VINOD KUMAR SINGHAL ,BANGALORE vs. PRINCIPAL COMMISSIONER OF INCOME TAX-3, BENGALURU

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.

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 jurisdicision 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:

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.

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 Order dated 08.08.2024 in which it has been held as under:

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 jurisdiction. 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 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 jurisdictional High Court. Therefore, we are not bound to follow the above judgment. The ld. Ar was unable to produce any judgment of the Jurisdictional High Court of Karnataka on similar facts and circumstances.

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 jurisdiction 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 jurisdiction, 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).

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.

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, Page 13 of 14 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 jurisdiction. 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 (RPR) of 2024.