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Income Tax Appellate Tribunal, BENCH “B” KOLKATA
Before: Shri Sanjay Garg & Shri Girish Agrawal
आदेश /O R D E R
Per Girish Agrawal, Accountant Member:
This appeal by the assessee is against the order passed by the Principal Commissioner of Income Tax, Kolkata - 1 (in short, herein after referred to as the ‘Ld. PCIT’) vide Order No. ITBA/REV/F/REV5/2020-21/1030785438(1) dated 19.02.2021 for the A.Y. 2016-17 u/s. 263 of the Income-tax Act, 1961 (hereinafter, referred to as the ‘Act’).
The assessee has raised the following grounds of appeal challenging the jurisdiction assumed by the Ld. PCIT invoking the provisions of section 263 of the Act and passing a revision order therein:-
1. That on the facts and in the circumstances of the case and in law, the order made by the Ld. Pr.CIT under section 263 of the Income-tax Act, 1961 ('IT Act') is illegal, invalid and not sustainable in law.
2. That on the facts and in the circumstances of the case and in law, the Ld. Pr.CIT grossly erred in passing the order under section 263 even though the assessment order under section 143(3) dated 19th November 2018 passed by the Assessing Officer (AO) was neither erroneous nor prejudicial to the interest of the Revenue.
3. That on the facts and in the circumstances of the case and in law, the AO after due examination of the relevant facts having already followed one of the course permissible in law, the Ld. Pr. CIT was unjustified in setting aside the assessment on the issue of allowing exemption of LTCG of Rs. 1,79,16,066/- on sale of agricultural land and directing the AO to re-adjudicate the same issue after re-examination of the facts.
4. For that on the facts and in the circumstances of the case, the order of the CIT passed u/s 263 be cancelled since the assessment order u/s 143(3) dated 19.11.2018 was neither erroneous nor prejudicial to the interest of the revenue.
5. The Appellant craves leave to add, alter, amend and/or withdraw any of the grounds or ground of appeal either before or at the time of appeal hearing.
Brief facts as culled out from records are that the assessee filed her return of income on 30.03.2017 reporting total income at Nil. The return was processed u/s 143(1) of the Act and was subsequently selected for scrutiny through Computer Assisted Scrutiny Selection (CASS) with the following three reasoning – a) "Claim of Large Exempt Income" b) "Low capital gains with respect to sale consideration" and c) "Value of property transferred as reported in AIR is higher than the value of property transferred as reported in Return of Income".
Statutory notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee. In response to the said notices, assessee furnished the documents as called for. Papers and documents furnished during the course of assessment proceeding were examined and placed in record. Ld. AO issued notice u/s 142(1) dated 20.08.2018 and all the three reasons noted above for scrutiny selection under CASS were mentioned in the annexure to the said notice placed at page 11 of the Paper Book (PB). Assessee submitted replies/information/documents vide submission dated 25.10.2018 by which requisite information was furnished viz., details of sale of property, calculation of capital gain, exemption of capital gain, details of agricultural land, etc., copy of which is placed at PB 15-16. Assessment u/s 143(3) of the Act was completed by ITO, Ward – 7(3), Kolkata (Ld. AO) vide order dated 19.11.2018 at total income of Rs. 71,855/-.
Subsequent to the said assessment, Ld. PCIT called for and examined the assessment records and considered to invoke the provisions of section 263 of the Act because the assessment order is erroneous in so far as it is prejudicial to the interest of the Revenue. Pursuant to such consideration, Ld. PCIT issued a show cause notice (SCN) under the provisions of section 263 of the Act on 12.01.2021 for the following reason, also referred to in Para 2 of the impugned order:-
“In the instant case, the assessment was completed at an income of Rs. 71,855/·. The assessment was completed u/s. 143(3) on 29.11.2018 (correct date 19.11.2018). The assessment records of the assessee company were called for and on the basis of verification of materials on record it was found that the order is prima facie, erroneous in so far as it is prejudicial to the interest of the revenue for the following reasons: The assessee being an individual had claimed exemption u/s. 54B on long term capital gain on sale of agricultural land for Rs.1,79,16,066/-. But there is no agricultural income accounted for the relevant F.Y in the return of Income. Therefore the long term capital gain should be added back to the total income of the assessee.
Since there was no reflection of agricultural income or loss in the return income for the F.Y. 2015-16, the assessee should not get exemption u/s.54B on LTCG for Rs. 1,79,16,066/- on sale of agricultural land during the relevant F.Y.
AO has passed the impugned assessment order without any application of mind nor conducting any enquiries or verifications which should have been made in this case.” [emphasis supplied by us] The assessee furnished its reply dated 05.02.2021 before the Ld. PCIT as reproduced in the impugned order, explaining its case against the SCN.
On 19.02.2021, the Ld. PCIT passed the impugned order, inter alia, observing in Para 2 as under: “2. On a perusal of the assessment record of the assessee, it was observed as under: In the instant case, the assessment was completed at an income of Rs.71,855/-. The assessment was completed u/s. 143(3) on 19.11.2018. Subsequently it is detected that the assessee being an individual had claimed exemption u/s.54B on long term capital gain on sale of land for Rs. 1, 79,16,066/-. But there is no agricultural income accounted for the relevant F.Y. in the return of income. Therefore the long term capital gain should be added back to the total income of the assessee. Since there was no reflection of agricultural income or loss in the return income for the F. Y. 2015-16, the assessee should not get exemption u/s.54B on LTCG for Rs.1,79,16,066/- on sale of land during the relevant F.Y.
3. Jurisdictional Principal Commissioner of Income Tax was satisfied that it was a case of erroneous assessment in so far as it was prejudicial to the interests of the revenue. Show cause notice u/s. 263 of the Act was issued vide this office letters ITBA/COM/F/17/2020-21/1029698595(1) dated 12.01.2021. The assessee was requested to cause an explanation as to why the provisions of Section-263 of the Act should not be invoked in this case and the assessment completed by the Assessing Officer should not be revised/modified or set aside.” [emphasis supplied by us] With the aforesaid observations, Ld. PCIT drew his consideration in Para 5 and concluded the revisionary proceedings u/s 263 of the Act by giving a direction to the Ld. AO in Para 11 and 12, as under:
“5. I have considered the facts of the case and the submissions of the assessee and the details available on record. On perusal of the assessment record and assessment order, it is observed that there is no reflection of agriculture income or loss in the return of income for the 4. Smt. Rachana Todi
F.Y. 2015-16 and hence the assessee should not get exemption u/s. 54B on LTCG for Rs. 1,79,16,066/- on the sale of land during the relevant financial year and this issue was not verified during the scrutiny proceedings. The assessee in reply to show cause notice u/s. 263(1) of the I.T. Act, 1961 has not produced any supporting documents to counter the above as such the assessment order appears to be erroneous and prejudicial to the interest of revenue.
Having regard to the facts and circumstances of the case and in the light of the aforesaid decisions of Hon'ble Supreme Court and Hon'ble High Court, and in accordance with the amendment made in Section-263 of the Act with effect from 01.06.2015, I hold that the impugned assessment order dated 19.11.2018 passed by the A.O. is erroneous in so far as it is prejudicial to the interests of the revenue. I further hold, after giving the assessee an opportunity of being heard, that the impugned assessment order dated 19.11.2018 is liable to set- aside. Therefore, I set aside the said assessment order directing the A.O. to frame the assessment afresh after considering the aforesaid observations, Hon'ble Supreme Court and Hon'ble High Court decisions and as per law.
In the result, the assessment order u/s 143(3) dated 19.11.2018 for A. Y. 2015-16 is set-aside to the file of the Assessing Officer with a direction to pass a fresh assessment order after considering the aforesaid observations, as per law and after giving an opportunity of being heard to the assessee.” [emphasis supplied by us]
Learned Counsels for the assessee Shri N.S. Saini and Ms. Priyanka Salarpuria, represented the matter and took us through the facts of the case corroborating with the material placed on record in the paper book and written submission. Ld. CIT(DR) Shri Sudipta Guha represented the matter for the Revenue.
At the outset, Learned Counsel for the assessee submitted that Ld. PCIT has grossly erred in assuming his jurisdiction and initiating proceedings u/s. 263 of the Act on a grossly incorrect set of facts about detection of claim of exemption of Rs. 1,79,16,066/- u/s 54B towards long term capital gain on sale of land when no such claim u/s 54B of the Act was ever made in the return of income filed by the assessee and holding that since there is no reflection of agriculture income in the return of income of the assessee, the said long term capital gain should be added to the total income of the assessee. From the return of income placed on record at PB 17 to 31, 5. Smt. Rachana Todi Ld. Counsel took the bench through ‘Schedule CG – Capital Gains’ at PB – 20 to demonstrate and verify that no such claim u/s 54B of the Act was made in the return which is reported as ‘0’ in Clause A(1)(d) of the said schedule against the nomenclature ‘Deduction under section 54B (Specify details in item D below)’. Attention of the bench was also invited to ‘Item D’ which is titled as ‘Information about deduction claimed’ wherein also the amount reported is ‘0’ at PB – 25. Ld. Counsel further stated that the claim of exemption was made under ‘Schedule EI (Exempt Income)’ at PB – 29 wherein at ‘item no. 5’ of the schedule, the amount of Rs. 1,79,16,066 was reported under the head ‘Others, (including exempt income of minor child)’.
7.1 He further submitted that the material which the Ld. PCIT can rely upon includes not only the record as it stands at the time when the order in question was passed by the Ld. AO but also the record as it stands at the time of examination by the Ld. PCIT. From the verification of return of income where there is no claim made u/s 54B of the Act, Ld. Counsel stated that the said assumption of jurisdiction by the Ld. PCIT can be held to be valid if the Ld. PCIT had examined and verified the said records himself and given a finding on merits before holding the order of assessment to be erroneous in so far as it is prejudicial to the interest of the revenue. Reporting of agriculture income or loss in the return of income is a condition which has a direct bearing on the claim of deduction u/s 54B of the Act. Ld. PCIT has taken this requirement into consideration by noting it in the SCN to invoke section 263 that “Since there was no reflection of agricultural income or loss in the return income for the F.Y. 2015-16, the assessee should not get exemption u/s.54B on LTCG for Rs. 1,79,16,066/- on sale of agricultural land during the relevant F.Y. AO has passed the impugned assessment order without any application of mind nor conducting any enquiries or verifications' which should have been made in this case.” By taking the bench through these records, the Ld. Counsel strongly contended that the very foundation on which the Ld. PCIT has assumed the jurisdiction to invoke provisions of section 263 is on an absolutely incorrect set of verifiable facts and therefore the impugned order is liable to be quashed ab initio.
6. Smt. Rachana Todi 7.2 Learned Counsel further submitted that Ld. PCIT has grossly erred in assuming his jurisdiction and initiating proceedings u/s. 263 of the Act since in the assessment order passed by the Ld. AO, in respect of all the three reasons because of which the scrutiny selection of the case was done, he had not only made adequate enquiries but also undertaken necessary verification of the details which were furnished during the course of assessment proceedings and on the basis of which he had taken permissible views.
7.3 Ld. Counsel submitted that during the assessment proceedings all the three reasons stated above for selection of cased of the assessee for scrutiny were mentioned specifically in the notice issued u/s 142(1) on 20.08.2018 (refer PB – 11) which are reproduced as under – “In addition to the above, kindly submit a written explanation on the CASS reason as under:-
*Claim of Large Exempt Income (Schedule EI of ITR).
*Low capital gains with respect to sale consideration (higher of AIR and Schedule CG in ITR).
*Value of property transferred as reported in AIR is higher than the value of property transferred as reported in Re urn of Income (AIR 007 and Schedule CG of ITR).”
To this effect, Ld. Counsel stated that the assessee had filed her written submission on 25.10.2018 (refer PB – 15), relevant portion of which is as under –
“6. Details of Agriculture Land (Shali Land) with computation of Exempted Income and Karkhana Land as per CII Value enclosed herewith.”
7.4 Copy of computation of income for the assessment year under consideration was also placed on record before the bench vide letter dated 09.02.2022. Scanned image of the same is reproduced hereunder for ease of reference wherein claim of exempt LTCG on sale of agriculture land of Rs. 1,79,16,066/- is reported at ‘A’ under the head ‘Income from Capital Gain’. 7. Smt. Rachana Todi
8.
7.5 Ld. Counsel also submitted that the assessee in the return and before the Assessing Officer had claimed that she held the captioned sali land (sali refers to agriculture land) in Chamrail Gram Panchayat which is not a capital asset and filed copy of certificate of Chamrail Gram Panchayat (PB – 32). For the captioned land, it was stated that it vested / devolved on the assessee under a deed of partition dated 12.09.2005 (refer PB – 50) of the erstwhile partnership firm in the name and style of ‘India Forgings and Engineering Company’ of which the assessee was one of the partners. Details of captioned land were available in the conveyance deed dated 21.04.2015 (PB – 70) in the Schedule to the said deed which is reproduced as under – “THE SCHEDULE ABOVE REFERRED TO: "SAID LAND WITH SHED" ALL THAT the piece or parcel of land containing by measurement a total area of 83.5 decimals, be the same a little more or less. the nature of land being 'Karkhana' and 'Sali' TOGETHER WITH the sheds and structures constructed thereon, containing a total area of 10,000 sq. ft., be the same a little more or less, situate, lying at and being the divided and demarcated parts or portions of C. S./R. S. Dag Nos. 3189 (11.0 decimals) and 3187 (38.5 decimals), and the entire C.S/R.S Dag Nos. 3188(9.0 decimals) and 3214/4062 (25.0decimals), R. S. Khatian Nos. 1018, 1028, 1382 and 1979, Mouza: Chamrail, J.L No. previously 5 now 105, P. S. Liluah, District Sub Registrar, Howrah, Additional District Sub Registrar, Howrah, within the limits of Chamrail Gram Panchayat and butted and bounded in the manner following, i.e. to say. ON THE NORTH: By C S/R. S. Dag Nos. 3215 and 3216; ON THE EAST: Partly by part of C. S./R. S. Dag No. 3196(P) and part of C. S/R. S. Dag No. 3212(P), C. S. Dag Nos. 3213, and C. S. Dag No. 3214; ON THE WEST: By part of C. S/R. S. Dag No. 3187(P) and C. S./R. S Dag No. 3190; ON THE SOUTH: By C. S./R. S. Dag No 3189(P);
The details of the said land with shed are as below: C.S./R.S. R.S L.R L.R Nature of Area Dag No. Khatian Dag No. Khatian Land (Decimal) No. No. 3189 1079 3213 1517 Sali/Karkhana 11.0 3188 1018 3212 1517 Sali 9.0 3187 1028 3211 183 Sali 38.5 3214/4062 1382 3230 183 Sali 25.0 Total: 83.5 Decimals 9. Smt. Rachana Todi On the query relating to the ‘shed’ on the captioned land, clause ‘K’ of the conveyance deed (refer PB – 63) was pointed out to show that it was constructed at a later point in time, which is reproduced as under –
“K. After purchase of the said land, the purchaser therein and the vendor herein construed a shed on the said land (hereinafter referred to as the “SAID LAND WITH SHED”)”
7.6 It was further contended that nowhere in the impugned order the Ld. PCIT has held as to how the order of the Ld. AO is erroneous in so far as it is prejudicial to the interest of the revenue. Ld. Counsel also submitted that Ld. PCIT has to establish from the records by giving cogent reasons as to how and why the order of the Ld. AO is erroneous in so far as it is prejudicial to the interest of the revenue before cancelling or setting aside the assessment order. Therefore, according to the Ld. Counsel, neither in law nor on facts, the Ld. PCIT is justified in assuming the jurisdiction u/s 263 of the Act, setting aside the order of the Ld. AO to pass a fresh assessment order.
7.7 Ld. Counsel stated that Ld. PCIT has thus not verified the facts and brushed aside the submission of the assessee without giving any reasons before concluding that the AO has not made enquiries or verification and therefore the assessment order was erroneous and prejudicial to the interest of the revenue. It was incumbent upon the Ld. PCIT to verify from the assessment records, the materials available therein and the submissions made by the assessee during the assessment proceedings as well as the submissions made before him while arriving at his conclusion that the order of the AO is erroneous as well as prejudicial to the interest of the Revenue.
7.8 Ld. Counsel placed reliance on various judgments including in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66 (SC) by Hon’ble Supreme Court and DG Housing Projects Ltd [2012] 343 ITR 329 (Del) by Hon’ble Delhi High Court. Relevant extracts from the decision of DG Housing Projects Ltd. (supra) are reproduced as under –
“16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.
This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT v. Shree Manjunathesware Packing & Products Camphor Works [1998] 231 ITR 53 / 98 Taxman 1 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional 11. Smt. Rachana Todi
material/evidence to show and state that the order of the Assessing Officer is erroneous.
In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.” [emphasis supplied by us]
Per contra, Ld. CIT (DR) relied upon the impugned order of the Ld. PCIT. He submitted that the AO failed to conduct proper enquiry on both the issues and the Ld. PCIT has rightly invoked the action u/s 263 of the Act. Ld. CIT (DR) rebutted on the certificate obtained from the Chamrail Gram Panchayat which is not under a proper authority to arrive at the conclusion that the captioned land is an agriculture land. He further submitted that Ld. PCIT has merely remitted these issues to the file of the assessing officer for fresh enquiry and no prejudice is caused to the assessee, if these issues are being examined afresh.
Before we advert to the facts and law involved in this appeal before us, it is worth apprising ourselves on the law governing the issue involved. Therefore, to 12. Smt. Rachana Todi examine the aspect whether Ld. PCIT is justified in holding the order of Ld. AO as erroneous and prejudicial to the interest of revenue, we will first go through the relevant provision of Section 263 of the Act which is reproduced as under for ease of reference: 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 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 an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; (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; (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 Principal Commissioner or 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.
Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. (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.
From perusal of the aforesaid section, it is apparent that there are mainly four features / stages of the power for revision to be exercised u/s 263 of the Act by the Ld. PCIT – i. The PCIT may call for and examine the records of any proceedings under the Act and for this purpose he/she need not show any reason or record any reason to believe as it is required u/s 147 or 143(2) of the Act. It is a part of his/her administrative control to call for the records and examine them.
ii. The PCIT on an analysis of both, the records and the order passed by the Assessing Officer arrives at a consideration that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. This is exercised by calling for and examining the records relating to any proceeding under this Act available at the time of examination by the PCIT. Till this stage, assistance of the assessee is not required by the PCIT. iii. If after calling for and examining the records and the assessment order, the PCIT considers that the order of the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue, he/she is bound to give an opportunity of being heard to the assessee by issuing a show cause notice pointing out the reasons for arriving at such a consideration that action u/s 263 is required on a particular issue. The PCIT has to conduct an inquiry as he may deem fit and after hearing the assessee, he/she will pass the order as deem fit. iv. The PCIT can annul or enhance or modify the assessment as a result of inquiry conducted and hearing the assessee by directing the Assessing Officer for a fresh assessment or to make such enquiries as he/she deem necessary.
11. At this juncture, before arriving at our conclusions on the multi-fold contentions of the Ld. Representatives, we deem it pertinent to take note of the fundamental four steps propounded above in the context of facts and circumstance of the present case before us.
11.1 Let us look at the rightful exercise of the first and second steps of revisionary powers u/s 263 of the Act by the Ld. PCIT, enumerated above. There must be material available on the record called for by the PCIT to satisfy himself prima facie that the two requisites of assessment order being erroneous in so far as it is prejudicial to the interest of the revenue, are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the Court, it would be open to the Courts to examine whether the relevant objective factors were available from the records 15. Smt. Rachana Todi called for and examined by such authority. Our aforesaid observation gets full support from the decision by Hon’ble Jurisdictional High Court of Calcutta in the case of Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229 (Cal) which was relied upon by Hon’ble High Court of Madhya Pradesh in the case of CIT v. Associated Food Products (P.) Ltd. [2006] 280 ITR 377 (MP).
11.2 In the present case before us, return of income of the assessee is the prima facie record forming part of the assessment records which was before the Ld. AO and the Ld. PCIT, also placed before us at PB 17 to 31. Ld. PCIT states in Para 2 of the impugned order that “subsequently it is detected that the assessee being an individual had claimed exemption u/s 54B on long term capital gain on sale of land for Rs. 1,79,16,066/-. But there is no agriculture income accounted for the relevant F.Y. in the return of income. Therefore the long term capital gain should be added back to the total income of the assessee. Since there was no reflection of agriculture income or loss in the return income for the F.Y. 2015-16, the assessee should not get exemption u/s 54B on LTCG for Rs. 1,79,16,066/- on sale of land during the relevant F.Y.” [emphasis supplied by us] 11.3 As noted above, Ld. Counsel took us through the return of income to demonstrate that there is no claim made by the assessee u/s 54B in the return. Even in the computation of income there is no such claim u/s 54B towards LTCG on sale of agriculture land. Ld. PCIT has detected the claim of section 54B and because there is no reflection of agriculture income in the return of the assessee, he formed a considered opinion that assessee should not get exemption u/s 54B on the LTCG of Rs. 1,79,16,066/- in respect of sale of land. We already noted above that for the exercise of statutory power, relevant objective factors must be available from the records when called for and examined by an authority. The consideration arrived at by the Ld. PCIT of exercising revisionary powers vested in him by section 263 of the Act is not based on relevant objective factors as found from the perusal of the return of income of the assessee. The very basis, in other words, the foundation of the impugned exercise of revisionary power carried out by the Ld. PCIT is missing from 16. Smt. Rachana Todi the material on record. In Para 5 of the impugned order, Ld. PCIT specifically noted without any ambiguity that, “On perusal of the assessment record and assessment order, it is observed that there is no reflection of agriculture income or loss in the return of income for the F.Y. 2015-16 and hence the assessee should not get exemption u/s. 54B on LTCG for Rs. 1,79,16,066/- on the sale of land during the relevant financial year and this issue was not verified during the scrutiny proceedings.” From this conclusion arrived at by the Ld. PCIT that since there is no agriculture income reflected in the return, the assessee should not get the claim of section 54B demonstrates non-application of mind and non-examination of the material on record. Looking out for reflection of agriculture income in the return by the Ld. PCIT was on his misconception of fact he carried for the claim of section 54B which was not made in the return and therefore held that the Ld. AO has not verified the same. For the consideration arrived at by the Ld. PCIT for holding the assessment order as erroneous in so far as it is prejudicial to the interest of the revenue, it is pertinent to refer to relevant portion of section 54B of the Act at this juncture so as to understand its mandatory requirement of land being used for agriculture purposes.
“Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases.
54B.(1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee being an individual or his parent, or a Hindu undivided family for agricultural purposes (hereinafter referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,—…..”
Assuming if the impugned order is upheld, the Ld. AO will be required to comply with the observation given by the Ld. PCIT as noted in Para 5 (supra) of the impugned order. While complying with the observations by the Ld. AO, it is undisputed fact that there is no claim u/s 54B made by the assessee in her return of 17. Smt. Rachana Todi income, which itself will create a hurdle for the Ld. AO in taking up the matter further to enquire on earning of agriculture income so as to fulfill the directions of the Ld. PCIT given in the impugned order.
11.4 Exercise of revisionary power u/s 263 of the Act is a quasi-judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly, it is an administrative act, but on examination ‘to consider’ or in other words, to form an opinion that the particular order is erroneous in so far as it is prejudicial to the interests of the revenue, is a quasi-judicial act because on this consideration or opinion the whole machinery of re-examination and reconsideration of an order of assessment, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Ld. PCIT.
11.5 We find that in the present facts and circumstances, the legal maxim ‘sublato fundamento cadit opus’ is applicable, meaning thereby – ‘a foundation being removed, the superstructure falls’. Once the basis of a proceeding is gone, the action taken thereon would fall to the ground. Thus, in the absence of such foundation, exercise of a suo motu power is impermissible. It should not be presumed that initiation of power under suo motu revision is merely an administrative act. It is an act of a quasi-judicial authority and based on formation of an opinion with regard to existence of adequate material to satisfy that the decision taken by the Assessing Officer is erroneous as well as prejudicial to the interests of the revenue.
11.6 For the issue on which the assessment order has been treated as erroneous which has caused prejudice to the interest of the revenue relates to, we find that it is an issue purely on facts which is verifiable from the records of the assessee. Examination and verification of the return of income along with computation of income and details of captioned land from the conveyance deed which are all on record, brings out the correct set of facts on the issue in hand. It is observed from the impugned order that 18. Smt. Rachana Todi the Ld. PCIT merely hunted for reflection of agriculture income in the return on a misconception of fact of claim of exemption u/s 54B of the Act by the assessee but did not dwell on the same by giving observations on his examination of the details and data, to point out how and what was erroneous. We observe that to invoke provisions of section 263, Ld. PCIT is required to examine the record of any proceeding under this Act and conduct such enquiries as he deems necessary.
11.7 In the above paragraphs, while expounding on the law as enunciated in section 263, we have noted that the Ld. PCIT on an analysis of both, the records and the order passed by the Assessing Officer has to arrive at a consideration that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. This is exercised by calling for and examining the records relating to any proceeding under this Act available at the time of examination by the PCIT. The term ‘record’ has been explained in Explanation 1(b) to section 263 of the Act as – ‘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 Commissioner or Commissioner.
11.8 Record shall include all the documentary evidences which were submitted before Ld. AO and also those submitted before Ld. PCIT against the SCN issued to invoke the provisions of section 263. Ld. PCIT is required to examine all the documentary evidences including those which were before Ld. AO and submitted before him. We find that in the return of income as well as the computation of income of the assessee on record, there is no claim of exemption made by the assessee u/s 54B of the Act. For the above finding of ours, we find force from the decision of Hon’ble Bombay High Court in the case Gabriel India Ltd. [1993] 203 ITR 108 (Bom) wherein it is observed as under (page 113) –
" . . . From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous in so far as it is prejudicial to the interests of the Revenue'. It is not an arbitrary or 19. Smt. Rachana Todi unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction.” [Emphasis supplied by us] 11.9 On a perusal of the material brought on record and the order passed by the Ld. PCIT, it is perceptible that the said authority has not kept in view the requirement of section 263 of the Act in as much as the order does not reflect any kind of satisfaction based on correct and verifiable set of facts relating to claim of deduction u/s 54B and reflection of agriculture income in the return to fulfill the mandatory requirement of section 54B for the land put to agriculture use. That having not been done, in our considered opinion, exercise of jurisdiction under section 263 of the Act is totally erroneous and cannot withstand scrutiny. Accordingly, steps three and four listed above in relation to the provisions of section 263 become redundant in the present set of factual matrix. In the aforesaid view of the matter, it must be held that the exercise of the power under section 263 by the Ld. PCIT was illegal and without jurisdiction.
12. We further observe that in the course of proceedings u/s 263 of the Act before the Ld. PCIT, the assessee had furnished the relevant details and explained the issue supporting its contentions by relevant documentary evidences and judicial precedents. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts.
12.1 Further, we find that it is not a case where there was no enquiry at all by the Ld. AO. Our perusal of the notice u/s 142(1) dated 20.08.2018 issued by the Ld. AO and the reply dated 25.10.2018 filed by the assessee in the course of assessment, reveals that Ld. AO did enquire in to the claim of assessee in respect of exemption on long term capital gain on sale of captioned agriculture land which was one of the three reasons for selection of the case of assessee for scrutiny assessment under CASS. Here, in support of our finding, we would like to refer the judgment of Hon'ble Delhi High Court in the case of CIT vs. Anil Kumar Sharma [2011] 335 ITR 83 (Del) wherein it has been held dismissing the appeal “that the present case would not be one of, “lack of inquiry” even if the inquiry was termed inadequate. The Tribunal found that complete details were filed before the Assessing Officer and that he applied his mind to the relevant material and fact, although such application of mind is not discernable from the assessment order. The Tribunal held that, the Commissioner in proceedings under Section 263 also had all these details and material available before him, but not been able to point out defects conclusively in the material, for arriving at a conclusion that particular income had escaped assessment on account of non application of mind by the Assessing Officer. The Tribunal was right and the order of revision was not valid”.
12.2 The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgment of ITO v. DG Housing Projects Ltd. (supra), which has been followed by various co-ordinate benches of the ITAT in various cases. Hon’ble High Court while adverting to the issue held that in cases of wrong opinion for finding on merit, the CIT has to come to the conclusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the AO will be erroneous because the order passed is not sustainable in law and the said finding must be recorded by CIT who cannot remand the matter to the assessing officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the AO, making the order unsustainable in law. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record 21. Smt. Rachana Todi
per se justified and mandated further enquiry or investigation but the AO had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the AO to conduct further enquiries without a finding that the order is erroneous, the condition or requirement which must be satisfied for exercise of jurisdiction u/s 263 of the Act. In such matters, to remand the matter/issue to the AO would imply and mean that the CIT has not examined and decided whether or not the order is erroneous but has directed the AO to decide the aspect/question. The Hon'ble Court further held that this distinction must be kept in mind by the CIT while exercising jurisdiction u/s 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged “inadequate investigation”, it will be difficult to hold that the order of the AO, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry himself. The order of the AO may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT holds and records reason why it is erroneous. Therefore, CIT must after recording reasons, hold that order is erroneous. The jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further observed by the Hon’ble High Court that the material, which the CIT can rely up on includes not only the records as it stands at the time when the order in question was passed by the AO but also records as it stands at the time of the examination by the CIT. Nothing prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the AO is erroneous.
12.3 We find that Ld. PCIT in the present case has not carried out any enquiry of his own and has merely set aside the assessment to the file of the AO to re-examine the issue of claim of deduction u/s 54B towards LTCG on sale of agriculture land since no agriculture income has been reflected in the return of income by the assessee.
Smt. Rachana Todi Therefore, it is contrary to the guidelines as mandated in the Hon'ble Delhi High Court decision in the case of ITO v. DG Housing Projects Ltd. (supra). Therefore, the consideration arrived at by the Ld. PCIT invoking provisions of section 263 of the Act on the issue recorded by him is not justified and cannot be sustained under the facts and circumstances of the present case.
We find that Ld. PCIT in Para 11 of the impugned order has taken note of the amendment made in section 263 w.e.f. 01.06.2015. This amendment relates to Explanation 2 inserted in section 263 of the Act. The co-ordinate bench of Mumbai ITAT has dealt with Explanation 2 as inserted by the Finance Act, 2015 in the case of Narayan Tatu Rane v. Income Tax Officer [2016] 70 taxmann.com 227 (Mum) to hold that the said Explanation cannot be said to have overridden the law as interpreted by the Hon'ble Delhi High Court in DG Housing Projects Ltd (supra), according to which the Ld. PCIT has to conduct an enquiry and verification to establish and show that the assessment order is unsustainable in law. The co-ordinate bench of Mumbai ITAT (supra) has further held that the intention of the legislature could not have been to enable the Ld. PCIT to find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law, since such an interpretation will lead to unending litigation and there would not be any point of finality in the legal proceedings. The opinion of the Ld. PCIT referred to in section 263 of the Act has to be understood as legal and judicious opinion and not arbitrary opinion.
On the issue considered by the Ld. PCIT in the impugned order, no action u/s 263 of the Act is justifiable which cannot be sustained under the facts and circumstances of the present case and judicial precedents dealt herein above. We, therefore, quash the impugned order u/s 263 of the Act and allow the grounds raised by the assessee.
In the result, the appeal of the assessee is allowed.