annexure-8 of assessee’s reply). These advances were given for the purchase of land. In fact the AO has enquired from the assessee as to why the provisions of 194IA are not applicable on these advances. He drew the attention of the Bench to the various replies given before the AO.
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Name Amount Date of Advance given Remarks Vinita Gulliani 1,00,00,000/- 21.12.2011 Details were given to AO see Page No- 24 City Bulls India 1,50,00,000/- 09.05.2013 Details were given to AO see Page No- 24 Parveen Kumar 10,00,000/- 03.04.2013 Details were given to AO see Page No- 24 Imperia Structures 70,00,000/- 02.11.2012— AY 2013- Balance sheet, 14 profit Details were given to AO see Page No-24 Pankaj Dayal 1,50,00,000/- 02.08.2012 Details were given to AO see Page No- 24 VRPLandbase 25,00,000/- 02.05.2012 Details were given to AO see Page No- 24 Poonam Bhojani 3,70,00,000/- 08.10.2010- 50,00,000 Details were given 10.03.2011-1,30,00,000 to AO see Page No- 04.07.2011- 24 70, 00,000 10.10.2011-1,20,00,000 Sea Shell Marketing 50,00,000/- 20.01.2012 Details were given to AO see Page No- 24 Syonara Realtors 5,55,00,000/- 6-2-2012 to 26.03.2013( Details were.given means till F.Y 2012-13) to AO see Page No- 24
12.4 He submitted that view of the PCIT that AO has not passed the order vis-a- vis advances received back and given without making proper enquires is not correct in view of the following legal and factual position-
a. There were no current year credits and hence the provisions of section 68 are not applicable as held in various decisions that provisions of section 68 are
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not applicable for opening balances. In fact in assessee’s own case the ITAT while deciding the appeal of AY 2012-13 has taken this view. Therefore the PCIT’s approach is patently wrong. Hence view of the AO cannot be termed as erroneous or prejudicial to the interest of revenue. b. All previous years were assessed u/s 153C read with 143(3) and there is not a single document which would show that what assessee has received was his unaccounted money advanced by assessee in previous years and received back in impugned year. Therefore it cannot be alleged that AO has passed the assessment order without looking into the facts properly and his view cannot be termed as erroneous & prejudicial to the interest of revenue.
12.5 He submitted that again on Page Number -6 of the impugned order the PCIT has held that genuineness/ credit worthiness of the amounts received back from the aforesaid parties has not been examined. He submitted that so far as the present year is concerned AO was not empowered to invoke the provisions of section 68 to advances received back during the years. And for previous years the assessments were made after survey and search. Therefore it cannot be said that assessee has been able to conceal the facts from the department. Therefore, the view of the AO cannot be termed as erroneous & prejudicial to the interest of revenue. The ld. Counsel drew the attention of the Bench to the status of previous years assessments of the assessee which are as under:-
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A.Y Income Income Assessed u/s Status of Declared 143(3) proceedings 2006-07 No return was AO accepted the version Final 143(3) filed as the of Assessee dated assessment company was not 31.12.2013 in existence 2007-08 NIL NIL dated 28.02.2014 143(3) assessment 2008-09 NIL NIL dated -28.02.2014 143(3) assessment 2009-10 NIL NIL dated-28.02.2014 143(3) assessment 2010-11 NIL NIL-dated -28.02.2014 143(3) assessment 2011-12 NIL NIL-dated-28.02.2014 143(3) assessment 2012-13 10,32,89,990/- 66,98,89,990/- - 143(3) 28.02.2014 assessment quashed by the ITAT
12.6 He submitted that it is settled position of law that search is last resort of collecting evidences from an assessee. He submitted that even after search and survey nothing incriminating was found in previous years, when the sums were advanced by the assessee to its sister concerns or others, which would show that either the money was unaccounted or the same was advanced in violation of the provisions of section 2(22)(e) of the Act. He submitted that while giving effect to the order of 263 the AO has not made any addition on the aspect of deemed dividend and for expenses and for depreciation.
12.7 The ld. Counsel for the assessee accordingly submitted that there is nothing on record which would create any iota of doubt against the legitimate enquires conducted by the AO and view taken by him. Hence the view of the AO can neither be said to be erroneous nor prejudicial to the interest of Revenue. 22
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Therefore, the order passed u/s 263 may kindly be quashed and relief may be granted to the assessee.
13 So far as the next charge made by the PCIT against the AO that interest free advances were for non business purposes, and the AO failed to disallow the finance cost is concerned, he submitted that in the current year no advances were given and in previous year no disallowance has been made. In his alternate argument, he submitted that assessee was in possession of huge interest free funds, to the tune of Rs 4.44 crore and the outstanding advances of the current year were only 51.50 lakhs. Therefore, in view of the decision in the case of Reliance Utility and others reported in 313 ITR no disallowance is permissible and hence the view of the AO for not making any disallowance was plausible. So far as finance cost is concerned, he submitted that finance cost is nothing but the interest paid by assessee on car loan. This amount is coming from previous year (Page No.195 of PB-1). He submitted that the assessee company has incurred following car loans and the finance cost is attributable to them Amount of Loan Date on which taken Opening Relevant Page No- Interest paid Initially balance for in present impugned year year 54,90,000/- 15.02,2012-(AY 44,45,612.30/- Page No-12-13( 4,19,722/- 2012-13) Figure at Serial - 14) 63,50,000/- 15.02.2020(AY 51,42,132/- Pg no-15 Figure at Sr 485714/- 2012- 13) Number-14 75,00,000/- 01.07.2012(AY- 58,73,595/- Pg No-17- Item 586631/- 2013- 14) number-9 Total interest paid 14,92,067/-
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13.1 Referring to the above, he submitted that assessee has repaid interest on car loan taken from ICICI Bank and similar payments were allowed in previous years when the cases of the assessee were examined in the light of the provisions of search and survey. Therefore the allegation of PCIT is incorrect and he failed to appreciate that assessee has not completely stopped its business activities rather there was a lull in business and the company was in process of finding the correct customer for its real estate business.
13.2 So far as the allegation of the PCIT that vehicles are not used for business purpose is concerned, he submitted that it has no legs to stand. The vehicles were in the name of the Company and hence personal use theory is not applicable at all. In fact assessee has used the vehicles for business purposes and no such disallowance of any finance cost or expenses incurred on vehicle running and maintenance were made in previous years. Therefore the view of the AO cannot be termed as erroneous or prejudicial to the interest of revenue.
13.3 So far as the allowability of depreciation is concerned, he submitted that it is the settled position of law that depreciation is inevitable. Explanation 5 of section 32 which was inserted after the judgment of Virmani- provides that depreciation is inevitable irrespective of the fact whether the assessee has claimed it or not. Therefore in view of the above legal and factual position it cannot be said that the AO has taken . an erroneous view which is prejudicial to the interest of revenue and
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hence the PCIT was not justified in invoking the provisions of section 263 of the Act. 13.4 The ld. Counsel for the assessee submitted that a perusal of the 263 order would show that the PCIT has made observations at various places that the assessment order has been passed without making proper enquires. However, the PCIT has failed to point out what more enquires the AO ought to have made. Referring to various decisions, he submitted that the phrase “proper enquires” and “inadequate enquires has been considered by various benches of the High Courts and the Tribunal and everywhere it has been held that cases where there is complete lack of enquiry would certainly fall in the ambit of section 263. However, in cases where the allegation is of “proper enquires”, the burden is on CIT to conduct further enquires by himself and he cannot simply set aside the order of the AO for further enquiries. For the above proposition he relied on the following decisions:- a. CIT Vs DG Housing 343 ITR 239(Del); b. Commissioner of Income Tax vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del), c. D.K.Associates in ITA No.5659 of 2016 dated 16.01.2017; 13.5 The ld. Counsel for the assessee accordingly submitted that: a. The order of assessment against which the impugned action of 263 is challenged was barred by limitation and hence the jurisdiction of 263 was also barred by limitation. b. On merits the case of the assessee is that the AO has examined each and
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every aspect of the balance sheets and profit and loss account with documentary evidences and the observation of the PCIT that order is passed without proper enquiries is not tenable since the AO has issued a detailed questionnaire during original proceedings and replies were filed by assessee in respect of those questions. 13.6 The ld. Counsel for the assessee has argued that appeal of the assessee be allowed both on merits and law point
The ld. DR, on the other hand, strongly supported the order of the PCIT in exercising his power u/s 263 of the Act and filed the following written submission:- “1. The jurisprudence on the issue of review order under section 263 of the act is discussed as under;- 1. With effect from 01.04.2015, the Legislature increased the ambit of 'erroneous order' passed by the AO to be considered as prejudicial to the interest of Revenue through the insertion of an Explanation to Sub-section (1) of Section 263 as follows: 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 jurisdictional High Court or Supreme Court in the case of the assessee or any other person Cryptic AO Order: 3. The Hon'ble Supreme Court in the case of Toyota Motor Corporation vs. CIT (2008) 306 ITR 52 (SC) held that the action of CIT to initiate the revisionary powers is valid if the AO order is cryptic and not a self- contained order giving the relevant facts and reasons for coming to the conclusion based on those facts and law and the order does not indicate the briefest of reasons, accepting or rejecting any argument. 2. The Hon. Supreme Court in Rampyari Devi Saraogi vs. CIT (67 ITR 84(SC) while taking note of the fact that the AO had concluded the 26
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assessment in 'undue hurry' by passing a short, stereotyped assessment order, without making any inquiries, upheld the revision done by the CIT. 3. In the case of Pr. CIT vs. Brahm Dev Gupta_ITA 907/2017, C.M. APPL.38789/2017), the Hon'ble DelhI High Court on 20.07.2018 reversed the decision of ITAT which had held that: "At the most, it can be a case of inadequate inquiry, in which Id. CIT has no power to intervene under Section 263 of the Act."
The Hon'ble Delhi High Court observed that such findings and reasoning of ITAT are 'clearly indefensible' as they amount to putting a gloss over the AO's glaring omissions. Repeated decisions have emphasized that the AO should, at least as regards what appears from the record, and what are the issues inquired into during scrutiny assessment, indicate the briefest of reasons, accepting or rejecting any argument. 7. The Hon'ble Delhi High Court in the case of BSES Rajdhani Power Ltd vs. PCIT dated 08.11.2017 in ITA No 387/2017 has held that the non- consideration of the larger claim of depreciation and the consideration of only a part of it by the Assessing Officer, who did not go into the issue with respect to the whole amount, was an error, that could be corrected under Section 263. 8. In the case of CIT v Amitabh Bachchan (2016) SCC Online SC 484, the Hon. Supreme Court has held that the failure to issue notice on any particular issue does not vitiate the exercise of power under Section 263, as long as the assessee is heard and given an opportunity. It has been held by the Hon Court that once such satisfaction (of the order being erroneous and prejudicial to revenue) is reached, jurisdiction to exercise the power under Section 263 would be available with the CIT subject to observance of the principles of natural justice which is implicit in the requirement cast by the Section to give the assessee an opportunity of being heard. It is in the context of the above position that the Apex Court has repeatedly held that unlike the power of reopening an assessment under Section 147 of the Act, the power of revision under Section 263 is not contingent on the giving of a notice to show cause.”
14.1 He accordingly submitted that the grounds raised by the assessee be dismissed. 15. We have considered the rival arguments made by both the sides, perused the orders of the PCIT and the Assessing Officer and the paper book filed on behalf of
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the assessee. We have also considered the various decisions cited before us. We find, the ld. PCIT invoking the powers conferred u/s 263 of the IT Act, 1961 held the order passed by the AO u/s 143(3) as erroneous and prejudicial to the interest of the Revenue on the ground that the AO has passed the order without making proper enquiries/verification/investigations which should have been made before accepting the various issues mentioned by him in the notice u/s 263. It is the submission of the ld. Counsel for the assessee that: a. The order of the assessment against which the impugned action of 263 is challenged was barred by limitation and hence the jurisdiction of 263 was also barred by limitation. b. On merits the case of the assessee is that the AO has examined each and every aspect of the balance sheets and profit and loss account with documentary evidences and the observation of the PCIT that order is passed without proper enquiries is not tenable, since the AO has issued a detailed questionnaire during original proceedings and replies were filed by assessee in respect of those questions. 15.1 We find some force in the above arguments of the ld. counsel for the assesseee. A perusal of the order of the Tribunal in assessee’s own case for A.Y. 2012-13 vide ITA No.2592/Del/2015 and 2551/Del/2015, order dated 18.09.2018 shows that a search and seizure action u/s 132 was conducted by the department on Krrish Group on 09.11.2011. The seized documents belonging to the assessee were received by the AO on 29.08.2013. Therefore, in view of provisions of section 153C, the date of search in the case of the assessee is 29.08.2013 which date falls under A.Y. 2014-15. Further, the Tribunal in assessee’s own case for A.Y. 2012-13 has already held that the year of search for the assessee is 2014-15. We, therefore, find merit in the submission of the ld. counsel for the assessee that 28
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the present assessment should have been framed by the AO having jurisdiction after cases were centralized i.e., the AO of Central Circle-I, Faridabad whereas the impugned assessment order has been framed by the DCIT, Central Circle-I, Gurgaon and, therefore, the order becomes bad in law. Further, once it is held that the present assessment year i.e., A.Y 2014-15 is the year of search, then the limitation for completion of assessment in the instant case expires on 31.03.2016.
15.1.1 Since the AO in the instant case has passed the order on 30.08.2016, therefore, the same is barred by limitation. Further, since the AO has not issued the mandatory notice u/s 153C and has passed the order u/s 143(3) and has not obtained any approval from the JCIT before passing the order for the impugned assessment year which is the search year as held by the Tribunal in assessee’s own case in the immediately preceding years, therefore, the order is bad in law. Once it is held that the original order passed by the AO is without jurisdiction being passed by the wrong AO, barred by limitation being passed after 31.03.2016 and bad in law being passed in contravention to provisions of section 153C and without obtaining prior approval of the JCIT, therefore, the order passed u/s 263 against such assessment order is also bad in law and has to be quashed. We hold and direct accordingly. The additional grounds raised by the assessee are accordingly allowed.
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15.2 Even on merits also we find the AO during the course of assessment proceedings has issued the following questionnaire, copy of which is placed at paper book page pages 5 to 7:-
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15.3 We find the assessee has given point-wise reply to the various questions put by the AO. We find, the ld.CIT(A) has invoked jurisdiction u/s 263 basically for the following reasons:- a. Expenses and depreciation not properly examined by the AO. b. AO has not examined the applicability of section 2(22)(e) on inter- corporate deposits. c. AO has not disallowed proportionate interest on advance made to sister concerns, though assessee has paid interest on loans/ advances. d. AO has not examined the credits received from Mr Vinod Ambawatta
15.4 So far as the issue relating to expenses and depreciation is concerned, we find from the various details furnished by the assessee that similar interest on car loan and depreciation were allowed in the preceding assessment years. Further, we also find merit in the argument of the ld. counsel for the assessee that the assessee has not completely stopped its business and there was temporary lull in the business. The vehicles were in the name of the company and assessee being a company, there cannot be any personal use theory. Further, depreciation is inevitable irrespective of the fact whether the assessee has claimed it or not. Therefore, the order of the AO on this issue in our opinion cannot be termed as erroneous.
15.5 So far as the issue relating to applicability of section 2(22)(e) on inter- corporate deposits is concerned, we find merit in the submission of the ld. counsel
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for the assessee that all inter-corporate deposits were given in the preceding years and the assessee has, in fact, received the deposits in the current year. Further, even the AO in the order passed subsequent to the 263 order has not made any addition u/s 2(22)(e) of the IT Act, 1961 or disallowed any depreciation on finance cost.
15.6 So far as the issue relating to disallowance of proportionate interest on interest free advances to sister concerns is concerned, it is an admitted fact that most of these advances were given in the preceding years and no such disallowances were made in the assessments completed. Further, the own capital and free reserves were much more than the interest free advances given to sister concerns. Therefore, we find merit in the arguments of the ld. counsel for the assessee that there is no error in the order of the AO on this issue.
15.7 So far s the credits received from Mr. Vinod Ambawatta is concerned, it is an admitted fact that assessments of the above person were done by the same AO u/s 153C who has passed the order in the case of the assessee. Assessee has filed all the relevant details such as confirmations, proof of identity, copy of ITR, bank details, etc. to prove the ingredients of provisions of section 68 in response to the letter of the AO. Under these circumstances, it cannot be said that the AO has not made any enquiries especially when the assessee as well as Mr. Vinod Ambawata were assessed by the same AO.
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15.8 We find, the Hon’ble Delhi High Court in the case of CIT vs. D.G. Housing (supra) has held as under:- “The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an ' adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said, investigation, he commits an error and the word "erroneous" includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits.
15.9 We find, the Hon’ble Delhi High Court in the case of Commissioner of Income Tax vs. Sunbeam Auto Ltd. (supra) has observed as under:- “Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law/ In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. This distinction must be kept in mind by the CIT while exercising jurisdiction under section 263 of the Act and in the absence of the finding 35
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that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question-was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.”
15.10 We find, the Mumbai Bench of the Tribunal in the case of D.K.Associates (supra) has observed as under:- “We have examined Explanation 2 to section 263 which is inserted by the Finance Act, 2015 with effect from 01/06/2015. This explanation empowers the CIT from 01.06.2015 to invoke the provision of section 263 to the assessment order to be erroneous in so far as it is prejudicial to the interest of the revenue, if, in the opinion of the Principal CIT. No doubt clause (a) of this explanation deems the order to be erroneous and prejudicial to the interest of the revenue in case order is passed without making enquiries or verification which should have been made in the opinion of the Principal Commissioner or Commissioner. In our opinion, for the applicability of clause (a) of Explanation, it is necessary that the Principal Commissioner must mention in the order what inquiries or verification the Principal Commissioner desires to have been carried out by the Assessing Officer. The Principal Commissioner in this case even though stated that the Assessing Officer failed to examine during the course of the assessment proceedings the affect of change in the accounting policy on the Revenue not disclosed by the assessee but did not point out what type of inquiry or verification should have been carried out in this regard by
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the AO. How non examination of this aspect has resulted in under assessment. The order passed by the AO, in our opinion, shall be deemed to be erroneous in so far as prejudicial to the interest of the Revenue if the Principal Commissioner would have specifically pointed out which of the inquiries or verification should have been carried out by the AO in this regard and the AO failed to carry out those inquiries and verification as desired by the Principal Commissioner.
15.11 It has been held in various decisions that for invoking the provisions of section 263, the order passed by the AO must be both erroneous and prejudicial to the interest of the Revenue. The twin conditions must be satisfied. Absence of any one condition cannot empower the PCIT to invoke jurisdiction u/s 263 of the IT Act, 1961. The order passed by the AO in the instant case may be prejudicial to the interest of the Revenue but cannot be termed as erroneous in view of our discussion on various issues in the preceding paragraph. Further, even after giving details before the PCIT in response to his notice u/s 263 the PCIT has not examined the details himself and came to a definite conclusion but has merely set aside the matter to the file of the AO for denovo assessment which is not in accordance with law as held by Hon’ble Delhi High Court in the case of Sunbeam Auto Ltd. (supra). The various decisions relied on by the ld. DR are distinguishable and not applicable in the facts of the present case.
15.12 In this view of the matter, we hold that the PCIT was not justified in setting aside the matter u/s 263 of the IT Act, 1961. The grounds raised by the assessee are accordingly allowed.
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In the result, the appeal filed by the assessee is allowed. The decision was pronounced in the open court on 21.05.2021.
Sd/- Sd/- (SUCHITRA KAMBLE) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 21st May, 2021. dk Copy forwarded to 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi