MIKADO REALTORS (P) LTD,NEW DELHI vs. PR. CIT (CENTRAL), GURUGRAM

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E” NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER

I.T.A. No.50/DEL/2021 Assessment Year: 2017-2018

Mikado Realtors P. Ltd., vs. Pr. CIT(Central) Office No., 1121-A, Devika Gurugram. Tower, 12th Floor, 6, Nehru Place, New Delhi. TAN/PAN: AAECM7429E (Appellant) (Respondent)

Appellant by: Shri Gautam Jain, Adv. & Shri Lalit Mohan, CA Respondent by: Ms. Pramita M. Biswas, CIT-D.R. Date of hearing: 18 03 2021 Date of pronouncement: 20 04 2021

O R D E R PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the assessee against the impugned order dated 24.12.2020, passed by Ld. Principal Commissioner of Income Tax (Central) Gurgaon in his revisionary jurisdiction u/s.263 for the Assessment Year 2017-18. In the grounds of appeal, the assessee has raised as many as 16 grounds of appeal, wherein the impugned order has been challenged on various grounds which are as under: 1. That order dated 24.12.2020 u/s 263 of the Act by learned Principal Commissioner of Income Tax (Central), Gurgaon has been made without satisfying the statutory preconditions contained in the Act and is therefore without jurisdiction and thus, deserves to be quashed as such.

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would be assessment year 2013-14 to assessment year 2018-19 and consequently the finding that “period of six years will be invariably decided with reference to the date of search in the case of the original group which is 21.7.2016” is misconceived, misplaced and untenable. 3.3 That the further finding that “the amendment section 153C(1) inserted by the Finance Act 2017 w.e.f. 01.04.2017 further clarifies the said provisions; and the said amendment is applicable to the assessee as notice u/s 153C of the Act was issued on 25.9.2018” is also not in accordance with law, since the search was conducted on 21.7.2016 i.e. much prior to amendment under consideration. 4. That furthermore the learned Principal Commissioner of Income Tax has erred in assuming jurisdiction by failing to appreciate that since no notice u/s 143(2) of the Act was issued subsequent to the filing of return of income on 11.10.2018 in response to notice u/s 142(1) of the Act, the order of assessment dated 18.12.2018 u/s 153B(l)(b)/143(3) of the Act was without jurisdiction and therefore the same could not be validly revised u/s 263 of the Act 4.1 That the finding that “on perusal of the assessment record it is noted that during the assessment proceedings notice u/s 143(2) was issued by the AO twice on 28.9.2018 and 16.10.2018 which was within the prescribed time limit for issue of notice u/s 143(2) with reference to the revised return filed on 18.9.2018 and return filed on 11.10.2018 in response to notice u/s 142(1) of the Act” is factually incorrect legally misconceived and contrary to record; and has been recorded without any opportunity to the appellant company. 4.2 That furthermore even the conclusions that “issuing of notice under section 143(2) of the Act is not mandatory requirement of search cases for the years for which notice under section 153A/153C was issued and even in case of situation covered u/s 153C(2)” is also misplaced, misconceived and also untenable. 5. That furthermore the learned Principal Commissioner of Income Tax has failed to appreciate that since approval u/s 153D of the

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Act was invalid and illegal, the instant _ order of assessment dated 18.12.2018 u/s 153B(l)(b)/143(3) of the Act was vitiated order and therefore could not be revised under section 263 of the Act. 5.1 That the finding that “since, there was no detailed reply furnished by the assessee, the returned income was accepted and approval u/s 153D was accorded by the JCIT on the basis of material available on the record” is legally misconceived and misplaced. 5.2 That finding that “JCIT is actively involved in assessment of all such cases from beginning and at all stages of search and seizure assessment the Assessing Officer discusses and seeks his guidance” in the approval letter was generalized observation and therefore not tenable. 5.3 That further conclusion that “the approval granted by the JCIT is in the nature of administrative power and there is no need for the JCIT to give a hearing to the assessee before granting approval” is also misconceived, misplaced and also untenable. 6. That in any case the learned Principal Commissioner of Income Tax ought to have held even going by his opinion that there was application of mind by the AO and JCIT therefore the order of assessment dated 18.12.2018 could not be revised u/s 263 of the Act. 6.1 That finding of learned Principal Commissioner of Income Tax that “without prejudice of the above, since the AO and the JCIT both failed to consider the reply furnished by the assessee on 18.12.2018 and conduct enquiries as required, makes the assessment order erroneous in so far as it is prejudicial to the interest of revenue” shows that he has adopted inconsistent and contradictory position and therefore the revision u/s 263 of the Act is otherwise too a vitiated order. 7. That furthermore the learned Principal Commissioner of Income Tax while making the impugned order has failed to appreciate that scope of instant assessment ought to have been confined to incriminating documents found in search of third party; and since documents found were neither incriminating nor having a

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bearing on determination of total income therefore, notice under section 142(1) of the Act on the basis of satisfaction note is, an invalid notice and; in any case, the order under section 143(3)/153C of the Act is an invalid order which could not be revised u/s 263 of the Act. 8. That learned Principal Commissioner of Income Tax has erred both in law and on facts in further holding that the “the assessment order passed in the case of the assessee for the Assessment year 2017-18 by the A.O. is erroneous in so far as it is prejudicial to the interest of revenue and also in view of the provision of section 263 r/w Explanation 2 of the Act in respect of the three issues which are as under: a) The assessment order was passed by the AO without making proper enquiries or verification and invoking the provision of section 50C(1) and 50C(2) of the Act. b) The AO failed to carry out any enquiry or verification in respect of the cost of seven plots and the amount of Rs. 37,27,570/- which was written off as ‘land cost covered by Panchayat written off which was used for computation of income under the head capital gains by the assessee. c) The AO failed to carry out the enquiries in respect of other expenses of Rs. 76.32 lakh especially legal and professional fees of Rs. 71.01 lakh out of which Rs. 61,66,921/- + Rs. 4,60,000/- was required to be capitalized being in the nature of capital expenses and Rs. 4,60,000/- was required to be disallowed as the same was not incurred for the purpose of the business of the assessee The finding is factually incorrect, legally misconceived, contrary to record and untenable. 9. That the learned Principal Commissioner of Income Tax has failed to appreciate that once the learned Assessing Officer on examination of the facts on record and after making all possible enquiries had accepted claim of the appellant then such an order of assessment could not be regarded as erroneous in as much as prejudicial to the interest of revenue merely because the learned Commissioner of Income Tax had a different opinion and that

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too, without having established in any manner that, view adopted by the learned Assessing Officer was an impossible view. 10. That the learned Principal Commissioner of Income Tax has also failed to appreciate that, u/s 263 of the Act, an order of assessment cannot be set- aside to simply to make further enquiries and thereafter pass fresh order of assessment and as such, impugned order is contrary to law and hence, unsustainable. 11. That the learned Principal Commissioner of Income Tax has failed to appreciate that action u/s 263 of the Act is otherwise too inapplicable on the factual matrix of the facts of the instant case since admittedly, undisputedly and undeniably not a case of “lack of enquiry” or “lack of investigation” and perusal of the show cause notice itself would show that it has not been denied or disputed that all relevant information including books of accounts have been furnished/obtained in the course of assessment proceeding and therefore inabsence of any enquiries by the learned Principal Commissioner of Income Tax the invocation u/s 263 of the Act is not in accordance with law. 12. That the learned Principal Commissioner of Income Tax has failed to appreciate that the allegation that “actual consideration received or accruing as a result of transfer of land parcels by the assessee during the year under consideration was Rs. 20,01,68,750/-; whereas the value of these land parcels assessed for the purpose of payment of stamp duty was Rs. 33,92,14,687/-; and despite thereof, AO did not invoke the provision of section 50C(1) of the Act and as a consequence under assessed the income under the head capital gains by an amount of Rs. 13,90,45,937/- (Rs. 33,92,14,687/- - Rs. 20,01,68,750/-)” is fundamentally flawed and wholly unsustainable. 13. That the learned Principal Commissioner of Income Tax has further failed to appreciate that further allegation that “the assessment order was passed by the AO without making proper enquiries or verification in respect of applicability of the provisions of section 50C of the Act and cost of land parcels/loss

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claimed by the assessee of Rs. 37,27,570/- as land cost covered by panchayat written off, hence the assessment order passed by the AO is erroneous in so far as it is prejudicial to the interest of revenue in view of provision of section 263 read with Explanation 2(a) of the Act” is also not based on correct appreciation of facts and law. 14. That the learned Principal Commissioner of Income Tax has further failed to appreciate that another allegation “that the assessment order was passed by the AO without making proper enquiries or verification and other expenses of Rs. 76.32 lakh were allowed under the head business income which is against the provision of the Act” is also contrary to facts and law and therefore untenable. 15. That finding and conclusion of the learned Commissioner of Income Tax that “the assessment order passed by the AO is, therefore, set aside on these issues. The AO is directed to call for the details and make necessary enquiries in respect of these issues and passed the order in accordance with the law after proper verification” is illegal, invalid and without jurisdiction 16. That various adverse findings and conclusions recorded in the impugned order are not only factually incorrect but also contrary to facts on record. Prayer It is therefore prayed that, impugned order made under section 263 of the Act dated 24.1.2019 be held to be without jurisdiction and, therefore be quashed and appeal of the appellant company be allowed.” 2. Before us ld. counsel, Mr. Gautam Jain on behalf of the assessee, first of all, argued the legal issue as raised in ground no.1 to 3.3 (supra). The primary contention of ld. counsel before us is that, in this case the assessment proceedings for Assessment Year 2017-18 has been completed u/s. 143(3) pursuant to notice u/s.142(1), which otherwise ought to have been initiated u/s.153C as per law, and consequently, the assessment order itself should have

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been framed u/s.153C/143(3) and not u/s.143(3). Hence, the assessment order itself is void ab initio and invalid order which could not have been revised u/s.263 by the ld. PCIT. The relevant facts qua the issue have been highlighted by following sequence of events:- Sr. Date Particulars No. i) 13.10.2017 That appellant had furnished an original return of income declaring loss of Rs. 75,62,079/- for the financial year 2016-17 relevant to assessment year 2017-18 u/s 139(1) of the Act. This return was accompanied by following documents: i) Acknowledgement of return of income dated 13.10.2017 ii) Computation of total income iii) Audited financial statement ii) 18.9.2018 That appellant had furnished a revised return of income declaring loss of Rs. 7,03,89,637/- for the financial year 2016-17 relevant to assessment year 2017-18 u/s 139(1) of the Act. This return was accompanied by computation of income, audited financial statements and audited report for the financial year 2016-17 relevant to assessment year 2017-18. iii) 21.7.2016 i) That a search and seizure operation was initiated on M/s M3M group u/s 132(1) of the Act That panchnama drawn in respect of the following companies at Paras Twin Tower, tower-B, 6th Floor, Golf Course Road, Sector- 54, i) M/s M3M India Ltd. ii) M/s M3M India (P) Ltd. iii) M/s M3M India Holdings (P) Ltd. iv) M/s Misty Meadow (P) Ltd. 25.9.2018 iv) That pursuant to the aforesaid search, notices

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under section 153C of the Act had been issued to the appellant company for assessment years 2011-12 to 2016-17 and notice dated 25.09.2018 u/s.142(1) of the Act for assessment year 2017-18. v) 25.09.2018 That proceedings u/s.153C of the Act was initiated on the basis of a satisfaction note.

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aside. In support of his contention that such a validity of the assessment can be challenged in the proceedings u/s.263. He heavily relied upon the judgment of ITAT Mumbai Bench in the case of M/s. Westlife Development Ltd. vs. ACIT reported in 49 ITR (T) 406.

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otherwise also, in this case for initiating proceedings u/s.153C, the date of search should be taken into consideration for counting six assessment years immediately preceding assessment years in which search was conducted and therefore, Assessing Officer has rightly issued notice u/s 153C for the Assessment Years 2011-12 to 2016-17 and for AY 2017-18 u/s 142(1) and he was legally correct to make the assessment u/s 143(3).

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the cases for initiating proceedings u/s.153C, the date of search determines the six assessment years immediately preceding assessment years in which search was conducted. Even prior to the amendment brought by the Finance Act, 2017 w.e.f. 01.04.2017 in Section 153C the spirit and the intention of the statute was the same.

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satisfaction. It would follow that the six assessment years for which assessments/reassessments could be made under Section 153C of the Act would also have to be construed with reference to the date of handing over of assets/documents to the AO of the Assessee. In this case, it would be the date of the recordings of satisfaction under Section 153C of the Act, i.e., 8th September, 2010. In this view, the assessments made in respect of assessment years 2003-04 and 2004-05 would be beyond the period of six assessment years as reckoned with reference to the date of recordings of satisfaction by the AO of the searched person. It is contended by the Revenue that the relevant six assessment years would be the assessment years prior to the assessment year relevant to the previous year in which the search was conducted. If this interpretation as canvassed by the Revenue is accepted, it would mean that whereas in case of a person searched, assessments in relation to six previous years preceding the year in which the search takes place can be reopened but in case of any other person, who is not searched but his assets are seized from the searched person, the period for which the assessments could be reopened would be much beyond the period of six years. This is so because the date of handing over of assets/documents of a person, other than the searched person, to the AO would be subsequent to the date of the search. This, in our view, would be contrary to the scheme of Section 153C (1) of the Act, which construes the date of receipt of assets and documents by the AO of the Assessee (other than one searched) as the date of the search on the Assessee. The rationale appears to be that whereas in the case of a searched person the AO of the searched person assumes

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possession of seized assets/documents on search of the Assessee; the seized assets/documents belonging to a person other than a searched person come into possession of the AO of that person only after the AO of the searched person is satisfied that the assets/documents do not belong to the searched person. Thus, the date on which the AO of the person other than the one searched assumes the possession of the seized assets would be the relevant date for applying the provisions of Section 153A of the Act. We, therefore, accept the contention that in any view of the matter, assessment for AY 2003-04 and AY 2004-05 were outside the scope of Section 153C of the Act and the AO had no jurisdiction to make an assessment of the Assessee's income for that year.”

This principle was further reiterated in the case of ARN Infrastructure India Ltd. v. ACIT as reported in 394 ITR 569, wherein it has been held as under: "12. The decision in RRJ Securities Ltd. (supra) is categorical that under / Section 153C of the Act, the period of six years as regards the person other than the searched person would commence only from the year in which the satisfaction not is prepared by the AO of the searched person and a notice is issued pursuant thereto. The date of the Satisfaction Note is 21st July, 2014 and the notice under Section 153C of the Act was issued on 23rd July, 2014. The previous six AYs would therefore be from AY 2009-10 to AY 2014-15. This would therefore not include AYs 2007-08 and 2008-09.”

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of satisfaction, i.e., 25.09.2018 has to be reckoned as the date of reference from where six assessment years immediately preceding assessment years has to be construed and therefore, six preceding assessment years in this case shall be from Assessment Year 2012-13 to Assessment Year 2018-19. The instant Assessment Year, i.e., Assessment Year 2017-18 ergo would be covered in the earlier six assessment years where the assessments have to be framed u/s.153C only, whereby the Assessing Officer was required to issue a notice u/s.153C, and frame the assessment u/s.153C/143(3). Contra to the law as interpreted by the Hon’ble Jurisdictional High Court, the ld. Assessing Officer had issued notice u/s.142(1) and resultantly has framed the assessment u/s.143(3), treating it to be regular assessment for the year of search. The amendment to clarify this position u/s. 153C (1) was brought in the statute by the Finance Act, 2017 w.e.f. 01.04.2017, wherein it has been provided that the six preceding assessment years for the person covered u/s 153C would be same as that of the searched person covered u/s 153A. In other words, in case of ‘the other person’ (i.e. person covered u/s 153C), six preceding assessment years has to be reckoned from the year of search. This amendment has been held to be prospective by the Hon’ble Jurisdictional High Court in the case of CIT vs. Sarwar Agency P Ltd. as reported in 397 ITR 400, wherein the Hon’ble Court observed and held as under:

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“10. Mr. Salil Aggarwal, learned counsel for the Assessee, has drawn the attention of the Court to the recent amendment made in Section 153 C of the Act by the Finance Act, 2017 with effect from 1st April 2017. This amendment in effect states that the block period for the searched person as well as the 'other person' would be the same six AYs immediately preceding the year of search. This amendment is prospective. 11. Mr. Ashok Manchanda, learned Senior Standing counsel for the Appellant, sought to pursue this Court to reconsider its view in RRJ Securities (supra). The Court declines to do so for more than one reason. First, for reasons best known to it, the Revenue has not challenged the decision of this Court in RRJ Securities (supra) in the Supreme Court. The said decision has been consistently followed by the authorities under this Court as well as by this court. Thirdly, the recent amendment to Section 153C (1) of the Act states for the first time that for both the searched person and the other person the period of reassessment would be six AYs preceding the year of search. The said amendment is prospective. 12. Consequently, no substantial question of law arises from the impugned order of the ITAT. The appeal is, accordingly, dismissed.”

“19.19 It may be pertinent to note that vide CBDT Circular No. 2/2018 / dated 15.2.2018, it has been clarified that the amended provisions of section 153A of the Act shall apply where search under section 132 of the Act is initiated or requisition under section 132A of the Act is made on or after 1st day of April, 2017. It is further stated therein that section

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153C of the Act has also been amended to provide a reference to the relevant assessment year or years as referred to in section 153A of the Income-tax Act. It is also stated therein that hus, the amendment will take effect from 1st April, 2017. Therefore, even the CBDT, in the context of the amended provisions of section 153A of the Act, has clarified that it would apply when search or requisition is made after the date of the amendment. Evidently, therefore, even the amended provisions of section 153C of the Act would apply when search or requisition is made after the amendment.”

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searched person was dated 13th March, 2014. Therefore, Section 153C as it stood prior to the amendment with effect from 1st June, 2015 applied to the case on hand. In terms of the said provision i.e., 153C(1), the AO of the searched person had to be satisfied that the documents seized ‘belongs or belong to a person other than the person referred to in Section 153A' in order that the AO of the searched person could to hand over such documents to the AO “having jurisdiction over such other person”. The change brought about by the prospective amendment, with effect from 1st June 2015, is that for initiating proceedings under Section 153 C arising from searches after that date it is enough for the Department to show that a particular seized document 'pertains to' the other person. However, in the present case, since the proceedings under Section 153 C (1) of the Act against the Assessee commenced prior to 1st June 2015, the Department is not relieved of the burden of showing that the seized documents in fact belong to (and not merely pertain to) the Assessee. ii) 417 ITR 617 (Del) PCIT vs. Dreamcity Buildwell (P) Ltd. “17. In the present case the search took place on 5th January 2009. Notice to the Assessee was issued under Section 153 C on 19th November 2010. This was long prior to 1st June, 2015 and, therefore, Section 153C of the Act as it stood at the relevant time applied. In other words, the change brought about prospectively with effect from 1st June. 2015 by the amended Section 153C (11 of the Act did not apply to the search in the instant case. Therefore, the onus was on the Revenue to show that the incriminating material/documents

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recovered at the time of search 'belongs' to the Assessee. In other words, it is not enough for the Revenue to show that the documents either 'pertain' to the Assessee or contains information that 'relates to' the Assessee.”

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The first issue that arises for our consideration is - whether the assessee can challenge the jurisdictional validity of order passed u/s 143(3) in the appellate proceedings taken up for challenging the order passed u/s 263? If we analyse the nature of both of these proceedings, which are under consideration before us, we find that the original assessment proceedings can be classified in a way as ’primary proceedings’. These are, in effect, basic/foundational proceedings and akin to a platform upon which any subsequent proceedings connected therewith can rest upon. The proceedings initiated u/s 263 seeking to revise the original assessment order is off shoot of the primary proceedings and therefore, these may be termed as ’collateral proceedings' in the legal framework. The issue that arises here is whether any illegality/invalidity in the order passed in the 'primary proceedings' can be set up in the 'collateral proceedings' and if yes, then of what nature? 8.1. We have analysed this issue carefully. There is no doubt that after passing of the original assessment order, the primary (i.e. original proceedings) had come to an end and attained finality and, therefore, outcome of the same cannot be disturbed, and therefore, the original assessment order framed to conclude the primary proceedings had also attained finality and it also cannot be disturbed at the instance of the assessee, except as permitted under the law and by following the due process of law. Under these circumstances, it can be said that effect of the original assessment order cannot be erased or modified subsequently. In other words, whatever tax liability had been determined in the original assessment order that had already become final and that cannot be sought to be disturbed by the

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assessee. But, the issue that arises here is that if the original assessment order is illegal in terms of its jurisdiction or if the same is null & void in the eyes of law on any jurisdictional grounds, then, whether it can give rise to initiation of further proceedings and whether such subsequent proceedings would be valid under the law as contained in Income Tax Act? It has been vehemently argued before us that the subsequent proceedings (i.e. collateral proceedings) derive strength only from the order passed in the original proceedings (i.e. primary proceedings). Thus, if order passed in the original proceedings is itself illegal, then that cannot give rise to valid revision proceedings. Therefore, as per law, the validity of the order passed in the primary (original) proceedings should be allowed to be examined even at the subsequent stages, only for the limited purpose of examining whether the collateral (subsequent) proceedings have been initiated on a valid legal platform or not and for examining the validity of assumption of jurisdiction to initiate the collateral proceedings. If it is not so allowed, then, it may so happen that though order passed in the original proceedings was illegal and thus order passed in the subsequent proceedings in turn would also be illegal, but in absence of a remedy to contest the same, it may give rise to an 'enforceable' tax liability without authority of law. Therefore, the Courts have taken this view that jurisdictional aspects of the order passed in the primary proceedings can be examined in the collateral proceedings also. This issue is not res integra. This issue has been decided in many judgments by various courts, and some of them have been discussed by us in followings paragraphs.

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8.10 Thus, on the basis of aforesaid discussion we can safely hold that as per law, the assessee should be permitted to challenge the validity of order passed u/s.263 on the ground that the impugned assessment order was non est and we hold accordingly. [Emphasis supplied].

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to the appellant. In considering that contention at page 121, a four Judge Bench of Hon'ble Supreme Court speaking through Vankatarama Ayyar, J. held that: "It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties."

ii) Balwant N. Viswamitra and Others v. Yadav Sadashiv Mul (dead) through IRS and Others reported in (2004) 8 SCC 706 (pages 657-667 of JPB-III) has held as under: “9 The main question which arises for our consideration is whether the decree passed by the trial court can be said to be 'null and 'void'. In our opinion, the law on the point is well settled. The distinction between a decree which is void and a decree which is wrong, incorrect, and irregular or not in accordance with law cannot be overlooked or ignored. Where a court lacks inherent jurisdiction in passing a decree or making an order, a decree or order passed by such court would be without jurisdiction non est and void ab initio. A defect of jurisdiction of the court goes to the root of the matter and strikes at the very authority of the court to pass a decree or make an order. Such defect has always been treated as basic

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and fundamental and a decree or order passed by a court or an authority having no jurisdiction is nullity. Validity of such decree or order can be challenged at any stage, even in execution or collateral proceedings. 10 Five decades, in Kiran Singh & Ors. v. Chaman Paswan & Ors., [SCR p. 121) this Court declared; "It is a fundamental principle well established that a decree passed by a court without jurisdiction is a nullity and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties. 11 The said principle was reiterated by this Court in Seth Hiralal Patni v. Sri Kali Nath. The Court said: (SCR pp. 751-52) "Competence of a court to try a case goes to the very root of the jurisdiction, and where it is lacking, it is case of inherent lack of jurisdiction." 12 In Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman & Ors., [1871] 1 SCR 66, a decree for possession was passed by the Court of Small Causes which was confirmed in appeal as well as in revision. In execution proceedings, it was contented that the Small Causes Court had no jurisdiction to pass the decree and, hence, it was a nullity.” 13 Rejecting the contention, this Court stated: (SCC p. 672, para 6)

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"a Court executing a decree cannot go behind the decree : between the parties or their representatives it must take the decree according to its tenor, and cannot entertain any objection that the decree was incorrect in law or on facts. Until it is set aside by an appropriate proceeding in appeal or revision, a decree even if it be erroneous is still binding between the parties. 14 Suffice it to say that recently a bench of two-Judges of this Court has considered the distinction between null and void decree and illegal decree in Rafique Bibi v. Sayed Waliuddin,. One of us (R.C. Lahoti, J. as his Lordship then was), quoting with approval the law laid down in Vasudev Dhanjibhai Modi, stated: (SCC pp. 291-92, paras 6-8) "6 What is 'void' has to be clearly understood. A decree can be said to be without jurisdiction, and hence a nullity, if the court passing the decree has usurped a jurisdiction which it did not have; a mere wrong exercise of jurisdiction does not result in a nullity. The lack of jurisdiction in the court passing the decree must be patent on its face in order to enable the executing court to take cognizance of such a nullity based on want of jurisdiction, else the normal rule that an executing court cannot go behind the decree must prevail. 7 Two things must be clearly borne in mind. Firstly, 'the court will invalidate an order only if the right remedy is sought by the right person in the right proceedings and circumstances. The order may be a 'a nullity' and 'void' but these terms have not absolute sense: their meaning is relative, depending upon the court's willingness to grant relief in any particular situation. If this principle of illegal relativity is borne in mind,

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the law can be made to operate justly and reasonably in cases where the doctrine of ultra vires, rigidly applied, would produce unacceptable results.' (Administrative Law, Wade and Forsyth, 8th Edn., 2000, p. 308). Secondly, there is a distinction between mere administrative orders and the decrees of courts, especially a superior court. 'The order of a superior court such as the High Court must always be obeyed no matter what flaws it may be thought to contain. Thus, a party who disobeys a High Court injunction in punishable for contempt of court even though it was granted in proceedings deemed to have been irrevocably abandoned owing to the expiry of a time-limit.' (ibid., p. 312) 8 A distinction exists between a decree passed by a court having no jurisdiction and consequently being a nullity and not executable and a decree of the court which is merely illegal or not passed in accordance with the procedure laid down by law. A decree suffering from illegality or irregularity of procedure, cannot be termed inexecutable by the executing court; the remedy of a person aggrieved by such a decree is to have it set aside in a duly constituted legal proceedings or by a superior court failing which he must obey the common of the decree. A decree passed by a court of competent jurisdiction cannot be denuded of its efficacy by any collateral attack or in incidental proceedings." From the above decisions, it is amply clear that all irregular or wrong decrees or orders are not necessarily null and void. An erroneous or illegal decision, which is not void, cannot be objected in execution or collateral proceedings.

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15 From the above decisions, it is amply clear that all irregular or wrong decrees or orders are not necessarily null and void. An erroneous or illegal decision, which is not void, cannot be objected in execution or collateral proceedings. …….. 20 In our considered opinion, such a decree, by no stretch of imagination, can be described nullity. If the decree is not null and void, as per settled law, appropriate proceedings will have to be taken by the persons aggrieved by such decree.

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Also, Hon’ble Madhya Pradesh High Court in the case of CIT v. Kalyan Solvent Extraction Ltd. (supra) has held as under: “Once the original order stands rectified then it loses its identity at least to the extent it stood rectified. In such circumstances, the Commissioner should have invoked his suo motu powers under section 263 of the Act against the subsequent rectified order dated March 14, 1989, if he was of the view that the same is erroneous and prejudicial to the interests of the Revenue. We are, therefore, of the view that the Tribunal made no mistake in coming to the conclusion that the order of the Commissioner passed under section 263 of the Act which had the effect of setting aside the assessment order dated March 13, 1987, is without jurisdiction. Accordingly, and in view of the aforesaid discussion, we answer the reference against the Revenue and in favour of the assessee.” 15. Further, Hon’ble Delhi High Court in the case of CIT v. Software Consultants reported in 341 ITR 240 has held as under: “14. For exercise of power under Section 263 of the Act, it is mandatory that the order passed by the Assessing Officer should be erroneous and prejudicial to the interest of the Revenue. In the present case, the Assessing Officer did not make any addition for the reasons recorded at the time of issue of notice under Section 148 of the Act. This position is not disputed and disturbed by the Commissioner of Income

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Tax in his order under Section 263 of the Act. Sequitur is that the Assessing Officer could not have made an addition on account of share application money in the assessment proceedings under Section 147/148. Accordingly, the assessment order is not erroneous. Thus, the Commissioner of Income Tax could not have exercised jurisdiction under Section 263 of the Act.

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notice U/S 143(2'). which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the same was non est in the eves of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon'ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the same was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If Id. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended. Because the provisions of limitation are provided in the same 20. In view of above discussion ground no.3 is allowed and revision order passed u/s 263 is quashed. " [Emphasis supplied] iii) ITA No. 466/2017 dated 2.5.2017 (Del) Pr. CIT v. Kaizen Products (P Ltd. presently known as Aas Research & Solutions (P) Ltd. iv) ITA No. 2808/D/2016 M/s Aas Research and Solutions (P) Ltd. (since kaizen Products (P) Ltd.) v) ITA Nos. 3825 to 3827/D/2018 dated 5.9.2018 M/s NKG Infrastructure Ltd. v. Pr. CIT wherein it was observed and held as under:-

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Kiran Singh (supra); the decisions of the Tribunal in West life Development Ltd (supra) followed by the Delhi Tribunal in Chennai Industries (ITA 1398- 99/Del/2012); and the Kolkata Tribunal in M/s Classic Floor And Food Processing Private Ltd (supra), we hold that the order which was barred by limitation cannot be revised under section 263 of the Act by the Learned principal Commissioner of Income Tax.” vi) ITA.No.2857/Del/2017 dated 10.12.2018 in the case of M/s. SPJ Hotels Pvt. Ltd. vs The PCIT-8 13.2. Since the facts are totally different as A.O. had reason to believe that Rs.10 lakhs has escaped assessment on account of Rs.5 lakhs received from two companies referred to above, which was ultimately found to be incorrect and nonexistent, therefore, there may not be any application of mind on the part of the A.O. to proceed to initiate the re-assessment proceedings. There is no other material available on record except the information received from the Investigation Wing. The A.O. on the basis of the information and material received from Investigation Wing has recorded reasons for reopening of the assessment which was ultimately found to be incorrect and non-existent. It is well settled law that when no new material other than examined by the A.O originally found on record for the purpose of initiating the re-assessment proceedings, the proceedings under section 148 of the I.T. Act would be invalid and bad in law. We rely upon decision of Delhi High Court in the case of Atul Kumar Swamy 362 ITR 693, Consulting Engineers Services India Pvt. Ltd., 378 ITR 318, Nestle India Ltd., 384 ITR 334 and Priyadesh Gupta 385 ITR 452. The Hon’ble Delhi High Court in the case of SNG Developers Ltd., 404 ITR 312 held that when A.O. initiated the re-assessment proceedings without application of mind, such proceedings would be invalid. A.O. in the present case has failed to verify the information received from Investigation Wing. Therefore, it is non application of mind on the part of the A.O. to record correct facts in the reasons for reopening of the assessment. In such circumstances, the re-assessment order could not be treated as valid and in accordance with law. Since re-assessment proceedings are invalid and bad in law, therefore, such

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proceedings could not be revised under section 263 of the I.T. Act. Following the reasons for decision in the case of M/s. Supersonic Technologies Pvt. Ltd., (supra), we set aside the order passed by the Ld. Pr. CIT under section 263 of the I.T. Act and quash the same. 14. In the result, ITA.No.2857/Del./2017 of the Assessee is allowed. vii) ITA No. 2269/D/2017 dated 10.12.2018 M/s Supersonic Technologies (P) Ltd. vs. PCIT “6.1.... It is well settled Law that assessee can challenge the validity of the re-assessment proceedings in the collateral proceedings (relating to examination of validity of Order passed) under section 263 of the I.T. Act. We rely upon the Order of ITAT, Mumbai Bench in the case of Westlife Development Ltd., vs. PCIT 49 ITR (Tribu.) 406 in which it was held "allowing the appeal (i) that jurisdiction aspect of the Order passed in the primary proceedings can be examined in collateral proceedings also. Thus, the assessee could be permitted to challenge the validity of the Order passed under section 263 on the ground that the assessment order was non- est." Since the re-assessment order itself is bad in law, therefore, Learned Counsel for the Assessee, rightly contended that the same cannot be revised under section 263 of the I.T. Act. Only valid re-assessment order can be revised under section 263 of the I.T. Act. On this ground itself the proceedings under section 263 of the I.T. Act are bad in law and liable to be quashed. We accordingly, set aside the Order of Ld. Pr. CIT passed under section 263 of the I.T. Act and quash the same. In view of the above, the remaining plea of the assessee are not required to be adjudicated. However, we may briefly note that A.O. examined entire seized material at the time of recording reasons and re-assessment stage. The assessee produced sufficient evidences at the re-assessment proceedings to prove the identity of the creditors, their creditworthiness and genuineness of the transaction. The A.O. also made direct enquiry by issuing summons under section 133(6) of the I.T. Act to the Investors who have also replied directly to the A.O.

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Therefore, A.O. rightly accepted the credits as genuine. In view of the above finding, there is no need to give a finding in detail on merits. In view of the above, we allow the appeal of assessee. 17. Ld. PCIT as well as Ld. CIT-DR has strongly relied upon the judgment of Hon’ble Kerala High Court in the case of CIT vs. Jacob J. Thaliath as reported in 343 ITR 279 wherein it was held that Tribunal being the second appellate authority, consider the validity of re-assessment order while considering the appeal against order issued u/s.263. Their Lordships observed as under:- “In so far as I.T.A. No. 1197 of 2009 is concerned, the Tribunal interfered with section 263 order issued for the year 1992-93 for the reason that the revised assessment issued under section 147, that was the subject matter of revision under section 263 itself is an invalid order. We do not think that the Tribunal has any such power to consider the validity of any such order, while considering the appeal filed against the order issued by the Commissioner under section 263. The assessee having not challenged the revised assessment, cannot also contest the validity of that proceedings before the Tribunal in an appeal filed against the order issued under section 263. The Tribunal, being the second appellate authority, cannot consider the validity of an assessment or reassessment order while considering the appeal filed against an order issued under section 263. So much so, the order of the Tribunal is liable to be vacated.” 17.1 In other judgment, relied upon was that of Hon’ble Madras High Court in the case of CIT vs. A. Samarapuri Chetty as reported in 195 ITR 371. On the facts of the case

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the issue was, whether the Tribunal was justified in cancelling the suo motu revision made u/s 263 of the Act for the reason that the order sought to be revised was the revised assessment issued u/s. 147 which was rectified u/s 154 for modification of interest levied u/s. 234D of the Act. In the said case,, the facts were the assessee filed the return in November, 1974 which was assessed on 23.12.1975. On December, 1975 the assessee filed a revised return of income showing an enhanced income. On 11.3.1976, 1976, the another assessment was made at an income of Rs.17,097/- on the assessee. Subsequently, Commissioner of Income Tax revised the second assessment order. The Hon’ble Tribunal held that the alleged assessment dated 11th March,1976 was non-est and that the Commissioner could not treat a non est order as prejudicial to the revenue and pass an order under u/s. 263 of the Act. The Hon’ble High Court in an appeal held that the Tribunal was not justified in holding that the second assessment order of the Income -tax Officer was non-est in any absolute sense, since it would bind the parties unless; it was set aside by the Commissioner under Section 263, it bound the parties.

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assessment order passed u/s. 147/148, it was held that if the Assessing Officer could not have made the addition in the proceedings u/s.148, the ld. CIT could not have exercised the jurisdiction u/s.263.

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to hold otherwise. Accordingly, we hold that the present proceedings being collateral proceedings and if the assessment order is inherently invalid or bad in law, then validity of such an order can be challenged at any stage in the collateral proceedings including the proceedings u/s.263, because invalid order cannot be set aside or can be revised to make it valid. Though assessment order may be said to be erroneous but certainly it cannot be held prejudicial to the interest of the revenue in such circumstances when assessment order itself is unsustainable, in view of the provisions of law as reiterated by the Hon’ble Jurisdictional High Court as discussed herein above. Accordingly, we set aside the impugned order passed u/s.263, as Ld. PCIT could not have revised the assessment order which itself is an invalid order. Accordingly, the appeal of the assessee is allowed on this score. The other grounds raised by the assessee are treated as academic in nature. 20. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 20th April, 2021 Sd/- Sd/- [O.P. KANT] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20/04/2021 PKK: