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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 07.07.2020 passed by the Principal Commissioner of Income Tax-16, Mumbai [hereinafter referred to as the “PCIT”] relevant to the A.Y.2015-16 in which the Principal Commissioner of Income Tax-16 has invoked the provisions u/s 263 of the I.T. Act, 1961. The assessee has raised the following grounds of appeal: - 2.
1. On the facts and in the circumstances of the case, the Order passed by the Learned Principal Commissioner of Income Tax-16, Mumbai under section 263 of the Income Tax Act. 1961 is void ab initio being had in law based on assumptions and wrong facts and without jurisdiction.
2. On the facts and in the circumstances of the case, the Learned Principal Commissioner of Income Tax-16, Mumbai has erred on facts and in law in assuming jurisdiction under section 263 of the Income Tax Act, 1961 when 143(3) of the Income Tax Act. 1961 was passed by the learned Assessing Officer after making detailed enquiries and hence the notice issued tinder section 263 of the Income Tax Act, 1961 and the order passed under said section are bad in law and without jurisdiction. 3. On the facts and in the circumstances of the case, the Principal Commissioner of Income Tax-16, Mumbai has wrongly held that the order passed by Learned Assessing Officer is erroneous arid prejudicial to the interest when no independent enquiry has been made by the Learned Principal Commissioner of Income Tax-16, Mumbai. 4. On the facts and in the circumstances of the ease, the explanations given, evidence produced, material available on record has not been considered by the Learned Principal Commissioner of Income Tax-16, Mumbai. 5. On the facts and in the circumstances of the case, the learned Principal Commissioner of Income Tax-16, Mumbai has grossly erred in applying Explanation 2(a) to section 263(1) of the Income Tax Act, 1961 retrospectively to Assessment Year 2015-16. 6. On the facts and in the circumstances of the case, the learned Principal Commissioner of Income Tax-16, Mumbai has grossly erred in cancelling the assessment order dated 19ih December 2017 and directing the learned Assessing Officer to pass a fresh assessment order. The assessee craves leave to alter, amend or withdraw all or any objections herein or add any further grounds as may be considered necessary either before.” 3. The brief facts of the case are that the assessment of the assessee was completed by virtue of order dated 19.12.2017 for the A.Y.2015-16 u/s 143(3) of the Act determining total income to the tune of Rs.35,16,450/-. The PCIT has found following reason to reopen the assessment u/s 263 of the Act: - “1. Higher turnover reported in Service Tax Return as compared to ITR.
2. Tax Credit claimed in ITR is less than the tax credit available in 26AS.
3. There is substantial increase in capital in a year.
4. Further, it was observed that you had started the business of giving studio on hire for videotape post production w.e.f 1.1.2015. However, the business of giving studio on hire, TDS have attracted on rental income accrued. From the perusal of 26AS, no such rental income has been accrued on which TDS deducted. Thus, the income of Rs.25,04,023/- which was shown by you as studio hire charges has not been proved to income derived from business and such presumptive taxation should not have been give. Further, you have also shown interest income of Rs.10,00,000/- as business income and has applied presumptive taxation on this income.”
4. Notice was given to the assessee and after the reply of the assessee, the PCIT has invoked the provision u/s 263 of the Act.
We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The facts are on record that the assessee filed his return of income on 7.08.2015 declaring total income to the tune of Rs.6321550/- and thereafter the assessee file the revised return of income on 11.05.2016 declaring total income to the tune of Rs.3516450/-. The assessment was selected for limited scrutiny under CASS and the AO issued the notice u/s 143(2) dated 19.09.2016 raising the following query. (i) Sales Turnover Mismatch (ii) Tax Credit Mismatch (iii) Increase in Capital Thereafter, the assessment was completed on 19.12.2017 u/s 143(3) of the Act. Subsequently, the Ld. PCIT invoked the revisional power u/s 263 of the Act by issuance of notice dated 24.01.2019 on following reasons: - “1. Higher turnover reported in Service Tax Return as compared to ITR.
2. Tax Credit claimed in ITR is less than the tax credit available in 26AS.
There is substantial increase in capital in a year.
Further, it was observed that you had started the business of giving studio on hire for videotape post production w.e.f 1.1.2015. However, the business of giving studio on hire, TDS have attracted on rental income accrued. From the perusal of 26AS, no such rental income has been accrued on which TDS deducted. Thus, the income of Rs.25,04,023/- which was shown by you as studio hire charges has not been proved to income derived from business and such presumptive taxation should not have been give. Further, you have also shown interest income of Rs.10,00,000/- as business income and has applied presumptive taxation on this income.”
6. The Ld. Representative of the assessee has argued that the reasons which have been mentioned by the PCIT in his notice has already been examined by the AO, therefore, invoking the power u/s 263 of the Act is wrong against law and facts, hence, the order is not liable to be sustainable in the eyes of law. It is specifically argued that the AO reopened the assessment by issuance of notice u/s 143(2) of the I. T. Act, 1961 for limited scrutiny, therefore, there was no scope for the AO to examine the other issues, hence, revising the assessment by invoking the provisions u/s 263 of the I. T. Act is bad in law. However, on the other hand the Ld. Representative of the Department has refuted the said contention. The PCIT has invoked the power in view of the provisions u/s 263 of the Act on following points: - “1. Higher turnover reported in Service Tax Return as compared to ITR.
Tax Credit claimed in ITR is less than the tax credit available in 26AS.
3. There is substantial increase in capital in a year. 4. Further, it was observed that you had started the business of giving studio on hire for videotape post production w.e.f 1.1.2015. However, the business of giving studio on hire, TDS have attracted on rental income accrued. From the perusal of 26AS, no such rental income has been accrued on which TDS deducted. Thus, the income of Rs.25,04,023/- which was shown by you as studio hire charges has not been proved to income derived from business and such presumptive taxation should not have been give. Further, you have also shown interest income of Rs.10,00,000/- as business income and has applied presumptive taxation on this income.” 7. The assessment of the assessee was completed vide order dated 19.12.2017 in view of the provision u/s 143(3) of the Act. During the proceeding, the AO issued the notice u/s 143(2) of the Act on 19.09.2016 in which the following issues have been raised:- (i) Sales Turnover Mismatch (ii) Tax Credit Mismatch (iii) Increase in Capital 8. The PCIT has also raised these issues in its order at point no. 1 to 3. Since these issues have already been examined by the AO while completing the assessment u/s 143(3) of the Act vide order dated 19.12.2017 lies at page no. 44 to 48 of the paper book, therefore, in the said circumstances, there is no need to examine these issues again. Since the reasons 1 to 3 has already been examined by AO therefore these grounds are not liable to be re- examined in view of the decision of Malabar Industrial Co. Ltd. Vs. CIT, 109 taxman 66 (SC), M/s. JBF Industries Ltd. Vs. PCIT-4 (ITA. No. 701 & 702/Mum/2018), Narayan Tatu Rane Vs. ITO Ward & Torrent Pharmaceuticals Ltd. Vs. DCIT (ITA. No.164/Ahd/2018). Now coming to the reason no. 4 for reopening the case, we find that the PCIT has no power to reopen the matter by way of invoking the provisions u/s 263 of the Act. The assessment of the assessee was reopened for limited scrutiny under CASS. Notice dated 19.09.2016 u/s 143(2) of the Act speaks about the reopening that the assessment was reopened for limited scope. The reasons have been mentioned above. The AO nowhere extend the scope of limited scrutiny and for that no permission of any kind was taken from the higher authority. Since the AO did not examine the issue in the limited scrutiny, therefore, the PCIT has no power to reopen the assessment by invoking the power u/s 263 of the Act. In this regard, we find support of the decision of the Kolkata Bench in the case of Sanjeev Kumar Khemka Vs. PCIT in A.Y.2011-12 dated 02.06.2017 wherein the Co-ordinate bench held as under: - “4. We have heard the rival contentions of the parties and perused the materials on record. The primary issue in the case on hand revolves whether it is a case selected under CASS for limited scrutiny or regular scrutiny. It can be seen from the grounds of appeal that the assessee wants to contend that the very initiation of proceedings u/s 143(3) of the Act on the basis of regular scrutiny under the Act was bad in law. The proceedings under section 143(3) of the Act should have been limited to the extent of the information gathered through AIR. Accordingly the proceedings u/s 263 of the Act cannot be expanded beyond the issue raised in AIR. Thus the order u/s 143(3) of the Act beyond the points of AIR is invalid in law and so the same is with the order passed u/s 263 of the Act. It is the further contention of the assessee that in the items which are not subject matter of AIR cannot subject matter of scrutiny. Such matters include salary of the assessee, loans & interest on loans, payment of LIC, Commission & brokerage income etc. It is the case of the assessee that in the assessment order passed u/s 143(3) of the Act, the AO has travelled AIR on the basis of which the case of scrutiny was selected under CASS module. It is the plea of the assessee that when no addition/disallowance can be made beyond the points mentioned in AIR in the assessment proceedings then same is the case with proceedings initiated u/s 263 of the Act. 4.1 The first aspect which needs to be examined is as to whether the assessee is entitled to challenge the validity of initiation expanded in the proceedings u/s 143(3) of the Act in the present appeals in which he has challenged the validity of expanded order passed u/s 263 of the Act covering the points which are not part of the AIR. The ld. Counsel for the assessee submitted before us that it is open to an assessee in an appeal against the order u/s 263 of the Act which seeks to revise an order passed u/s 143(3) of the Act, to challenge the validity of the expansion of order passed u/s.143(3) of the Act covering the points which are not part of the AIR. In this regard we find that Lucknow Bench of Hon‟ble ITAT in the case of Inder Kumar Bachani (HUF) vs ITO 99 ITD 621 (Luck) and ITAT Mumbai „G„ Bench in the case of M/s. Westlife Development Ltd. Vs Principal C.I.T. in have taken a view that when an Assessment order passed u/s 147 of the Act was illegal the Ld.CIT cannot invoke the jurisdiction u/s 263 of the Act against such void or non-est order. In the second decision cited the Hon‟ble Mumbai bench of the Tribunal has specifically framed the following questions :- “1.Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263? 2. Whether the impugned assessment order passed u/s 143(3) dated 24-10- 2013 was valid in the eyes of law or a nullity as has been claimed by the assessee? 3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order?” On question no. 1 and 3 which is relevant to the present case the Hon‟ble Mumbai bench of the Tribunal has taken the view that when the original assessment proceedings are null and void in the eyes of law for want of proper assumption of jurisdiction then such validity can be challenged even in collateral proceedings. The Mumbai bench took the view that the proceedingsu/s 147 of the Act are primary proceedings and proceedings u/s 263 of the Act are collateral proceedings and in such collateral proceedings, the validity of initiation of the original proceedings u/s 147 of the Act can be challenged. The Mumbai bench of the Tribunal in this regard has placed reliance on several decisions, the principal decision being that of the Hon‟ble Supreme Court in the case of Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117(SC) wherein the Hon‟ble Supreme Court observed as follows :- “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." Now coming to the facts of the instant case, we find that the instant case was selected on the basis of AIR Information as evident from the order of AO under section 143(3) of the Act. There is also no whisper in the order of the AO for expanding the scope of limited scrutiny after obtaining the permission from the Administrative CIT. The ld. DR has also failed to bring anything contrary to the argument of the ld. AR. Therefore in our considered view the scrutiny should have been limited AIR. Admittedly, the assessee has claimed to have filed an appeal before Ld. CIT(A) challenging the jurisdiction exceeded by the AO while framing the assessment order u/s 143(3) of the Act. We find that the impugned issue being legal in nature and goes to the root of the matter therefore we are inclined to proceed with this issue first by holding that, from the above submission and after examining of the records, we find that the Ld. CIT in his impugned order u/s 263 of the Act has exceeded his jurisdiction while holding the order of AO as erroneous in so far prejudicial to the interest of Revenue. In view of the above we hold that the ld. CIT has in his order u/s. 263 of the Act exceeded the jurisdiction by holding the order of AO as erroneous in so far as prejudicial to the interest of Revenue on those items which are not emanating from the AIR. Thus, we are inclined to adjudicate only those matters which are emanating from the AIR as discussed above. 4.2 The assessment was framed by AO for the A.Y. 2011-12 under section 143(3) of the Act vide order dated 29.03.2014 after making certain additions/ disallowances to the total income of assessee. Subsequently, Ld. CIT u/s 263 of the Act observed certain errors in the order of AO, therefore, he was of the view tht the order passed by the AO is erroneous in so far as prejudicial to the interest of Revenue on account of no proper-enquiry before completing assessment as discussed below:- (i) The assessee has deposited in its bank account in HDFC bank Goa for ₹17.56 lakh and out of that there was a withdrawal only for ₹1.50 lakh but the AO has made the addition only to the extent of ₹4 lakh on account of unexplained cash credit. Therefore, certain unexplained cash credit of the assessee has been under assessed by the AO. (ii) There was another bank account of the assessee in HDFC bank in Goa where total deposits of Rs. ₹19,31,750/- was made by the assessee but AO found credited amount of Rs. ₹5,76,056/- only. Thus, total deposits made in the bank were not brought to tax; (iii) There was transactions of ₹3 76,225/- through credit card which was not explained and thus the entire amount was liable to be added to the total income of assessee but the AO has added only a sum of ₹2,98,225/- to the total income of assessee. Thus, there was under assessment of income by ₹78,000/-; (iv) The assessee during the year has sold property for ₹36 lakh and exemption of ₹19,74,763/- was claimed by assessee u/s. 10(38) of the Act. This fact was not verified by the AO at the time of assessment proceedings. In view of above, the Ld. CIT found the order of AO is erroneous in so far as prejudicial to the interest of Revenue and therefore show-cause notice was issued u/s. 263 of the Act vide dated 13.10.2015 for the clarification of the above transactions. In compliance thereto, the assessee submitted as under : i) The deposit in HDFC bank account No. 03151930000609 was duly reflected in his IT return. Therefore, no cause has happened to the Revenue which is prejudicial to the interest of Revenue. ii) The deposit of ₹19,73,750/- was duly reflected in the IT return and therefore there was no error which is prejudicial to the interest of Revenue. iii) Regarding the credit card payment, the addition on account of undisclosed cash deposit has already been added by the AO and therefore there is no error causing prejudice to the interest of Revenue. iv) There was no sale of the property and therefore no exemption u/s10(38) of the Act was claimed. However the Ld. CIT after considering the submission of assessee has held the order of AO is error and prejudicial to the interest of Revenue by observing as under:- “I have carefully considered the issues with specific reference to the relevant assessment records as well as written submission A/R. The AO has not taken cognizance of the following issues, despite being apparent from record:- (1) Addition of Rs. 4 lakhs only was made against total cash deposit of Rs.17,56,000/- without taking any explanation from the assessee. (2) The balance deposits in another account with HDFC, Porvorim, Goa was not considered in assessment. (3) Interest income from all savings accounts and FDRs was not considered at the time of assessment. (4) Submission of assessee regarding explanation of credit card payment of Rs.3,76,225/- was partly accepted in assessment without proper verification. (5) Although a salaried person, the assessee‟s bank account reflect huge transactions/transfer entries, which required further investigation. (6) Long term capital gain of Rs.19,74,763/- was not properly verified. (7) Loan transactions and interest on loans required proper verification. (8) Salary was received in cash without TDS, which should have been viewed adversely. (9) LIC premium was paid for a minor but assessee‟s capital account did not reflect the same. (10) Lastly, the assessee declared income from commission/brokerage in the previous two AYs but no such income was shown in this year. “An incorrect assumption of facts or an incorrect application of law will always make the order passed by the Assessing Officer erroneous. The Assessing Officer has not made proper enquiry before completing assessment regarding above issues. By not checking the above issues and by not making adequate enquiry the Assessing Officer has not assessed the proper income and the order has become erroneous and prejudicial to the interest of the revenue. In view of the above, the order dated 29/03/2014 passed by ACIT, Circle-43, Kolkata is found to be erroneous and prejudicial to the interest of revenue and hence it is set aside with the direction to pass fresh assessment order after examining the evidences and documents in respect of the above issues raised after giving opportunity to the assessee and in accordance with law.” Being aggrieved by this order of Ld. CIT assessee is in appeal before us on the following grounds:- “
(1) For that the L‟d Pr. Commissioner of Income Tax erred in exercising the power of revision for the purpose of directing the AO to hold another investigation when the order passed by the AO was neither erroneous nor prejudicial to the interest of revenue. (2) For that the L‟d Pr.CIT erred and exceeded jurisdiction by giving direction in respect of the matters which are subject matters of appeal before the CIT(A), therefore order passed by Pr. CIT-15 is unlawful, beyond provision of law and therefore liable to be quashed. (3) For that the L‟d Pr. CIT had alleged arbitrarily irrelevant matters, factual and untrue position in the show cause notice u/s. 263 and therefore order passed by Pr. CIT-15 Kolkata u/s. 263 is nullity and liable to be quashed. (4) For that L‟d Pr. CIT has wrongly assumed the jurisdiction u/s. 263 by wrongly mentioning that deposits in HDFC Goa A/c & HDFC Porvorim Goa A/c were under-assessed by the AO despite these two a/cs were disclosed in the balance sheet and deposits were explained, therefore allegation so made is bad in law and void ab-initio. (5) For that on the facts & in the circumstances of the case L‟d Pr. CIT was not justified in initiating proceeding u/s. 263. (6) For that your petitioner craves the right to put additional grounds and/or to alter/amend/modify the present grounds before or at the time of hearing.” The ld. AR before us filed two paper books which are running from pages 1 to 27 and 28 to 31. The ld. AR before us submitted that the AO at the time of assessment. Thus the order of the AO cannot be held erroneous and prejudicial to the interest of Revenue on account of non enquiry whereas the ld. DR vehemently supported the order of the ld. CIT.
5. We have heard the rival contentions & perused the materials available on record. From the foregoing discussion, we find that order of AO has been treated erroneous and prejudicial to the interest of revenue on the ground that proper enquiry was not made by the AO. Therefore, Ld. CIT held that the order of AO is erroneous and prejudicial to the interest of revenue. However, after examining the order of Authorities Below and other relevant records our observations are as follows:- a) deposit of cash of ₹17.56 lakh in HDFC bank a/c No.03151930000609 From the order or AO, we find that the AO at the time of assessment proceedings has applied his mind while determining the undisclosed income from the said bank account for Rs. 4 lacs. Thus the AO after considering the bank statements of the assessee has consciously made the addition of ₹ 4 lakh as unexplained cash credit against which assessee claimed to have filed appeal before Ld. CIT(A). Therefore, in our considered view, the allegation of Ld. CIT that proper enquiry was not made by the AO is not true. b) Deposit of cash ₹19,31,750/- in HDFC bank A/c 0315100006743 From the order of AO we find that AO has already made the addition of the entire amount as unexplained cash credit. Therefore, the allegation of the ld. CIT-A that the order of AO is erroneous and prejudicial to the interest of Revenue is not true. c) Credit card payment of ₹3,76,225/- From the order of AO, we find that the AO has made the addition of ₹2,78,225/- out of total credit card payment of ₹3,76,225/-. Therefore, it is clear that AO has applied his mind while framing the assessment proceedings u/s. 143(3) of the Act. Thus, the allegation of the AO in the impugned order or Ld. CIT u/s. 263 of the Act that there was no proper enquiry conducted by AO at the time of assessment proceedings is not true. d) Sale of property for consideration of ₹ 36 lakh. On perusal of AIR information which is placed on page 1 of the paper book, we find that no immovable property has been sold by assessee in the year under consideration. Besides the above, there is also no whisper in the assessment order for any addition on account of capital gains. Therefore, we find that the allegation of Ld. CIT that AO has not conducted sufficient enquiry in relation to sale of immovable property is not true. 5.1 In view of the above we find that Ld. CIT has passed impugned order u/s. 263 of the Act by holding the order of AO as erroneous in so far as prejudicial to the interest of revenue on account of inadequate enquiry made by AO while passing order u/s. 143(3) of the Act. However, we find that proper and sufficient enquiries were conducted by the AO at the time of assessment as evident from the order of AO. Therefore it cannot be concluded that no proper enquiry has been conducted by the AO at the time of assessment proceedings. The AO has taken conscious view after considering the facts and circumstances of the case and giving proper opportunity to the assessee. Thus, the view expressed by AO in the form in his assessment order cannot be replaced with the view of Ld. CIT u/s 263 of the Act. In holding so, we find support and guidance from the judgment of Hon'ble jurisdictional High Court in the case of CIT vs. M/s. J.L. Morrison (India) Ltd.(ITA No 168 of 2011) in GA No 1541 of 2012 dated 15.05.2014, wherein it was held as under:- “By sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision.” We also rely on the judgment of the Hon‟ble Supreme Court in the case of CIT Vs. Max India Limited reported in 295 ITR 282 wherein it was held as under : “When the CIT passed the impugned order under s. 263, two views were inherently possible on the word "profits" occurring in the proviso to s. 80HHC(3) and therefore, subsequent amendment of s. 80HHC made in the year 2005, though retrospective, did not render the order of the AO erroneous and prejudicial to the interest of the Revenue, and CIT could not exercise powers under s. 263.” In view of the above proposition, and respectfully following principle laid down by the Hon'ble courts and keeping in view all these discussion, as also bearing in mind entirety of the case, we deem it fit and proper to uphold the grievance of the assessee and quash the impugned revision order as devoid of jurisdiction. The assessee gets the relief, accordingly.
In the result, assessee‟s appeal stands allowed.”