M/S SALARPURIA PROPERTIES PVT LTD.,KOLKATA vs. PCIT, CENTRAL -2, KOLKATA

Per Rajpal Yadav, Vice-President (KZ):- The assessee is in appeal before the Tribunal against the order of ld. Principal Commissioner of Income Tax (Central), Kolkata-2 dated 24.03.2021 passed for the assessment year 2010-11 under section 263 of the Income Tax Act.

ITA No. 130/KOL/2021 Assessment Year: 2010-2011 M/s. Salarpuria Properties Pvt. Limited

section 153A of the Income Tax Act was issued and served upon the assessee. In response to the notice, the assessee has filed its return electronically declaring total income at Rs.1,50,00,160/- on 16.10.2017. The ld. Assessing Officer has passed the assessment order on 31.12.2017 under section 153A read with section 143(3) of the Income Tax Act, 1961. Ld. Assessing Officer has determined the taxable income of the assessee at Rs. 55,13,56,830/-. Dissatisfied with the determination of this income, the assessee carried the matter in appeal before the ld. CIT(Appeals) and ultimately it travelled to the Tribunal vide ITA No.2094/KOL/2017, IT(SS)A No. 42/KOL/2019. The Tribunal, apart from these two appals also heard other appeals for A.Ys. 2010-11 to 2016-17. The Tribunal has decided all these appeals vide its order dated 10.05.2022 and copy of this order is available on page no. 299 of the paper book.

ITA No. 130/KOL/2021 Assessment Year: 2010-2011 M/s. Salarpuria Properties Pvt. Limited

Since search was conducted on 15.03.2016 and the assessment order involved is 2010-11, assessment order was passed under section 143(3), the proceeding would not abate unless some incriminating material was found during the course of search. In the present case, according to the ld. counsel for the assessee, no incriminating material was found and, therefore, assessment order has been quashed by the ITAT. He took us through the finding of the Tribunal available in paragraph no. 4.6. For a ready reference, we would like to note the finding, which reads as under:- “4.6. After hearing the rival contentions and perusing the materials on record as placed before us, we note that search was conducted on 15.03.2016 on Salarpuria Group of companies including the assessee and its Directors. It is undisputed that the assessment was framed in the instant assessment year vide order dated 26.03.2013 and thus it had attained finality on date of search and would be an unabated assessment on the date of search in terms of provisions of section 153A of the Act. It is settled legal position that in order to make addition in an unabated assessment on the date of search, there has to be incriminating material found during search as laid down in various decisions as cited by the assessee’s counsel supra. After carefully analyzing the facts of the acts and after the perusal of assessment order, we find that there is no reference at all by the AO to any such incriminating material found during search. The various additions were undisputedly made on the basis of observation of the AO during search. The additions made inter alia include disallowance u/s 14A, disallowance of interest on service tax & TDS, disallowance of donation, membership and subscription and loss on sale of fixed assets, etc, the case of the assessee is squarely supported a series of decisions as decided by various judicial forums which have laid down the same ratio namely PCIT –vs.- Meeta Gutgutia (supra), CIT –vs.- Kabul Chawla and CIT –vs.- Continental Warehousing Corporation (Nhava Sheva) Ltd. Under these facts and circumstances and respectfully following the ratio as laid down in the above decisions, we hold that the additions have been made without any incriminating material found during the course of search and, therefore, cannot be sustained. The legal and jurisdictional grounds raised by the assessee are allowed”.

ITA No. 130/KOL/2021 Assessment Year: 2010-2011 M/s. Salarpuria Properties Pvt. Limited

ITA No. 130/KOL/2021 Assessment Year: 2010-2011 M/s. Salarpuria Properties Pvt. Limited

examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub- section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”

ITA No. 130/KOL/2021 Assessment Year: 2010-2011 M/s. Salarpuria Properties Pvt. Limited

assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law. (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.

ITA No. 130/KOL/2021 Assessment Year: 2010-2011 M/s. Salarpuria Properties Pvt. Limited

(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.

“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a

ITA No. 130/KOL/2021 Assessment Year: 2010-2011 M/s. Salarpuria Properties Pvt. Limited

course of action would be open”. 10. In the case of Gee Vee Enterprise vs. Commissioner of Income Tax reported in 99 ITR page 375, the Hon’ble court has expounded the approach of ld. Assessing Officer while passing assessment order. The observation of the Hon’ble court on pages 386 of journal read as under:-

“…it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very diffident from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only on adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but called for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry… It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word ‘erroneous’ in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.” 11. In the light of above, let us examine the facts of the present case. The assessment order passed under section 143(3) dated 26.03.2013 attained finality. No seized material was found during the course of search with respect to 2010-11. Hence, ITAT has held that in the absence of any seized material, the assessment order passed on 26.03.2013 would not abate. The income of the assessee could be re-examined qua those aspects for which incriminating material was found and seized. Since there was no material with respect to this year, the same item of income cannot be re-appreciated. The ITAT has quashed the assessment. We have reproduced the finding recorded by the Tribunal in the appeal against the

ITA No. 130/KOL/2021 Assessment Year: 2010-2011 M/s. Salarpuria Properties Pvt. Limited

assessment order passed under section 153A read with section 143(3). The action under section 263 can only be taken if a valid assessment order is existed. Once the foundation has extinguished, there cannot be any order on the basis of assessment proceeding. Therefore, we allow this appeal and quash the impugned order passed by the ld. Commissioner.