DILIPKUMAR BABABHAI ZAVERI,PATAN, GUJARAT vs. PCIT, AHMEDABAD

The above appeal has been filed by the assessee against order passed by the Ld.Pr.Commissioner of Income Tax-3, Ahmedabad [hereinafter referred to as “ld.Pr.CIT] dated 8.3.2024 in exercise of jurisdiction under section 263 of the Income Tax Act, 1961 ("the Act" for short) vide which the ld.Pr.CIT set aside the assessment order passed by the Assessing Officer under section 147 of the Act for the assessment year 2017-18 for de novo assessment.

The grounds raised in the appeal read as under:

Before going into the issue involved in the present case on merits, we shall be dealing with the ground no.2 raised by the assessee wherein he has raised a contention that the order passed under section 263 of the Act was bad in law, since it was passed without any service of notice under section 263 of the Act.

His contention was that the ld.Pr.CIT had issued two notices under section 263 of the Act and both of them remained unserved. He pointed out that both the notices was served electronically by email and though they were reflected in the income-tax portal of the 3 assessee they were not served on the email address of the assessee at all. He referred to the decision of Hon’ble Punjab & Haryana High Court in the case of Munjal BCU Centre of Innovation & Entrepreneurship Vs. CIT (Exemp), (2024) 160 taxmann.com 629 (P&H) for the proposition that when the notice was not sent to the assessee by email or otherwise, and was reflected in the e-portal of the Department, there was no service of notice in terms of provisions of section 282 of the Act and Rules made thereunder. Copy of the order was placed before us.

The ld.counsel for the assessee further contended that the impugned order passed under section 263 of the Act was without giving any notice to the assessee, the same could not be restored back to the ld.Pr.CIT for giving opportunity of hearing. In this regard, reliance was placed on the decision of the Hon’ble Allahbad High Court in the case of M.L. Chains Vs. [2023] 154 taxmann.com 508 (Allahabad).

The ld.DR countered by saying that the screen shot furnished by the assessee was taken on 29.8.2024 while the notices for the impugned proceedings before the ld.Pr.CIT, were issued to the assessee on 8.2.2024 and 28.2.2024. His contention was that these email addresses may have been furnished in the portal of the assessee subsequent to the passing of the order by the ld.Pr.CIT. The ld.DR contended that the notice issued by the department are system 4 generated which are sent both on the email-id furnished by the assessee and are also reflected on the portal of the assessee. That there is no human intervention involved in the same. That there is no possibility of notices not being served on the email id furnished by the assessee when the same is reflected in the income-tax portal of the assessee.

To this, the ld.counsel for the assessee drew our attention to the ITBA service report of the show cause notice issued under section 263 of the Act placed at PB page no.18-19, pointing out therefrom that the notices did not mention any email-id to which they were served. The communication address portion of the notice being left blank mentioning neither the primary email id nor “CC” address. The ld.counsel for the assessee also pointed out that in the year 2022, reassessment proceedings had been initiated on the assessee for framing assessment u/s 147 of the Act, wherein notice under section 142(1) of the Act was served on the email-id of the assessee “apsca1964@yahoo.com” . Our attention was drawn to the copy of the said notice which was placed before us at P.B 132-133. He pointed out that this was the same email-id reflected in the portal of the assessee even as on 2024. His contention, therefore, was that this email-id was available with the Department since 2022 and despite so there was no service of notice u/s 263 of the Act on this email-id of the assessee. He stated therefore that it was clear that no notice u/s 263 of the Act had been served on the assessee.

Having heard contention of both the parties, we shall now proceed to adjudicate the ground raised by the assessee.

The relevant rules framed by the Board in this regard are Rule 127 of the Income Tax Rules, 1962,and the same in relation to service of notice by electronic mode, is detailed brought out in sub- rule (2)(b) of tRule 127 as under: 127. (1) For the purposes of sub-section (1) of section 282, the addresses (including the address for electronic mail or electronic mail message) to which a notice or summons or requisition or order or any other communication under the Act (hereafter in this rule referred to as "communication") may be delivered or transmitted shall be as per sub-rule (2). (2) The addresses referred to in sub-rule (1) shall be— (a) for communications delivered or transmitted in the manner provided in clause (a) or clause (b) of sub-section (1) of section 282—

Before us, the ld.counsel for the assessee has not furnished the email address as per any of the criteria as stated in the Rules. What he has furnished was that available in the year 2022 i.e. prior to the initiation of the proceedings under section 263 of the Act in February, 2024. He has also furnished email address available with the Department, subsequent to the conclusion of the proceeding’s under section 263 of the Act in August, 2024. Despite repeated directions to the assessee to furnish email address available with the Department at the time of initiation of 263-proceedings, the assessee has not furnished any such details to us.

Since it is the assesses claim that notices u/s 263 of the Act remained unserved , the onus was on the assessee to prove the same. The assessee was required to prove the availability of email address with the department on which the notice was to be served as prescribed under the relevant Rules. Having failed to do so, the assessee cannot take a stand before us that there was no service of notice. There can be any number of reasons for the same, the assessee may have furnished incorrect email address to the department when the proceedings u/s 263 of the Act were initiated and therefore the mail remained unserved. Until the assessee demonstrates the fact of availability of proper email address with the department, its claim of

We see no reason to disbelieve the contentions of the ld.DR that the notice issued by the Department are system generated and automatically issued both to the assessee and displayed on the portal of the assessee also. Therefore, in the facts of the present case, where the notices were clearly displayed on the portal of the assessee, the possibility of the same not being served on the availability of email address of the assessee is ruled out. Unless it is established as a fact on record that the correct email address was furnished to the Department, and the same remained unserved therein.

On the merits of the case, the ld.counsel for the assessee pointed out that the ld.Pr.CIT found the assessment order passed by the AO under section 147 of the Act to be erroneous for having made no inquiry on the issue for which the reopening was resorted to. That the AO had wrongly accepted the explanation furnished by the assessee during the reassessment proceedings without making any inquiry on the information available with him.

The ld.counsel for the assessee pointed out that reassessment proceedings was resorted to in the case of the assessee for the reason that the AO was in possession of the information that the assessee 9 had paid on-money in cash for purchase of property/unit in a project developed by M/s.Navratna Organizers & Developers P.Ltd. (“NODPL” for short) named Kalhaar Blues and Greens (“KBG” for short). The quantum of on-money paid as per the information available with the AO was that of Rs.1,47,11,500/- and on the belief that income-tax on the same had escaped assessment in the absence of non- disclosure of the same by the assessee, the case of the assessee was reopened for reassessment.

The contention of the ld.counsel for the assessee against the finding of the ld.Pr.CIT of the assessment order being erroneous was that necessary inquiry was conducted by the AO during the re- assessment proceedings, and thereafter finding merit in the contention of the assessee, the AO had accepted the assessee’s plea of no on-money paid for the impugned transaction of purchase of unit in “KBG”.

The ld.DR, on the other hand, pointed out from the copies of the notices issued under section 142(1) of the Act by the AO and the reply filed by the assessee thereto during reassessment proceedings ,placed in PB filed by the assessee itself at page no.6 to 7 and 8 to 11 respectively, that the assessee had merely denied having paid no on- money on the purchase of the unit in “KBG” and had contended that the re-assessment proceedings was based merely on excel-sheet information contained therein about the on-money and there was no statement recorded about the on-money payment. That the assessee has also not been provided opportunity for cross-examination. Our attention was drawn to submissions of the assessee in nutshell in his letter filed to the AO placed at page no.10 of the PB as under: “ 3.2 In Nutshell “(i) Residential property under consideration is jointly held by me along-with my Sons and We all are equal owners of the same; (ii) We had made payment towards the cost of the land at the time of its Booking in the Financial year 2012-13 through banking channels. (iii) All the payments made during the financial year under consideration were also through banking channels; (iv) We had not made any on-money payment at any time and allegations are solely based on assumptions without any substance; (v) Entire re-assessment proceeding is based on so called excel sheet, containing information about on-money payment, found from residence of a person associated with Navratna Group which had developed the residential scheme under consideration; (vi) There is no statement recorded about on-money payment nor brought to our notice, if recorded, about on-money payment; (vii) We have not been provided the so-called evidence, in the form of contents in the excel sheet, for cross-examination. Accordingly, it not an evidence at all as per settled legal propositions.

The ld.DR contended thereafter that the AO passed the order under section 147 accepting the averments of the assessee that no on-money was paid ,without making any inquiry with regard to the issue despite being in possession of the information, recorded in his reasons for reopening the case placed before us at PB page no.125 that during search conducted on “NODPL” an excel-sheet was found containing details of units sold in “KBG” which included on-money received on the sale of these units, and the details of which corroborated with the details furnished by the “NODPL” in post-search inquiry conducted ,with respect to the different parties to whom the units were sold at the agreed amount. The ld.DR contended that despite this clear cut information being in possession of the AO, the AO made no further inquiry with regard to the same. He also pointed out that the ld.Pr.CIT had also noted the fact that “NODPL” had offered the entire on-money received by it to the Settlement 11 Commission and had referred to the same in her order also. To this, the ld.counsel for the assessee countered by saying that this was a subsequent development ,after passing of the assessment order, and for which the order passed by the AO could not be faulted as being in error.

We have heard rival contentions and we do not find any merit in the contents of the ld.counsel for the assessee that the ld.Pr.CIT had erred in finding the assessment order passed in the case being erroneous causing prejudice to the Revenue.

Undoubtedly, the ld.Pr.CIT has found the assessment order erroneous on account of no inquiry was being conducted on the issue, for which the reopening of the assessee was resorted to in the case of the assessee.

We have gone through the proceedings conducted during the reassessment proceedings, which were placed by the ld.counsel for the assessee before us in support of his arguments that due inquiry was conducted by the AO, and we agree with the ld.DR that there was absolutely no inquiry conducted by the AO on the information that he had in his possession about the assessee having paid on-money in cash for purchase of unit in “KBG”. As pointed out by the ld.DR as per the reasons recorded by the AO himself for reopening the case of the assessee, he was in possession of the information that during the search conducted on “NODPL” which floated the project “Kalhaar Blues and Greens” (“KBG”) an excel sheet was found reflecting details of units sold including on-money paid by the buyers with respect to the same. This detail contained name of the assessee also, and reflected on-money paid by the assessee of Rs.1,47,11,500/-. Clearly, the AO has not conducted any inquiry with respect to this issue 12 during reassessment proceedings. He has merely accepted whatever the assessee stated before him, which was nothing but denying having paid any on-money. The AO was duty bound to have conducted further inquiry on the information available with him, confronting the excel-sheet data and all other adverse material in his possession. That was exactly the purpose for which reopening was resorted so as to verify the correctness of the information in the possession of the AO after confronting it to the assessee. Mere acceptance of the denial by the assessee of not having paid any on money, is nothing but a waste of the duty and power which the AO was required to exercise.

There is no iota of doubt, we hold, that in the reassessment proceedings, the AO conducted no inquiry on the information available with him, and we, therefore, agree with the ld.Pr.CIT that in terms of Explanation (2) to sub-clause (a) to section 263 which deems the order passed without making inquiries or verification which should have been made, to be erroneous. The ld.Pr.CIT, we hold, has rightly held the assessment order to be erroneous causing prejudice to the Revenue.

We do not find any substance in the arguments of the ld.counsel for the assessee that the ld.Pr.CIT had acted on information which came on record subsequent to the passing of the order, that is the order of the Settlement Commission accepting the income surrendered by the “NODPL” on account of on-money received on sale of unit in “KBG”. Section 263 of the Act itself clearly states that revisionary jurisdiction is to be exercised if on examination of the records of any proceedings, the order passed by the AO is found to be erroneous causing prejudice to the Revenue, and the “records” have been explained in Explanation-1 to the section to pertain to all records relating to any proceedings under this Act available at the time of examination by the Pr.Chief Commissioner, Chief Commissioner or Pr.Commissioner or Commissioner. For the sake of clarity section 263 along with Explanation-1(b) is reproduced hereunder: 263. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer 81a[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, 81b[including,— … …. …. Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; … …. ….

Therefore, there is no merit in the contentions of the ld.counsel for the assessee that information subsequently come in the possession of the ld.Pr.CIT after passing of the order cannot be formed the “record” for the purpose of section 263 of the Act.

All other contentions of the Ld.Counsel for the assessee on the merits of the issue that the information with the AO did not relate to the impugned year and so the AO could not be said to be erroneous for making no addition, merits no consideration since the case of the assessee , as noted above clearly falls in Explanation 2(a) to section 263 on account of no inquiry conducted by the AO on the concerned issue. All contentions on the merits of the issue, the assessee is free to take up before the AO in restored proceedings.

In the result, the appeal of the assessee is dismissed. Order pronounced in the Court on 7TH March, 2025 at Ahmedabad.