SANTOSH RATHORE,INDORE vs. PRINCIPAL COMMISSIONER OF INCOME TAX, INDORE - 1, INDORE

आदेश/ O R D E R

Per B.M. Biyani, A.M.:

Page 1 of 49 “1. On the facts and in the circumstances of the case and in law, the Ld. Principal Commissioner of Income Tax, Indore-1, ('the Ld. PCIT) has erred in invoking the provisions of Section 263 of the Income tax Act, 1961 ('the Act') which is wrong and contrary to the provisions of the Act. Thus, the Revision Order u/s. 263 of the Act is liable to be quashed.

2. On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred invoking the provisions of Section 263 of the Act without considering that the reassessment proceedings itself are void ab initio and jurisdiction u/s 263 cannot be exercised when the reassessment proceedings itself are unlawful and bad in law. Thus, the Revision Order u/s 263 of the Act is liable to be quashed.

3. On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in invoking the provisions of Section 263 of the Act without appreciating that the reassessment proceedings could not have been initiated merely on the basis of suspicion and for verification and without any evidence against the assessee. Thus, the Revision Order u/s. 263 of the Act is liable to be quashed.

4. On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in exercising jurisdiction u/s. 263 of the Act in respect of reassessment proceedings for the AY 2015-16, which are without jurisdiction as the same had been initiated with the prior approval of the Ld. Joint Commissioner of Income tax instead of the Ld. Principal Commissioner of Income tax and the same is against the provisions of Section 151 of the Act. Thus, proceedings u/s. 263 of the Act cannot be initiated in respect of unlawful reassessment proceedings and thus, the revision proceedings are liable to be set aside.

5. On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in exercising the provisions of Section 263 of the Act in respect of the reassessment order dated 24.03.2022 has been passed by the Ld. National Faceless Assessment Centre ('the Ld. NaFAC') and the jurisdiction u/s. 263 of the Act cannot be exercised in respect of Order passed by the Ld. NaFAC. Thus, the revision proceedings are liable to be set aside and the Order u/s 263 of the Act is liable to be quashed.

6. On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in invoking the provisions of Section 263 of the Act without appreciating that the reassessment order is not erroneous and prejudicial to the interest of the revenue.”

(i) The assessee filed original return of AY 2015-16 on 31.03.2016 u/s 139 declaring a total income of Rs. 24,96,000/- which was assessed.

Subsequently, the AO took action for re-assessment of assessee’s case u/s 147 taking into account certain information qua assessee available on Insight Portal of Income-tax Department indicating that the assessee had booked bogus expenses/loss from his proprietorship concern in computing taxable/total income. Accordingly, the AO recorded reasons for re-opening of assessment u/s 147 and issued notice dated 31.03.2021 u/s 148 to assessee. In response to same, the assessee re-filed return of income. Thereafter, the AO issued notice dated 12.11.2021 u/s 143(2) to scrutinize assessee’s return and in response to same, the assessee filed reply dated 24.01.2022. In the reply so filed which was running over 9 pages [Copy at Pages 81-

89 of Paper-Book], the assessee raised objections against the re- assessment proceeding initiated by AO and also requested to drop the re-assessment proceedings. The AO, after considering the reasons recorded, the information available on ITBA and submission made by assessee, closed re-assessment proceedings vide order dated

24.03.2022 accepting income at Rs. Nil.

(ii) Subsequently, Ld. PCIT examined the record of assessment- proceeding and viewed that the assessment-order passed by AO was erroneous in so far it is prejudicial to the interest of revenue, which attracted revisionary-jurisdiction u/s 263. Accordingly, the PCIT issued show-cause notice dated 29.02.2024 and finally passed revision-order dated 18.03.2024 u/s 263 setting aside the assessment

Page 3 of 49 framed by AO and directing the AO to re-examine the issue identified by him and to make de novo assessment.

(iii) Aggrieved by such revision-order, the assessee has come in present appeal before us.

Assessee’s submissions:

“Reasons for reopening of the assessment in the case of Santosh Kumar Rathore A.Y. 2015-16 u/s 147 of the Act. The assessee filed its return of income for the period relevant to the A.Y. 2015-16 on 31/03/2016 declaring total income of Rs. 2496000/-. Survey action was conducted in the case of M/s Saras Agro, in which huge undisclosed income was declared by the assessee. Assessee is one of the partners of the firm M/s Saras Agro. Credible information was received that the assessee has booked bogus expenses and also bogus loss from his Proprietary concern during the year of survey only. No details against these

Page 4 of 49 expenses and loss have been given by the assesse. Hence, it can be concluded that the income from these bogus loss and expenses have escaped assessment to the tune of Rs. 26,22,012/- This fact was not disclosed by the assesse in its return. In view of the above, it is evident that the assessee failed to disclose full and correct facts and concealed its income to the extent of Rs. 26,22,012/-. On the basis of the facts discussed above, it is clear that the amount of Rs. 26,22,012/- has been escaped from assessment during the A.Y. 2015-16. I am also of the belief that the failure is on the part of the assessee to not to disclose the correct materials facts while filing the return of income for A.Y. 2015-16. Therefore, it is clear that the assessee failed to disclose full and true facts in its ROI. In this case a return of income was filed for the year under consideration. Since 4 years from the end of the relevant year has expired in this case, the requirements to initiate proceedings u/s 147 of the Act are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded in above Paras. I have carefully considered the case records. It is not a case of change of opinion by the AO. Therefore, in view of the above, I have reason to believe that the income to the extent of Rs. 26,22,012/- has escaped from assessment for A.Y. 2015-16 within the meaning of provisions of section 147 of the Income-Tax Act 1961 by not offering the same for taxation by the assessee. I am therefore, satisfied and have reason to believe that this is a fit case which deserves to be reopened for assessment within the meaning of section 147 of the Income Tax Act, 1961. Accordingly, notice u/s 148 shall be issued after getting approval from the appropriate authority in view of extension of time barring date to 31.03.2021.”

5. Reading the above reasons recorded by AO word by word in open court, Ld. AR submitted that the AO has referred the survey conducted by Income-tax Department on “M/s Saras Agro” (a partnership firm in which the assessee was a partner) and the huge income declared by “M/s Saras Agro” in survey. Thereafter, the AO has mentioned that “credible information” was received that the assessee has booked bogus

Page 5 of 49 expenses/loss from his proprietorship concern “during the year of survey only”. Ld. AR raised following objections and claimed that the reasons recorded by AO are apparently invalid:

(i) The survey was conducted upon partnership firm “M/s Saras Agro” and there was no survey upon assessee or proprietorship concern of assessee. The survey upon partnership firm had no relation at all with personal case of assessee.

(ii) There was no material or information whatsoever, much less credible information as alleged by AO, which was found during survey upon partnership firm to the effect that the assessee had recorded bogus expenses/loss from his proprietorship concern.

(iii) Even assuming (but not accepting) the AO’s noting that the assessee had recorded bogus expenses/loss, the AO has clearly recorded that the assessee had booked bogus expenses/loss “during the year of survey only”. The survey on partnership firm was conducted on 22.09.2015 falling within the previous year 2015-16 relevant to AY

2016-17 and this assessee filed his personal return of AY 2015-16 on 31.03.2016 (Copy at Paper-Book Page 27). When it is so, how could there be an advance information during survey on 22.09.2015 that the assessee had booked bogus expenses/loss?

(iv) The case of assessee had been re-opened without any material/ tangible material; on mere suspicion; and for making

Page 6 of 49 enquiries/verification, which is not permitted under the provisions of Act.

6. Ld. AR submitted that the assessee raised above objections in the reply dated 24.01.2022 filed to AO with a request to AO to drop the proceedings of re-assessment. The reply filed by assessee is very much acknowledged by AO in assessment-order itself and the reply-letter is also placed in Paper-Book at Pages 81-89; the same is scanned and re-produced below for an immediate reference:

Page 7 of 49 Page 8 of 49 Page 9 of 49 Page 10 of 49 Page 11 of 49 Page 12 of 49 Page 13 of 49 Page 14 of 49 Page 15 of 49

7. Ld. AR also drew us to the assessment-order passed by AO, which reads as under:

“Assessment Order

Page 16 of 49 The case was reopened on the reason that assessee and the notice u/s 148 was issued on 31/3/2021. Assessee has filed return of income on 23/4/2021 in response to notice u/s 148. Thereafter, notice u/s 143(2) dated 12/11/2021 was issued. Vide letter dated 24/1/2022, assessee submitted its reply which is placed on record. On perusal of the reasons recorded, the details available on ITBA and the submission of the assessee, the income of the assessee is computed at Rs. NIL”

8. Referring to above, Ld. AR submitted that the AO has categorically noted the facts of case, namely (i) he issued notice u/s 148 on 31.03.2021 and in response the assessee filed return on 23.04.2021 and (ii) he issued notice dated 12.11.2021 u/s 143(2) and in response the assessee filed reply dated 24.01.2022. Thereafter, the AO has given a clear-cut conclusion that he perused three documents, namely (i) the reasons recorded, (ii) the details available on ITBA, and (iii) the submission filed by assessee. Upon consideration of these, the AO closed re-assessment proceeding while accepting income at Rs. Nil. Ld. AR pointed out that the assessment-order is not passed in physical manner so that any malice on the part of AO can be inferred. The assessment was faceless leaving no room for any doubt or otherwise inference.

9. With above submissions, Ld. AR contended that the reasons recorded were bad and the assessee’s case was absolutely unfit for proceeding of section 147 and when the AO realized so, after perusing the objections raised by assessee in reply-letter, the AO dropped/closed proceedings even without issuing any notice u/s 142(1) thereafter. Thus, it is undoubtedly

Page 17 of 49 clear that the original/re-assessment proceeding done by AO was unlawful and bad.

10. Ld. AR point out that since the AO passed assessment-order closing the original/re-assessment proceeding initiated against assessee and accepting income at Rs. Nil, the assessee had no grievance against AO’s order and did not file any appeal to CIT(A). Had there been any disallowance of expenses/loss or increase in income, the assessee would have certainly gone in first-appeal and challenged the legality of original/re-assessment proceeding also. But in present case, the assessee had no necessity or occasion to challenge the illegality of original/re-assessment proceeding.

However, since the PCIT has taken revisionary action u/s 263, set aside AO’s order and given direction to AO for de novo assessment, the assessee is now having necessity and occasion to raise this claim for the first time in present proceeding.

(i) Shobhit Goel (HUF) Vs. PCIT, Faridabad, (ITAT, Delhi Bench), order dated 27.02.2025: Page 18 of 49 “4. With regard to the legal ground of appeal

No.1 to 1.6 wherein the assessee has challenged the initiation of proceedings u/s 148 of the Act and submit that where the very foundation of reopening of assessment is invalid, the consequent revision order passed u/s 263 is nullity and void ab initio. The Ld. AR submitted that during the course of re-assessment proceedings also, assessee has objected the reopening of the assessment which were stated to have been disposed of vide letter dated 11/03/2022 available in paper book Pages 9 to 13 and submit that the case of the assessee was reopened on conjecture and surmises. The reasons recorded for reopening of the assessments shows that the same are vague and has not specified the specific details of the transactions carried out by the assessee which were claimed as bogus long term capital gain. The Ld. AR further drew our attention to the reasons where the AO observed that assesse has obtained bogus accommodation entries in the forms of penny stock by M/s Indian Infotech and Software Limited during the financial year 2012-13 for Rs. 32,79,066/- which is not correct. The Ld.AR submit that the assessee has earned long term capital from sale of two companies namely M/s Indian Infotech and Software Limited Rs. 18,91,815/- and Oasis Cine Communication Ltd. Rs. 13,87,251/. He further submit that all these facts were available before the AO in the return of income filed by assesse, and has not recorded the proper findings in the reasons so recorded. He thus, prayed that when the reasons are not clear and unambiguous and had not clarified as to how the AO has recorded the satisfaction for reopening the assessment, the same is bad in law. Once the reopening is based on wrong appreciation of facts, the consequent order passed u/s 263 has no legs to stand. He thus, prayed that the orders passed u/s 147 & 143(3) along with order 263 deserves to be quashed.

5. On the other hand, the Ld. CIT-DR has vehemently supported the order of the lower authorities and submitted that in the present case, initially the return of assessee was processed u/s 143(1) and the assessment was not completed u/s 143(3) of the Act and there was no occasion with the AO to examine the issue of long term capital gain claimed by the assessee as exempt u/s 10(38). She further argued that the assessee has filed ITR-2 wherein details of such long term capital gain are not available with respect to every transaction.

6. Ld. CIT-DR further argued that the Assessing Officer has disposed off the objections raised by the assessee with respect to the validity of the initiation of the re-assessment proceedings by way of speaking order, and, therefore, the directions as provided by the Hon’ble Supreme Court in the case of GKN Driveshafts India Ltd. vs. ITO (2002) 125 taxman. con 936 (SC) were complied with by the AO. It is further submitted by the Ld. CIT-DR that in absence of the precise details and further there is a link between the information that long terms capital gain of Rs.32.79,066/- declared by the assessee and claimed exempt u/s 10(38) of the Act is bogus, therefore, there is live nexus between the information available and the satisfaction recorded and, accordingly, Ld. CIT-DR submit that the case of the assessee was rightly reopened and prayed accordingly.

is with regard to the validity of the reassessment proceedings and legality of consequent order passed u/s 147 r.w.s 144B of the Act dated 28/03/2022 from which the present revision proceedings u/s 263 of the Act originated. It is true that before us, assessee has challenged the order passed by the ld. Pr. CIT u/s. 263 of the Act, however, since the assessee has raised the issue of validity of reassessment order, we first answer the question as to whether or not such legality of the re-assessment framed could be examined in appellate proceedings challenging the order passed u/s.263 of the Act. The coordinate bench of Mumbai Tribunal in the case of Westlife Development Ltd. reported in (2016) 49ITR (T) 406 (Mumbai) held that during the course of appellate proceedings against the order passed u/s.263 of the Act, the validity of the assessment order from which such proceedings have been originated could be examined. The relevant observations as made in the above decision of the Tribunal are as under:-

8. Challenging the jurisdictional defects of assessment order for assailing the jurisdictional validity of the revision order passed under s. 263 : The first issue that arises for our consideration is - whether the assessee can challenge the jurisdictional validity of order passed under s. 143(3) in the appellate proceedings taken up for challenging the order passed under s. 263? If we analyse the nature of both of these proceedings, which are under consideration before us, we find that the original assessment proceedings can be classified in a way as 'primary proceedings'. These are, in effect, basic/foundational proceedings and akin to a platform upon which any subsequent proceedings connected therewith can rest upon. The proceedings initiated under s. 263 seeking to revise the original assessment order is off shoot of the primary proceedings and therefore, these may be termed as 'collateral proceedings' in the legal framework. The issue that arises here is whether any illegality/invalidity in the order passed in the 'primary proceedings' can be set up in the 'collateral proceedings' and if yes, then of what nature? 8.1. We have analysed this issue carefully. There is no doubt that after passing of the original assessment order, the primary (i.e., original proceedings) had come to an end and attained finality and, therefore, outcome of the same cannot be disturbed, and therefore, the original assessment order framed to conclude the primary proceedings had also attained finality and it also cannot be disturbed at the instance of the assessee, except as permitted under the law and by following the due process of law. Under these circumstances, it can be said that effect of the original assessment order cannot be erased or modified subsequently. In other words, whatever tax liability had been determined in the original assessment order that had already become final and that cannot be sought to be disturbed by the assessee. But, the issue that arises here is that if the original assessment order is illegal in terms of its Page 20 of 49 jurisdiction or if the same is null & void in the eyes of law on any jurisdictional grounds, then, whether it can give rise to initiation of further proceedings and whether such subsequent proceedings would be valid under the law as contained in IT Act? It has been vehemently argued before us that the subsequent proceedings (i.e. collateral proceedings) derive strength only from the order passed in the original proceedings (i.e. primary proceedings). Thus, if order passed in the original proceedings is itself illegal, then that cannot give rise to valid revision proceedings. Therefore, as per law, the validity of the order passed in the primary (original) proceedings should be allowed to be examined even at the subsequent stages, only for the limited purpose of examining whether the collateral (subsequent) proceedings have been initiated on a valid legal platform or not and for examining the validity of assumption of jurisdiction to initiate the collateral proceedings. If it is not so allowed, then, it may so happen that though order passed in the original proceedings was illegal and thus order passed in the subsequent proceedings in turn would also be illegal, but in absence of a remedy to contest the same, it may give rise to an 'enforceable' tax liability without authority of law. Therefore, the Courts have taken this view that jurisdictional aspects of the order passed in the primary proceedings can be examined in the collateral proceedings also. This issue is not res integra. This issue has been decided in many judgments by various courts, and some of them have been discussed by us in followings paragraphs. 8.2. In a matter that came up before Hon'ble Supreme Court in the case of Kiran Singh & Ors. vs. Chaman Paswan & Ors. [1955] 1 5CR 117 the facts were that the appellant in that case had undervalued the suit at Rs. 2,950 and laid it in the Court of the Subordinate Judge, Monghyr for recovery of possession of the suit lands and mesne profits. The suit was dismissed and on appeal it was confirmed. In the second appeal in the High Court the Registry raised the objection as to valuation under s.

11. The value of the appeal was fixed at Rs. 9,980. A contention then was raised by the plaintiff in the High Court that on account of the valuation fixed by the High Court the appeal against the decree of the Court of the Subordinate Judge did not lie to the District Court, but to the High Court and on that account the decree of the District Court was a nullity. Alternatively, it was contended that it caused prejudice to the appellant. In considering that contention at p. 121, a four Judge Bench of Hon'ble Supreme Court speaking through Vankatarama Ayyar, J. held that: "It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject- matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of Page 21 of 49 parties."

8.3. This judgment was subsequently followed by Hon'ble Supreme Court in the landmark case of Sushil Kumar Mehta vs. Gobind Ram Bohra, (1990) 1 SCC 193, wherein an issue arose whether a decree can be challenged at the stage of execution and whether a decree which remained uncontested operates as res-judicata qua the parties affected by it. Hon'ble apex court, taking support from aforesaid judgment, observed as under: "In the light of this position in law the quest ion for determination is whether the impugned decree of the Civil Court can be assailed by the appellant in execution. It is already held that it is the Controller under the Act that has exclusive jurisdiction to order ejectment of a tenant from a building in the urban area leased out by the landlord. Thereby the Civil Court inherently lacks jurisdiction to entertain the suit and pass a decree of ejectment. Therefore, though the decree was passed and the jurisdiction of the Court was gone into in issue Nos. 4 and 5 at the ex-parte trial, the decree there-under is a nullity, and does not bind the appellant. Therefore, it does not operate as a res judicata. The Courts below have committed grave error of law in holding that the decree in the suit operated as res judicata and the appellant cannot raise the same point once again at the execution." 8.4. Similar view has been taken by Hon'ble Supreme Court by following aforesaid judgments recently in the case of Indian Bank vs. Manual Govindji Khona reported in 2015 (3) SCC 712. Further, similar view was emphasized by Hon'ble Bombay High Court (GOA Bench) in the case of Mavany Brothers vs. CIT (Tax Appeal No. 8 of 2007) [reported at (2015) 120 DTR (Bom) 286— Ed.] in its order dt. 17th April, 2015 wherein it was held that an issue of jurisdiction can be raised at any time even in appeal or execution. 8.5. The aforesaid principles, enunciated by the Apex Court in the case of Kiran Singh & Ors. vs. Chaman Paswan & Ors, supra were reiterated by the apex Court in the cases of Superintendent of Taxes vs. Onkarmal Nathmal Trust (AIR 1975 SC 2065) and Dasa Muni Reddy vs. Appa Rao (AIR 1974 SC 2089). In the first of these decisions it was pointed out that revenue statutes protect the public on the one hand and confer power upon the State on the other, and the fetter on the jurisdiction is one meant to protect the public on the broader ground of public policy and, therefore, jurisdiction to assess or reassess a person can never be waived or created by consent. This decision shows that the basic principle recognized in Kiran Singh (supra) is applicable even to revenue statutes such as the IT Act. Dasa Muni Reddy (supra) is a judgment where the principle of 'coram non judice' was applied to rent control law. It was held that neither the rule of estoppel nor the principle of resdicata can confer the Court jurisdiction where none exists. Here also the principle that was put into operation was that jurisdiction cannot be conferred by Page 22 of 49 consent or agreement where it did not exist, nor can the lack of jurisdiction be waived. 8.6. These judgments were subsequently noticed by Hon'ble Gujarat High Court in the case of P.V. Doshi vs. CIT (1978) 113 ITR 22 (Guj). This case arose under the IT Act with reference to the provisions of s. 147 dealing with re-assessment. The facts were that the assessment was sought to be reopened under s. 147 and notice under s. 148 was issued. Validity of reopening was not challenged upto Tribunal and additions were challenged on merits only. The Tribunal restored the matter to the AO with some directions to reexamine the issue on merits. When the matter came back to the AO the assessee specifically raised the point of jurisdiction to reopen the assessment, contending that the notice of reopening was prompted by a mere change of opinion. The AO rejected plea of the assessee but the AAC accepted this ground and also held the reassessment to be bad in law on jurisdictional ground. Against the order of the AAC the Revenue went in appeal before the Tribunal and specifically raised the plea that the question of jurisdiction to reopen the assessment having been expressly given up by the assessee in the appeal against the reassessment order in the first round, the assessee was debarred from raising that point again before the AAC and the AAC was equally wrong in permitting the assessee to raise that point which had become final in the first round and in adjudicating upon the same. The plea of the Revenue impressed the Tribunal which took the view that after its earlier order in the first round of proceedings the matter attained finality with regard to the point of jurisdiction which was given up before the AAC and not agitated further and that in the remand proceedings what was open before the AO was only the question whether the addition was justified on merits and the point regarding the jurisdictional aspect was not open before the AO. According to the Tribunal, the assessee having raised the point in the first round and having given it up could not revive it in the second round of proceedings where the issue was limited to the merits of the additions. In this view, the Tribunal accepted the Revenues plea. The assessee thereafter carried order of the Tribunal in reference before the Gujarat High Court. The High Court after considering various judgments of the Supreme Court on the point of jurisdiction to reopen the assessment and also after specifically discussing the judgment of the Supreme Court in Onkarmal Nathmal Trust (supra) and Dasa Muni Reddy (supra) held that the Tribunal was in error in holding that the question of jurisdiction became final when it passed the earlier remand order. It was held that neither the question of res judicata nor the rule of estoppel could be invoked where the jurisdiction of an authority was under challenge. According to Hon'ble Gujarat High Court, the rule of res judicata cannot be invoked where the question involved is the competence of the Court to assume jurisdiction, either pecuniary or territorial or over the subject-matter of the dispute. Hon'ble High Court further held that since neither consent nor waiver can confer jurisdiction upon the AO where it did not exist, no importance could

Page 23 of 49 be attached to the fact that the assessee, in the first round of proceedings, expressly gave up the plea against the erroneous assumption of jurisdiction by the assessing authority. According to the Hon'ble Court, the "finality or conclusiveness could only arise in respect of orders which are competent orders with jurisdiction and if the proceedings of reassessment are not validly initiated at all, the order would be a void order as per the settled legal position which could never have any finality or conclusiveness. If the original order is without jurisdiction, it would be only a nullity confirmed in further appeals". In this view of the matter, Hon'ble High Court finally answered the reference in favour of the assessee. 8.7. It is further noted that many of these judgments were discussed and followed by the Co-ordinate Bench of the Tribunal in the case of Indian Farmers Fertilizers Co-operative Ltd. vs. Jt. CIT (2007) 107 TTJ (Del) 98: (2007) 105 ITD 33 (Del), wherein a similar issue had arisen. In this case, the issue raised before the bench was whether it is open to the assessee, not having appealed against the reassessment order, to set up or canvass its correctness in collateral proceedings taken for rectification thereof under section 154. The bench minutely analysed law in this regard and applying the principle of 'coram non judice' and following aforesaid judgments of the supreme court, it was held that if an assessee seeks to challenge the reassessment proceedings as being without jurisdiction, when action for rectification is sought to be taken on the assumption of the validity of the reassessment order, then the assessee has to step in and protect its interests and the liberty to question even the validity of the reassessment proceedings ought to be given to it......." 8.8. Similar view was taken in another decision of the Tribunal in the case of Dhiraj Suri vs. Addl. CIT (2006) 99 TTJ (Del) 525: (2006) 98 ITD 87 (Del). In the said case, appeal was filed by the assessee before the Tribunal against the levy of penalty. In the appeal challenging the penalty order, the assessee challenged the validity of block assessment order which had determined the tax liability of the assessee on the basis of which penalty was levied subsequently. The revenue objected with respect to the ground of the assessee raising jurisdictional issues of assessment proceedings in the appeal against the penalty order. After analysing the legal position, as clarified by Hon'ble Gujrat High Court in the case of P.V. Doshi, supra and Hon'ble Bombay High Court in the case of Jainaravan Babulal vs. CIT (1988) 69 CTR (Bom) 201 : (1988) 170 ITR 399 (Bom) the bench held as that if the block assessment itself is without jurisdiction then there is no question of levy of any penalty under s. 158BFA(2) and therefore it is open to the assessee to set up the question of validity of the assessment in the appeal against the levy of penalty. 8.9. We also derive support from another judgement of Hon'ble Bombay High Court in the case of Inventors Industrial Corporation Ltd vs. CIT (1991) 96 CTR (Bom) 206 : (1992) 194

ITR 548 (Bom) wherein it was held that assessee was entitled to challenge the jurisdiction of the AO to initiate re-assessment proceedings before the CIT(A) in the second round of proceedings, even though he had not raised it in earlier proceedings before the AO or in the earlier appeal. 8.10. Thus, on the basis of aforesaid discussion we can safely hold that as per law, the assessee should be permitted to challenge the validity of order passed under s. 263 on the ground that the impugned assessment order was nonest and we hold accordingly.” Further, the coordinate bench of Mumbai Tribunal in the case of Aishwarya Rai Bachchan (Supra), has held as under:- “4.1. One more excruciating fact that needs to be addressed in the instant case is that the learned Principal CIT herein is only seeking to revise the order passed by the learned AO under s. 143(3) r/w s. 147 of the Act dt. 12th Dec., 2018. In the said reassessment proceedings, the learned AO had not even made any addition despite the fact that he had reason to believe that income of Rs. 11,55,330 had escaped assessment in the hands of the assessee which was sought to be taxed under s. 56 of the Act as per the reasons recorded. Hence, when the very basis of reasons recorded by the learned AO was ultimately not added by the learned AO in the reassessment proceedings, then the primary reason to believe that income of the assessee had escaped assessment fails and such re-assessment cannot be treated as a valid order in the eyes of law. The same is to be declared as void ab initio. Reliance in this regard was rightly placed on the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Jet Airways (I) Ltd. (2011) 239 CTR (Bom) 183 : (2011) 52 DTR (Bom) 71 : (2011) 331 ITR 236 (Bom). When an assessment framed by the learned AO is unsustainable in the eyes of law, the said invalid and illegal order cannot be subject matter of s. 263 proceedings. On this count also, the revision order passed by the learned Principal CIT under s. 263 of the Act deserves to be quashed.” The coordinate bench of Ahmedabad Tribunal in the case of Shri Jignesh Lilachand Shah (supra), had an occasion to deal with this issue where the Tribunal in para 6 has observed as under:- “6. The next issue for consideration before us is that once it is held that the assessment order itself is null and void, can such assessment order be the subject matter of revision under section 263 of the Act. In our view, it is a well-settled principle of law that once the assessment order passed itself is null and void, the same cannot be the subject matter revision under section 263 of the Act. In the case of Pioneer Distilleries Limited Vs Pr. CIT Pune) the ITAT held that revisionary jurisdiction cannot be exercised against Void order. In this case, the ITAT held that when the said order is void and did not stand in eyes of law, it

Page 25 of 49 cannot be held to be erroneous and prejudicial to the interest of revenue by the Commissioner. Again in the case of Westlife Development Ltd. v. PCIT vide order dated 24.06.2016 (ITAT Mumbai), the ITAT held that when an Assessment order passed under section 147 of the Act was illegal the CIT cannot invoke the jurisdiction under section 263 of the Act against such void or non-est order. In the case of Inder Kumar Bachani (HUF) v. ITO (2006) 101 TTJ 450 (ITAT Lucknow), the ITAT held that as the order of the Assessing Officer passed under section 147 / 143(3) was itself void, the order of PCIT passed under section 263 for quashing this order was without jurisdiction. In view of the above observations, we are of the considered view that since the assessment order passed by ITO Ward 3(3)(2), Ahmedabad itself was null and void, the same could not be the subject matter of revision under section 263 of the Act. In the result, we are Shri Jignesh Lilachand Shah vs. Pr. CIT allowing the appeal of the assessee on the ground of jurisdiction itself. We are accordingly not separately adjudicating into the merits of the case.” On careful reading of the observations made by the coordinate benches of the Tribunal in aforesaid cases, we are of the view that the validity of order passed u/s.263 of the Act on the ground that the re-assessment order from which the said proceedings emerged out was non-est, can be challenged in appellate proceedings against u/s.263 of the Act. Thus, respectfully following the above decisions of the coordinate benches of the Tribunal, we are of the considered view that in the present appellate proceedings against the order of the ld. Pr. CIT u/s.263 of the Act, the validity of the order passed u/s.147/143(3) of the Act can be examined.

19. While exercising powers under s. 263 learned Commissioner cannot revise an assessment order which is non-

Page 27 of 49 est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If learned CIT revises such an assessment order, then it would imply extending/granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended, because the provisions of limitation are provided in the same.

20. In view of above discussion, ground No. 3 is allowed and revision order passed under s. 263 is quashed." 10.2. It is further noticed by us that similar view has been taken by Chandigarh Bench of the Tribunal in the case of Steel Strips Ltd. (supra).

11. Thus, after taking into account all the facts and circumstances of the case, we find that in this case, the original assessment order passed under s. 143(3) dt 24th Oct., 2013 was null & void in the eyes of law as the same was passed upon a non-existing entity and, therefore, the learned CIT could not have assumed jurisdiction under the law to make revision of a non-est order and, therefore, the impugned order passed under s. 263 by the learned CIT is also nullity in the eyes of law and therefore the same is hereby quashed.

8. By respectfully following the decision of Co-ordinate Bench of ITAT, Mumbai in the case of Westlife Development Ltd. (supra), we quash the revisionary order passed u/s 263 of the Act as the reassessment order passed u/s 144/143(3) is already held as invalid. Thus, the additional grounds of appeal

No.1 to 1.6 are allowed.

9. Since, the order of PCIT passed u/s 263 of the Act has been quashed on the issue of reopening u/s 148 of the Act, the other grounds taken become infructuous. Accordingly, the same are not adjudicated upon.

10. In the result, the appeal of assessee is allowed.” (ii) Neelam Agarwal Vs. ITO, Kolkata, (ITAT,

Kolkata Bench), order dated 22.07.2024:

“7. We have heard the rival contentions and perused the material available on record. We find that revisionary proceeding u/s. 263 of the Act is being challenged before us. The first ground taken by the assessee is that the reassessment order is the subject matter of revisionary proceeding itself deserves to be quashed. For challenging the validity of the reassessment proceedings during the course of the revisionary proceeding is justified in view of the settled judicial precedents. Before us reliance has been placed on the decision of this Tribunal in the case of Garud Credit & Holding Pvt. Ltd. (Supra). In the said order it has been held that the assessee is entitled

Page 28 of 49 to challenge the validity of the reassessment in collateral proceeding u/s. 263 of the Act. Now assessee has challenged the validity of reassessment proceeding on the ground that there has been no proper approval u/s. 151 of the Act. As per section 151 of the Act which deals with sanction for issue of notice and sub-section (1) says that no notice shall be issued u/s. 148 of the Act by an AO after the expiry of a period of four years from the end of the relevant assessment year, unless the PCIT or CCIT or CIT is satisfied with the reason recorded by the AO that it is a fit case for issue of such notice. It is an admitted fact that the case of the assessee has been reopened after the end of four years and the approval which is placed at pages 2 to 5 of the paper book has been granted by Jt. Commissioner of Income Tax. Before referring to the decision relied on by the Ld. Counsel for the assessee we also take note of the contention made by the Ld. DR that there were Covid restrictions and the Taxation and Other Laws (Relaxation and Amendment of certain provisions) Act, 2020 [TOLA] which was enacted on 29.09.2020 and came into force w.ef. 31.03.2020 as per which for the period between 20.03.2020 to 31.03.2020 time limit for completion of action were extended up to 31.03.2021. We, however, find that this plea of the Ld. DR is not maintainable because TOLA is only sought to extend the period of limitation and does not affect the scope of sec. 151 of the Act. We draw support from a judgment of Hon’ble Bombay High Court in the case of Siemens Financial Services Pvt. Ltd. (supra) wherein vide para 25 of the order the Hon’ble Court has held as under: “TOLA, enacted on 29th September 2020 and came into force on 31st March 2020. It, inter alia, provided for a relaxation of certain provisions of the Income-tax Act, 1961. Where any time limit for completion or compliance of an action such as completion of any proceedings or passing of any order or issuance of any notice fell between the period 20th March 2020 to 31st December, 2020, the time limit for completion of such action stood extended to 31st March 2021. Thus, TOLA only seeks to extend the period of limitation and does not affect the scope of section 151.”

8. Now, once it has been held that concept of TOLA is not applicable on the scope of section 151 of the Act and that in the instant case reopening has been carried out after four years of the end of the assessment year. Admittedly, there is no proper approval u/s. 151(c) of the Act as it has been signed by Joint Commissioner whereas as per section 151() of the Act the approval ought to have been obtained from Ld. PCIT/CIT/CCIT. Under these given facts and circumstances, where there is no proper approval u/s. 151 of the Act, Hon’ble Bombay High Court in the case of J.M. Financial & Investment Consultancy Services Pvt. Ltd. (supra) dealing with the similar issue and on almost identical facts has held as follows: “4. Admittedly in this case, four years from the end of the relevant assessment year has expired before the issuance of notice and the approval also has been obtained from the Additional Commissioner of Income Tax and not Principal Commissioner of Income Tax. In the affidavit in reply filed through one Nikhil Bansal affirmed on 4th March 2022, these facts have not been disputed but according to Page 29 of 49 respondents, the approval granted by the Additional Commissioner of Income Tax was a valid approval because the Additional Commissioner of Income Tax was a competent authority.

7. In our view, since four years had expired from the end of the relevant assessment year, as provided under Section 151 (1) of the Act, it is only the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner who could have accorded the approval and not the Additional Commissioner of Income Tax. On this ground alone, we will have to set aside the notice dated 31st March 2021 issued under Section 148 of the Act, which is impugned in this petition. In view thereof, the consequent orders and notices will also have to go.”

9. The above judgment of Hon’ble Bombay High court in the case of J.M. Financial & Investment Consultancy Services Pvt. Ltd. (supra) has subsequently been followed by Hon’ble Bombay High Court in the case of Siemens Financial Services Pvt. Ltd. (supra) wherein the Hon’ble Court has held that “approval for issuance of notice u/s. 148A(d) of the Act has not been properly obtained and hence the order passed thereunder and consequent notice issued under section 148 of the Act have to be quashed and set aside. The sanction ought to have been granted under section 151(ii) and not under section 151(i) of the Act.” The above decision of Hon’ble Bombay High Court has subsequently been followed by Hon’ble jurisdictional

Page 30 of 49 High Court in the case of Vinay Kumar Singh & Ors. (supra) wherein the Hon’ble Court observed as under: “This intra-court appeal by the Income tax department is directed against the order dated 3rd May, 2023, passed in WPO No. 969 of 2023, by which the order passed under section 148A(d) of the Income Tax Act, 1961 (the Act), dated 29th July, 2022, relating to the assessment year 2017-18, was challenged on the ground of non- compliance of the formalities of taking approval of the specified authority mentioned in Section 151 (ii) of the Act. The revenue cannot dispute the fact that identical issue was decided against the Department in the case of Siemens Financial Services (P)Ltd. Vs. Deputy Commissioner of Income-tax, (2023) 155 taxmann.com 159 (Bombay). This Court also had an occasion to consider similar issue in (2024) 159 taxmann.com 5 (Bombay). The decision in Siemens Financial Services (P) Ltd. (supra) has also been followed in the case of (2024) 159 taxmann.com 5 (Bombay). Thus, following the above decisions, the appeal filed by the revenue is dismissed.”

“7. At the outset, we find once the Ld. AO having recorded the reasons for reopening the assessment and having formed a belief that income of the assessee had escaped assessment, had not made any addition in the reassessment proceedings in respect of issues that are subject matter of reopening. Hence, the very basis of formation of belief for the Ld. AO vanishes. Hence, the Ld. AO could not have framed any reassessment per se. Logically the Ld. AO should have simply dropped the initiation of reassessment proceedings instead of passing a separate reassessment order. Once, the reassessment order per se framed by the Ld. AO is not sustainable in the eyes of law, any revision order passed thereon u/s 263 seeking to revise such unsustainable order cannot be accepted in the eyes of law and consequential revision order also passed u/s 263 of the Act deserves to be quashed. Our view is further fortified by the decision of the Delhi Tribunal in the case of Sh.

Pramajit Singh vs. PCIT in dated 01/12/2023 wherein the Tribunal placed reliance on the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Software Consultants. in of 2010 dated 17/01/2012. The relevant operative portion of the decision of the Tribunal are as under:-

XXX

8. In view of the aforesaid observations and respectfully following the judicial precedents relied upon herein above, we have no hesitation to hold that the Ld. PCIT erred in assumption of jurisdiction u/s 263 of the Act in the facts and circumstances of the instant case. Since, revision order passed u/s 263 of the Act is quashed on legal ground, the other factual and legal arguments made by the Ld. AR need not be adjudicated and they are left open.

Revenue’s submissions:

The crux of his contention is such that the ‘original/re-assessment proceeding’ and ‘consequential/revision proceeding’ are separate and distinct proceedings, therefore the legality of ‘original proceeding’ cannot be examined in collateral proceeding of revision. He submitted that present appeal is against revision-order and not against original assessment-order, hence the assessee can only argue against revision-order and cannot ask the Court to go into validity or invalidity of original order.

He submitted that in that case, the ITAT, Delhi has adopted Westlife Development Ltd. (2016) 49 ITR (T) 406 (Mumbai) whereas the Westlife

Page 32 of 49 Development itself had followed several decisions which were altogether different and not applicable:

The 1st case relied was the decision of Hon’ble Supreme Court in Kiran 1 Singh & Ors Vs. Chaman Paswan & Ors. (1955) 15 CR 117.

Ld. DR submitted that the case of Kiran Singh involved a situation where a civil suit for possession was presented in sub-ordinate (district) court. The sub-ordinate court decided. On further appeal, the registry of High Court raised an objection that the suit was undervalued. At that stage, the plaintiff raised a contention that as per correct valuation, the decree would not lie before sub-ordinate court but before High Court. Therefore, on that account, the decree passed by sub-ordinate court was held to be a nullity.

Ld. DR submitted that the facts clearly show that there was a proceeding of continuing nature in the same matter whereas the present case of assessee is concerning with revision-order passed by PCIT and the re-assessment proceeding done by AO was altogether different. He further emphasized that in present case, the AO was well within his jurisdiction to initiate re- assessment proceedings.

The 2nd case relied is Sushil Kumar Mehta Vs. Gobind Ram Bohra (1990) 2 1 SCC 193.

Ld. DR submitted that the issue in this case was whether a decree can be challenged at execution stage? The Hon’ble Supreme Court held that it is Page 33 of 49 the Controller under the Act holding exclusive jurisdiction to order ejectment of a tenant from a building and the Civil Court lacked jurisdiction in passing decree. Further held that the issue of jurisdiction can be raised at execution stage also.

Ld. DR submitted that the facts clearly show that there was a proceeding of continuing civil decree matter which lacked jurisdiction whereas the present case of assessee is concerning with revision-order passed by PCIT and the re-assessment proceeding done by AO was altogether different. He further emphasized that in present case, the AO was well within his jurisdiction to initiate re-assessment proceedings.

The 3rd case relied is Indian Bank Vs. Manual Govindji Khona 2015 (3) 3 SCC 712.

Ld. DR submitted that the case has similar distinguishable features as in above two cases.

The 4th case relied is P.V. Doshi Vs. CIT (1978) 113 ITR 22 (Guj). 4

Ld. DR submitted that the facts of this case are such that in first round of litigation, the assessee did not challenge jurisdictional flaw and only challenged merits of matter, which was remanded by Tribunal to AO. Later, during 2nd round, the assessee raised jurisdictional issue. The High Court held that the same can be raised.

Ld. DR submitted that in this case also, the proceeding was one and same.

What has happened that during 1st round the assessee did not challenge jurisdictional aspect but in 2nd round the assessee challenged whereas in present case of assessee, there are two separate proceedings of re- assessment done by AO and the revision-proceeding done by PCIT.

The 5th case relied is Indian Farmers Fertilizers Co-operative Ltd. Vs. 5 CIT (2007) 107 ITJ (Del) 98.

Ld. DR submitted that in this case, the ITAT allowed collateral challenge holding that if the underlying re-assessment is without jurisdiction, subsequent collateral proceedings of rectification can be challenged.

Ld. DR submitted that while coming such a conclusion the ITAT has relied the cases at S.No. 1 to 3 which are already distinguished.

The 6th case relied is Dhiraj Suri Vs. Addl. CIT (2006) 99 ITJ (Del) 525. 6

Ld. DR submitted that in this case, the ITAT allowed collateral challenge holding that if the block assessment was without jurisdiction, the penalty proceedings cannot stand.

Ld. DR submitted that the ITAT relied the case at S.No. 4 which is already distinguished.

The 7th case relied is Aishwarya Rai Bachchan (2022) 194 ITD 272 7 (ITAT, Mumbai).

In this case, the ITAT allowed collateral challenge holding that if the re-

Page 35 of 49 assessment is bad and unsustainable, the revision cannot be made u/s 263.

Ld. DR submitted that in this case, the ITAT, Mumbai has firstly followed Jet Airways (Delhi High Court) to hold that if there is no addition by AO on the issue for which the case was re-opened, the re-assessment was not sustainable. But Jet Airways has not been followed by Hon’ble Gauhati High Court in DCIT, Circle Jorhat Vs. Toor Finance Company Ltd., ITA/9/2023, judgement dated 30.01.2025. Further, the Punjab & Haryana High Court has also distinguished Jet Airways. Therefore, the position on which the case of Aishwarya Rai Bachchan was adjudicated, is itself debated and cannot be applied in present case of assessee.

The 8th case relied is Shri Jignesh Lilachand Shah (ITAT, Ahmedabad). 8

Ld. DR submitted that in this case, the ITAT allowed collateral challenge holding that a void assessment-order (due to fundamental invalidity) cannot become subject-matter of revision u/s 263.

Ld. DR submitted that while holding so, the ITAT has followed Westlife Development (supra) which in itself is distinguishable.

He also distinguished the 2nd decision of Neelam Agarwal (supra) 15. relied by Ld. AR on three-fold counts. Firstly, in that case, the ITAT held that the re-assessment carried out without issuing mandatory notice u/s 143(2) is a nullity and therefore no jurisdiction can be assumed u/s 263 whereas

Page 36 of 49 the present case has different facts. Therefore, the order of ITAT is facts- specific and does not apply to present case. Secondly, the order does not constitute a judicial precedent authoritatively holding that assessment/ re- assessment can be challenged in an appeal against 263 order. Thirdly, the reliance had been placed on various judgements which are already distinguished in preceding para while distinguishing Shobit Goel (HUF).

(i) That, there was a material based on survey in possession of AO revealing that the assessee had booked bogus expenses/loss. In reasons recorded, the AO has clearly mentioned that there was a credible information available with him. Hence, the AO has rightly formed a belief of escapement of income in assessee’s case.

(ii) That, the information received by AO from Investigation Wing of department is a valid source for taking action against assessee.

Further, the sufficiency of material is not to be seen at the time of formation of belief as held by Hon’ble Supreme Court in Raymond

Woolen Mills Ltd. (1999) 236 ITR 34 (SC). The Hon’ble Gujrat High

Court has also held in Rainbow Texchem (P) Ltd. Vs. ITO, (2021)

129 taxmann.com 85 (Gujrat) that if, on the basis of information supplied by the office of Principal Director of Income-tax

(Investigation), the AO has found that the assessee was the beneficiary of accommodation entries provided by other assessee, it could not be said that there was no tangible material available with the AO to prima facie form a belief that income of assessee chargeable to tax has escaped assessment. The Hon’ble Gujrat High Court has also taken into account the decision of Raymond Woolen (supra) [Paras 10-11 of order of Hon’ble High Court]. Similarly, in Dr. Lata Chouhan Vs. ITO

(2010) 189 Taxman 45 (Madhya Pradesh), the Hon’ble jurisdictional

High Court also accepted that when survey was conducted in the business premises of assessee, the department came in possession of material for re-opening assessment, there existed a basis for forming a prima facie belief of escapement and it is sufficient to issue notice u/s

147. It was further accepted that the court cannot go into sufficiency

of reasons [Para 10 of order]. In New Arcot Plywoods and Glasses Vs.

DCIT (2024) 163 taxmann.com 180 (Mad), the Hon’ble Madras High

Court held that the statements of partner recorded during survey can be a basis for re-opening case. Further, in V3S Infratech Ltd. Vs.

ACIT (2019) 104 taxmann.com 403 (Delhi – Trib.), the ITAT, Delhi has held that the information collected during survey can be relevant for assessment of other years.

(iii) That the filing of return by assessee on 31.03.2016, is not relevant at all. It cannot come to the rescue of assessee.

(iv) That the AO followed due process of law for re-opening assessee’s case.

“It is worth mentioning here that on perusal of the order-sheet notings, it can be observed that the AO has mentioned that ‘the limitation date for completion of the assessment proceedings i.e. 31/03/2022. Due to shortage of time and in view of the various High Court decisions where proper procedure and time line required to be following in completing the re-opened cases, the best possible action is taken to complete the assessment proceedings. At some point of time, if at all it is found the order is prejudicial to the interest of revenue, the necessary action may be taken at the end of the JAO by exploring the applicable provisions under the Income-tax Act.’ He submitted that the PCIT has, in Para 7 of impugned order, rightly relied upon Deepak Kumar Garg 299 ITR 435 (Madhya Pradesh High Court) wherein it was held that if the AO has done semblance of inquiry, that too in snap-shod manner and accepted the version of assessee without proper enquiry, the revision u/s 263 is justified. Therefore, Ld. DR contended, the PCIT has rightly found that the AO has passed order without making necessary

Page 39 of 49 enquiries and the order passed by AO was erroneous-cum-prejudicial to the interest of revenue. Ld. DR submitted that the assessee is not able to show as to how the revision-order passed by PCIT is bad.

18. With above submissions, Ld. DR prayed that the revision-order passed by PCIT must be upheld and the assessee’s present appeal ought to be dismissed.

Our analysis and adjudication:

Before us, the assessee is claiming that the original/re-assessment proceeding initiated by AO u/s 147 against assessee was itself unlawful and bad. Hence, the consequent/revision proceeding undertaken by PCIT u/s 263 is also illegal and cannot withstand.

Page 40 of 49 assessment proceeding, and (ii) the original/re-assessment proceeding was very much valid.

The Ld. AR for assessee/appellant has relied upon decisions of (i) Shobhit Goel (HUF) (ITAT, Delhi), (ii) Neelam Agarwal (ITAT, Kolkata), and (iii)

Smt. Daya Rani (ITAT, Delhi). We have already extracted these decisions in earlier paras. However, Ld. DR for revenue has made written as well as oral submissions contending that the decisions relied by assessee have adopted the view taken in other decisions, like Westlife Development Ltd. (supra), which in turn had followed various other decisions of Hon’ble Supreme Court, High Court or Tribunal benches. According to Ld. DR, all pre- existing/underlying decisions are distinguishable on facts. Ld. DR has given an analysis of distinguishing features (we have briefly noted the same in earlier para) and made a serious attempt to show that it is only when there is a ‘continuing proceeding’ that the validity of ‘original proceeding’ can be tested by courts in ‘subsequent proceeding’. However, Ld. DR contends, in present case of assessee, the original/re-assessment proceeding and subsequent/revision proceeding are two different and distinct proceedings and therefore the pre-existing/underlying decisions themselves cannot apply and consequently the three decisions relied by Ld. AR should also not apply.

We have considered the submissions of Ld. DR carefully. At first, we note

Page 41 of 49 that the facts differ from case to case and it is the principle or ratio made by court which becomes relevant and which has to be followed. There is no quarrel that the re-assessment proceeding done by AO u/s 147 and the revision proceeding done by PCIT u/s 263 are two different and separate proceedings. Nobody can dispute this point narrated by Ld. DR because there are two separate set of provisions for respective proceeding in Income- tax Act, 1961 and there are separate appeals against re-assessment-order and revision-order also. But at the same time, it is also to be borne in mind that the section 263 provides “(1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for an examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous ….”.

Therefore, in the first step the ‘order’ passed by Assessing Officer must be a valid and legally sustainable order, then only the PCIT/CIT can consider it as erroneous. If the order passed by AO itself is not legal and not sustainable, how can there be a revision u/s 263? In simple words, though the original/re-assessment proceeding and consequential/revision proceedings are different proceedings clutched in different provisions of Income-tax Act, 1961 as being contended by Ld. DR, the original proceeding is ‘foundation’ and revision proceeding is ‘superstructure’. Therefore, when the ‘foundation’ itself is not valid and no legs to sustain, how could the ‘superstructure’ be? This is the logic or rationale conceived or understood in all decisions, whether pre-existing/ underlying or subsequent decisions in Page 42 of 49 Aishwarya Rai Bachchan, Shri Jignesh Lilachand Shah, Shobhit Goel (HUF), Neelam Agarwal and Smt. Daya Rani. These decisions have already been re-produced in earlier part of this order and we need not repeat the same. Therefore, in view of catena of decisions as discussed, we find a strong merit in assessee’s claim that this Court can examine the legality of original/re-assessment proceeding done by AO u/s 147 even while dealing present appeal against consequential/revision order passed u/s 263.

Page 43 of 49 assessment proceeding in present appeal against revision-order and we do so.

In reply, learned Representatives of both sides narrated and admitted that the statement does not contain any such question/reply. The second question put by bench to Ld. DR for revenue was the basis available to ITO- 1, Khandwa for sending a letter/report to AO intimating about bogus expenses/loss booked by assessee. In reply, the Ld. DR remained silent and could not point out any basis. Ld. DR, however, continued to insist that the AO received impugned letter from ITO-1, Khandwa and acting thereupon

Page 45 of 49 initiated proceeding u/s 147 against assessee. He kept on submitting that the ITAT cannot look into sufficiency of material before AO. He also relied upon certain decisions filed by him in the shape of a ‘Case Law Compilation’ wherein it has been decided that the information received from revenue authorities of department is a valid basis for initiating re-assessment proceeding u/s 147.

Therefore, after a careful consideration, we hold that the proceeding of re- assessment initiated by AO u/s 147 was unlawful and bad and not sustainable.

Order pronounced in open court on 14/10/2025