VINOD KUMAR SINGHAL ,BANGALORE vs. PRINCIPAL COMMISSIONER OF INCOME TAX-3, BENGALURU
Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHUANDSHRI. SOUNDARARAJAN KAssessment Year : 2014-15
Per Laxmi Prasad Sahu, Accountant Member :
This appeal filed by the assessee against the Order passed by PR.CIT under section 263 of the Income Tax Act, 1961 (hereinafter called ‘the Act’),
Order dated 23.03.2024 vide DIN and Order No. ITBA/REV/F/REV5/2023-
24/1063248290(1) dated 23.03.2024, regarding unsecured loan received from shell company by the assessee which was not examined by the AO during the course of reassessment proceedings under section 147 of the Act whereas the sole reason for reopening assessment under sections 147/148 of the Act was on the basis of information received from the Investigation Wing, Kolkata regarding accommodation entries received by the assessee on 27.02.2024
observing as under:
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Against the reassessment order passed by the AO dated 30.03.2022, Pr. CIT issued show cause notice. The Pr. CIT called for details from DDIT (Inv.), Unit – 1(3), Kolkata, vide his office letter dated 11.03.2024 through mail during the pendency of 263 proceedings. In response to the reference of the Pr.CIT, the DDIT (Inv.), Unit – 1(3), Kolkata, submitted reply wherein it is stated that assessee had received accommodation entries by way of unsecured loans from the following entries which are group companies of Banka Group of companies.
The DDIT had also provided copy of statements recorded from Mukesh Banka residing at BF-61, Sector-1, Salt Lake, Kolkata. The statement was recorded under section 132(4) of the Act on 19.07.2018 at the time of search Page 3 of 14
in the case of Banka group and another statement was recorded under section 131 of the Act on 30.05.2018. Shri. Mukesh Banka while answering to the question No.18 of the statement recorded on 30.05.2018 has stated that “the companies were purchased / incorporated by me with the sole intention to provide accommodation entries mainly in the form of secured loan / share capital etc in lieu of commission”. Further, he had identified list of entities which are paper / shell companies and which are managed by himself in the answer No.74 of the same statement, wherein M/s. ArrowlinkVintrade Pvt.
Ltd., name is mentioned. The DCIT noted from the information provided by the DDIT and column 31a of audit report in Form 3CD for the under consideration the assessee had received loan of Rs.35.00 lakhs from M/s.
Arrowlinkvintrade Pvt. Ltd., and as per information received from Mukesh
Banka was managing the activity of M/s. ArrowlinkVintrade Pvt. Ltd.
However, while completing the reassessment proceedings, the AO had not enquired with regard to unsecured loan received during the year. The AO failed to verify the information received from DDIT (Inv.), Unit – 1(3),
Kolkata, which was manual basis for reopening the assessment under sections
147/148 of the Act. However, the assessee has furnished that he has not received any loan from Banka Group whereas Form 3CD is clearly stated in this regard. The Pr.CIT has also noted as under:
Further, Pr.CIT has also found that sales tax penalty of Rs.28,165/- and employees’ contribution to PF and ESI of Rs.8,159/- has not been examined and disallowed. Therefore, he observed that reassessment order passed by the AO is erroneous and prejudicial to the interest of the Revenue in terms of Page 4 of 14
section 263 of the act and not made proper verification / enquiry while making the assessments. Accordingly, he set aside the Assessment Order and directed to pass a denovo assessment with a direction to the observation of the Pr.CIT and completed the Order on 23.03.2024. 5. The learned Counsel for the assessee reiterated the submissions made before the lower authorities. He further strongly contended that the very basis for exercising power under section 263 of the Act itself is wrong because the basis for passing of the Assessment Order is invalid in the eyes of law, since the notice under section 143(2) of the Act was issued by the AO before completion of reassessment u/s 147/148 of the Act. He further submitted that if the AO initiated proceedings under sections 147/148 of the Act and the assessee files return, the notice under section 143(2) of the Act is mandatory as per the decision of the various courts. The Pr.CIT has exercised his juri icision on the invalid reassessment order, therefore, the order passed by the ld. Pr. CIT is non-est. in the eyes of laws. In support of his argument, he relied on the following judgments:
a. CIT Vs. Nagendra Prasad, [2023] 156 taxmann.com 19 (Patna HC).
b. Chand Bihari Agarwal, [2024] 460 ITR 270 (Patna HC) c. M/s. Dart Infrabuild (P) Ltd., ITA No.10/2022, Delhi HC d. Laxman Das Khandelwal, [2019] 417 ITR 325 (SC)
During the course of hearing, the learned Counsel for the assessee produced the reply furnished in response to information obtained under the Right to Information Act , 2005 and submitted that there was no notice issued by the AO u/s 143(2) of the Act. Page 5 of 14
The learned DR relied on the Order of the lower authorities. He submitted that the lower authorities have furnished the report vide email dated 13.12.2024 at 4.10 p.m. in which it has been held as under:
Learned DR further submitted that the assessee has not furnished return of income within the time allowed of 30 days as per notice issued section 148 of the Act vide notice dated 31.03.2021. Assessee furnished return of income only on 04.03.2022 which is beyond the statutory period, therefore, the return filled by the assessee belatedly is treated as invalid return . In case of invalid return no notice is required to be issued u/s 143(2) of the Act. . Further, it is clear from the notice issued by the AO under section 142(1) of the Act dated 21.01.2022 in Annexure form in which it has been stated as under :
From the above notice, it is very much clear that from the date of issue of notice under section 148 and 142(1) of the Act , assessee has not filed return of income. Therefore, the AO issued show cause notice on 26.03.2022 for completing the assessment under section 144 of the Act thereafter the assessee Page 6 of 14
filed return of income only on 04.03.2022 declaring income of Rs.3,06,77,050/- which is invalid return. The notice under section 143(2) of the Act can be issued only if the return has been filed by the assessee as per section 139 of the Act or in response to notice under section 142(1) of the Act within he time allowed. and he referred to section 143(2) of the Act. Section 148 of the Act. The learned DR relied on the Order of the judgment of Co- ordinate Bench o fhte Tribunal in the case of Shjree Gautam Labdhi Con Corp
LLP, Vs. ITO in ITA No.38/Ahd/2024 Order dated 08.08.2024 in which it has been held as under:
“9. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that in the present case the return of income for A.Y. 2018-19 was originally filed under Section 143 of the Act on 25.07.2018. After the case was reopened under Section 147 of the Act, notice under Section 148 was issued on 24.03.2022 and notice under Section 142(1) of the Act was issued on 07.07.2022 and the second notice issued under Section 142(1) dated 31.10.2022. From the perusal of records uptill date of issuance of Section 142(1) of the Act dated
31.10.2022 where the assessee has filed his reply on 07.11.2022 alongwith documents but the assessee has not filed return of income. In fact, the assessee chose to file return of income on 14.02.2023 as submitted in assessee’s written submission but the same cannot be treated as return in respect of response to the notice under Section 148 of the Act as the assessee has filed the original return of income as mentioned in the return of income acknowledgement dated 14.02.2023. Thus, the CIT(A) has rightly dismissed this ground with the precise observation.
Hence ground no.1 is dismissed”:
He submitted that as per the above judgment, in the case of assessee the notice under section 143(2) of the Act is not required to be issued and the case of the assessee is similar with the judgment cite4d supra. The ld. DR further submitted that in section there id no provision in section 147 for issuance of notice u/s 143(2) of the Act. In section 158BD there is mandatory provision for issue of notice u/s 143(2) of the therefore, judgment of Hon,ble apex court in the case of ACIT vs Hotel Blue Moon will not apply in this case.
The learned DR further submitted that while completing the reassessment proceedings by the AO, the AO has not examined the issue for Page 7 of 14
the very purpose the case was reopened on the basis of reasons recorded.
Therefore, the reassessment passed by the AO is suffering from infirmity and it is complete lack of enquiry which is erroneous and prejudicial to the interest of Revenue.
The ld. AR of the assessee submitted that the AO after issue of Show cause notice on 26.03.2022 only one day time was allowed which is not proper and the assessee submitted reply on 28.03.2022 and filed return of income. Once the assessee field return of income the AO is bound to issue notice u/s 143(2). On 07.03.2024 the assessee objected for receiving loan of Rs. 1,16,00,000. During the course of reassessment proceedings the assessee had already explained that no such loan of Rs. 1,16,00,000/- has been obtained and the necessary enquiries have been conducted by the AO before passing of the order u/s 147r.w.s. 144B of the Act. The ld. Pr. Cit has wrongly exercised his juri iction. In this case there is no lack of enquiry. The figures noted by the ld. Pr.CIT is also not tallied with the financial statements and he has considered twice to the amount of Rs. 35,00,056/-. The learned Counsel further submitted that while examining the record as defined in section 263 of the Act the learned Pr.CIT had no inforfmaiton which is clear from para 6.1 of his Order while exercising the powers by the learned Pr.CIT. He called for information from DDIT, Unit – 1(3), Kolkata, vide letter dated 11.03.2024 through email during the pendency of the proceedings. He strongly objected for exercising power under section 263 of the Act by the learned Pr.CIT and submitted that while exercising powers the entire information should be available with the learned Pr.CIT but in this case, it is absent. Therefore, the initiation of proceedings under section 263 of the Act is bad in law.
The learned Counsel for the assessee further submitted that learned Pr.CIT should have restricted his juri iction only to the textent of the issue involved in the proceedings under section 147 / 148 of the Act in this case. The Page 8 of 14
reassessment was completed only on the basis of loan received by the assessee of Rs.1,16,00,000/- from the Banka Group and the information was passed by the DDIT (Inv.). However, in this case, the learned Pr.CIT has also gfiven direction to the AO on two more issues which were not part of the reassessment proceedings i.e., (i) sales tax penalty of Rs.28,165/- and (ii) the employees’
contribution to PF/ESI of Rs.8,159/-. In support of his argument, he relied on the following judgments:
I. Royal Western India TGurf Club in ITGA No.640/Mum/2021 dated
12.10.2021
Paramjit Singh in ITA No.446/Del/2022 dated 01.12.2023
The learned Coun sel for the assessee further submitted that once the document found during the course of search and seizure openation under section 132 of the Act in the case of other persons, the proceedings under section 147 / 148
of the Act cannot be done on the same documents / incriminating materials.
The proceedings should have been done under section 153C of the Act.
Therefore, the entire reassessment proceedings completed by the AO Order dated 30.03.2022 is non-est in the eyes of law. Therefore, once the very basis for initiating proceedings is wrong, thereafter any action is taken subsequently on the basis of that Order is also non est under section 263 of the Act is wrong,
He relied on the following judgments:
i. Ikon Projects Vs. ITO in ITA Nos.771, 772/B ang/2017 dated
26.10.2023
1155/Bang/2015 dated 21.02.2018
iii. Shyam Sunder Khandelwal Vss. ACIT [2024] 161 tgaxmann.com
255 (Rajasthan)
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Considering the rival submissions, we noted that the assessee has raised legal issue regarding the very basis of exercising juri iction under section 263 of the Act by the Pr.CIT is based on the invalid reassessment order as per the legal grounds raised by the assessee. As per the show cause notice issued by the Pr.CIT noted supra, the Pr.CIT has issued show cause notice dated 27.02.2024 after considering the submissions made by the assessee dated 06.03.2024 which was submitted on 07.03.2024 placed at Paper Book page Nos.63 to 65 of the Paper Book he has set aside the reassessment order passed by the AO and directed to complete the proceedings with certain directions vide order dated 23.03.2024. In the case on hand, the learned Counsel for the assessee has strongly submitted that order under section 147 r.w.s. 144B of the Act dated 30.03.2022 is non-est since the notice u/s 143(2) of the Act has not been issued even after filling of income tax return dated 04.03.2022 before completion of reassessment order passed by the AO. In this case, we noted that notice under section 148 of the Act was issued on 31.03.2021 vide DIN & Notice No. – ITBA/AST/S/148/2020-21/1032097083(1) and assessee was allowed to file return of income within 30 days but no return was filed. Further, a notice dated 12.11.2021 DIN No ITBA/AST/F/142(1)/2021- 22/1036880056(1) under section 142(1) of the Act was also issued to the assessee and it was also directed to file return of income within 30 days (extended time was allowed) of receipt of this notice. Till the date of issue of further notice, the assessee did not file return of income . The AO further issued notice dated 21.01.2022 vide DIN No. ITBA/AST/F/142(1)/2021- 22/1038961268(1) in which it was observed that till date no return has been furnished and proposed to complete the assessment ex-parte and seven days time was allowed. Against the notice dated 21.01.2022 assessee filed reply on 19.02.2022 in which it has been stated that the original return filed under section 139 of the Act dated 02.09.2014 may be treated as return in response to notice under section 148 of the Act. At the last assessee filed return of income on 04.03.2022 in response to notice under section 148 of the Act which Page 10 of 14
is beyond the period of time allowed as per notice issued by the AO under section 148 as well as 142(1) of the Act noted supra. Therefore, it cannot be treated as a valid return as per section 139 of the Act.
The section 142 is enquiry before assessment, 143 deals the assessment, 147 is income escaping assessment and 148 is issue of notice where income has escaped assessment as per the Act. In case of income escaping assessment the notice under section 143(2) of the Act can be issued by AO only if there is valid return filed by the assessee under section 139 of the Act in pursuance of the notice issued u/s 148 of the Act.. In the case on hand the asseseee has not filed valid return within the time allowed. Hence, the arguments submitted by the learned Counsel for the assessee in regard to issue of notice u/s 143(2) are rejected. The case law relied on by the learned Counsel for the assessee in the case of CIT Vs. Nagendra Prasad [2023] 165 taxmann.com 19 (Patna High Court) supra is not juri ictional High Court. Therefore, we are not bound to follow the above judgment. The ld. Ar was unable to produce any judgment of the Juri ictional High Court of Karnataka on similar facts and circumstances.
During the course of hearing, the learned Counsel for the assessee strongly objected, at the time of exercising powers under section 263 of the Act, the Pr.CIT had no “record” which is clear from para 6.1 of his Order. On going through the observation of the ld. Pr.CIT, we noted that at the time of exercising of power under section 263 of the Act, the ld. Pr.CIT had no complete record available and which was obtained from DDIT, Unit-1, Kolkata. For the sake of convenience, we are reproducing section 263 of the Act hereunder:
“263. Revision of orders prejudicial to revenue.
(1)The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine
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the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer [or the Transfer
Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, [including,—(i)an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or(ii)an order modifying the order under section 92CA; or(iii)an order cancelling the order under section 92CA and directing a fresh order under the said section].”
From the above section, it is very much clear that the ld. Pr.CIT has to exercise his power on the basis “record” available before him at the time of exercising powers u/s 263 of the Act.. However, the documents as relied on by the ld. Pr. CIT were not available at the time of issue of notice, and it was called from the DDIT Kolkata. The show cause notice was issued to the assessee on 26.03.2022 whereas the ld. Pr.CIT wrote letter to the DDIT, Unit- 3, Kolkata on 11.03.2024 almost after two years. Therefore, the documents relied on by the ld. Pr.CIT were not available. The power under section 263 could have been invoked on the basis of the “record” as it stood at the time of examination. Accordingly, the entire proceedings exercised by the ld. Pr.CIT is beyond the purview of law as mandated in the law . In support of our decision, we rely on the judgment of Hon’ble Apex Court in the case of CIT Vs. Shri Manjunatheshwar Camphor reported in (1998) 96 taxman 1 (SC) dated 02.12.1997 in which it has been held as under:
In a later decision in S.M. Oil Extraction (P.) Ltd.'s case (supra), the Calcutta High Court itself interpreted the word 'record' differently. In that case, the assessment was completed on 1-2-1983. The ITO before he completed the assessment had referred the matter of plant and machinery and electrical installation to the Valuation Officer (P & M). His report was not received by the ITO when the assessment was completed. It was received by him after the assessment proceeding was completed. The Commissioner took into consideration the said valuation report and found he assessment order erroneous. In that context, the question which had arisen for consideration was whether the Commissioner in exercise of juri iction Page 12 of 14
under section 263(1) could have relied upon the valuation report which had come into the possession of the ITO subsequent to the completion of the assessment. The Calcutta High Court held that "the record contemplated in section 263(1) does not mean only the order of assessment but it comprises all proceedings on which the assessment is based. The Commissioner is entitled, for the purpose of exercising his revisional juri iction, to look into the whole evidence. The expression 'record' as used in section 263 is comprehensive enough to include the whole record of evidence on which the original assessment order was passed. The valuation proceeding is a part of the assessment proceeding. But once the valuation report was received by the ITO, although subsequent to the completion of the assessment, it forms part of the assessment year in question". It further held that 'where any proceeding is initiated in the course of the assessment proceeding having a relevant and material bearing on the assessment to be made and the result of such proceeding was not available with the ITO before the completion of the assessment, but the result came subsequently, the revising authority is entitled to look into such material as it forms part of the assessment records of the particular assessment year'. The Calcutta High
Court took this view without referring to the definition of the word 'record' contained in the Explanation to section 263(1).
14. It, therefore, cannot be said, as contended by the learned counsel for the respondent, that the correct and settled legal position, with respect to the meaning of the word 'record' till 1-6-1988, was that it meant the record which was available to the ITO at the time of passing of the assessment order. Further, we do not think that such a narrow interpretation of the word 'record' was justified, in view of the object of the provision and the nature and scope of the power conferred upon the Commissioner. The revisional power conferred on the Commissioner under section 263 is of wide amplitude. It enables the Commissioner to call for and examine the record of any proceeding under the Act. It empowers the Commissioner to make or cause to be made such enquiry as he deems necessary in order to find out if any order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue. After examining the record and after making or causing to be made an enquiry if he considers the order to be erroneous then he can pass the order thereon as the circumstances of the case justify. Obviously, as a result of the enquiry, he may come in possession of new material and he would be entitled to take that new material into account. If the material, which was not available to the ITO when he made the assessment could, thus, be taken into consideration by the Commissioner after holding an enquiry, there is no reason why the material which had already come on record, though subsequently to the making of the assessment, cannot be taken into consideration by him. Moreover, in view of the clear words used in clause (c) of the Explanation to section 263(1), it has to be held that while calling for and examining the record of any proceeding under section 263(1) it is and it was open to the Commissioner not only to consider the record of that proceeding but also the record relating to that proceeding available to him at the time of examination.
15. 16. 17. We, therefore, hold that it was open to the Commissioner to take into consideration all the records available at the time of examination by him and, thus,
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to consider the valuation report submitted by the departmental valuation cell subsequent to the passing of the assessment order and, so the order passed by him was legal. The High Court was wrong in taking a contrary view. We, therefore, allow this appeal, set aside the judgment and order passed by the High Court and answer the question referred to the High Court in the negative, i.e., in favour of the revenue and against the assessee. In view of the facts and circumstances of the case, there shall be no order as to costs.
Respectfully following the above judgment, we set aside the Order passed by ld. Pr.CIT.
The learned Counsel for the assessee has further objected that those issues which were not part of the proceedings under section 147 of the Act has also been considered by the ld.Pr.CIT. The ld. Pr. CIT has exceeded his juri iction. since the very initiation of exercising power under section 263 of the Act is on the basis of Order passed under section 147 of the Act on the reassessment proceedings. On going through the reassessment Order passed under section 147 of the Act, there is only one issue raised on the basis of the reasons recorded is regarding accommodation entries received by the assessee from shelle company and the ld. Pr.CIT has also directed the AO to examine the sale tax penalty of Rs.28,165/- and employees’ contribution to PF and ESI of Rs.8,159/- is not correct because all these 2 issues were not part of the reassessment proceedings. Our this view is supported by the judgemnt of the ITAT RAIPUR BENCH reported in [2024] 164 taxmann.com 306 (Raipur - Trib.) in the case of Hotel Babylon Continental (P.) Ltd. v. Pr. CIT in ITA No. 244 (RPR) of 2024. 17.1 Respectfully following the judgemnt of the Co-ordinate bench noted supra we allow this ground of the assessee. Page 14 of 14
In the result, appeal filed by the assessee is partly allowed.
Pronounced in the court on the date mentioned on the caption page. (SOUNDARARAJAN K)
Accountant Member
Bangalore,
Dated : 20.01.2025. /NS/*
Copy to:
Appellant 2. Respondent 3. Pr.CIT 4.CIT(A) 5. DR, ITAT, Bangalore.
By order