MOHIDEEN GAFOOR,CHENNAI vs. INCOME TAX OFFICER, NON CORPORATE WARD 1(3), CHENNAI

At the outset, it is noticed that this appeal is delayed by 285 days. This appeal was filed before Tribunal only on 02.03.2022 and as per Form 36, the order of CIT(A) was received on 29.03.2021. The assessee has filed condonation petition stating that the delay was due to the spread of Covid-19 pandemic and nationwide lockdown imposed by the Government from 25.03.2020. The assessee has also stated that the Hon’ble Supreme Court in Miscellaneous Application No.665 of 2021 vide order dated 23.03.2020 has given directions that the delay are to be condoned during this period 15.03.2020 to 14.03.2021 and they have condoned the delay up to 28.02.2022 in Miscellaneous Application No.21 of 2022 vide order dated 10.01.2022. In term of the directions of Hon’ble Supreme Court, we condone the delay in filing of this appeal by assessee and admit the appeal for adjudication.

The only issue in this appeal of assessee is as regards to the revision order passed by PCIT u/s.263 of the Act, revising the assessment framed by the AO by holding that the assessment order

The learned PCIT erred in making revision on an issue which was not dealt with by the assessing officer during the course of reassessmcnt proceedings. The PCIT failed to note that revision under section 263 of the Act, for the failure if any, on the part of the assessing officer, could be only in respect of reason for which the reopening is made. The PCIT ought to have noted that the assessment was open only respect of reason recorded by the assessing officer and any other income that escaped the assessment which comes to the notice of the assessing officer not in respect of any other item.

The PCIT failed to note that revision under section 263 of the Act cannot be invoked for assessing income, which could not have been assessed by the assessing officer himself. The assessing officer's jurisdiction to assess any other income chargeable to tax which has escaped the assessment and which comes to his notice during the course of the reassessment arises only if he assesses income in respect of which he had reason to believe and not otherwise. The PCIT cannot consider, the order to be erroneous, when the assessing officer did not have any belief of escapement of income in respect of cost of improvement.

Brief facts are that the assessee is an individual, filed a belated return of income on 31.07.2013 for the relevant assessment year 2012-13 declaring total income of Rs.13,77,840/-. Since, return was filed as belated return, it was not processed. The AO issued notice u/s.148 of the Act dated 29.03.2018 and the assessee in response to this notice filed return of income on 06.12.2018 declaring total income of Rs.20,56,000/- as against the total income declared in belated return at Rs.13,77,840/-. In the assessment framed by the AO u/s.143(3) r.w.s. 147 of the Act dated 18.12.2018, in response to reassessment notice u/s.148 of the Act, the reasons recorded was, that the assessee has holding a savings bank account with HSBC, Chennai, wherein total credit transaction during the period 01.04.2010 to 31.03.2011 is aggregating to Rs.2.29 crores out of which Rs.26.15 lakhs was cash deposit. The AO recorded the following reason: “The assessee is holding a savings bank account with the HSBC, Chennai, where the total credit transaction in this ban account during the period from 01.04.2010 to 31.03.2011 is aggregating to Rs.2.29 crores out of which Rs.26.15 lakhs was cash deposits”

The PCIT issued a show cause notice u/s.263 of the Act dated 20.11.2020 and assessee was asked to show cause as to why the assessment order passed u/s.143(3) r.w.s 147 of the Act be not held as erroneous and prejudicial to the interest of Revenue for the reason that as per the revised computation of income, schedule 2, the assessee has claimed Rs.34.64 lakhs as cost of improvement during the financial year 2004-05 while arriving at the long term capital gain and the cost of improvement was also indexed. The nature of expenditure as well as the details regarding the improvement was not produced. The assessee explained the cost of improvement incurred during financial year 2004-05 and filed details before the PCIT. But, PCIT was not convinced and noted that the AO has accepted the claim of assessee without making any verification and without conducting necessary enquiries on the above subject. Hence, he held that the assessment order is erroneous as well as prejudicial to the interest of Revenue and

Now, before us the ld.counsel for the assessee made submission that reassessment order or the assessment order passed by AO u/s.143(3) r.w.s. 147 of the Act dated 18.12.2018 was on the issue of cash deposit made by assessee with the savings account maintained with HSBC, Chennai wherein total credit transaction in the bank account during the period 01.04.2010 to 31.03.2011 is aggregating to Rs.2.29 crores and out of this, cash deposit of Rs.26.15 lakhs was there. The ld.counsel argued that the AO reopened this assessment for the sole reason and in the assessment order, the AO made disallowance of expenses of Rs.52,414/- as is evident from para 9 of the re-assessment order dated 18.12.2018. He argued that now PCIT want to verify the following:- “As per the revised computation of income, schedule 2, the assessee claimed Rs.34.64 lakhs as cost of improvement during the F.Y. 2004-05 while arriving at the LTCG. The cost of improvement was also indexed. The nature of expenditure as well as the details regarding the improvement was not produced.”

It may be of some interest to notice that a similar contention raised at the instance of an assessee was rejected by a 3-Judge Bench of this Court in Commissioner of Income-Tax v. Shri Arbuda Mills Ltd. [231 ITR 50]. This Court took note of the amendment made in Section 263 of the Act by the Finance Act, 1989 with retrospective effect from June 1, 1988, inserting Explanation (c) to Sub-section (1) of Section 263 of the Act stating: "The consequence of the said amendment made with retrospective effect is that the powers under section 263 of the Commissioner shall extend and shall be deemed always to have extended to such matters as had not been considered

The Madras High Court in A.K. Thanga Pillai (supra), in our opinion, has rightly considered the matter albeit under Section 17 of the Wealth Tax Act, 1957 which is in pari materia with the provisions of the Act. Relying on Sun Engineering Works P. Ltd (supra), it was held: "Under section 17 of the Wealth-tax Act, 1957, even as it is under section 147 of the Income-tax Act, proceedings for reassessment can be initiated when what is assessable to tax has escaped assessment for any assessment year. The power to deal with underassessment and the scope of reassessment proceedings as explained by the Supreme Court in the case of Sun Engineering [1992] 198 ITR 297, is in relation to that which has escaped assessment, and does not extend to reopening the entire assessment for the purpose of redoing the same de novo. An assessee cannot agitate in any such reassessment proceedings matters forming part of the original assessment which are not required to be dealt with for the purpose of levying tax on that which had escaped tax earlier. Cases of underassessment are also treated as instances of escaped assessment. The order of reassessment is one which deals with the assessment already made in respect of items which are not required to be reopened, as also matters which are required to be dealt with in order to bring what had escaped in the earlier order of assessment, to assessment. An assessee who has failed to file an appeal against the original order of assessment cannot utilise the reassessment proceedings as an occasion for seeking revision or review of what had been assessed earlier. He may only question the extent of the reassessment in so far as the escaped assessment is concerned. The Revenue is similarly bound"

On the other hand, the ld.CIT-DR relied on the revision order.

Having heard rival contentions and going through the facts and circumstances of the case, it is a fact that the only issue before the AO in the assessment framed u/s.143(3) r.w.s.147 of the Act was bank deposits i.e., holding in savings bank account with HSBC, Chennai wherein total credit transaction in this bank account during the period 01.04.2010 to 31.03.2011 aggregate to Rs.2.29 crores out of which a sum of Rs.26.15 lakhs was cash deposit, was the subject matter of examination. Now, the PCIT want to examine the issue of cost of improvement incurred during the financial year 2004-05 and claimed at Rs.34.34 lakhs. It transpires from the facts of the case that this issue raised by PCIT was never the subject matter of assessment / reassessment framed by AO u/s.143(3) r.w.s. 147 of the Act vide order dated 18.12.2018. Once this is the

In the result, the appeal filed by the assessee is allowed.