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Facts
The assessee, engaged in dry fruits, real estate, and construction, had an assessment completed under Section 147 read with Section 144B or Section 143(3) of the Income Tax Act. The Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under Section 263, alleging that the Assessing Officer (AO) failed to properly verify records and did not impose a penalty under Section 271B. The assessee contended that the AO had conducted proper inquiries during the original assessment and that penalty proceedings under Section 271B were already initiated and pending appeal.
Held
The Tribunal found that the PCIT had not properly exercised jurisdiction under Section 263, as there was no clear error in the assessment order nor any prejudice caused to the revenue. The PCIT's order was deemed mechanical and vague, without specific evidence of the AO's failure to verify documents or non-application of mind. The Tribunal also noted that penalty proceedings under Section 271B were already in motion, making the PCIT's observation on non-imposition erroneous.
Key Issues
Whether the PCIT's revision order under Section 263 of the Income Tax Act was valid when the Assessing Officer had conducted inquiries and the assessment order was neither erroneous nor prejudicial to the revenue. Whether the PCIT can initiate revision under Section 263 on grounds of non-initiation of penalty proceedings under Section 271B when such proceedings have already been initiated by the Assessing Officer.
Sections Cited
263, 263(1), 263(2), 143(3), 147, 144B, 142(1), 143(2), 271B, 194A, 40(a)(ia)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH : COCHIN
Before: SHRI INTURI RAMA RAO & SHRI SOUNDARARAJAN K.
PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the Ld.PCIT, Kochi – I dated 18/03/2024 passed u/s. 263 of the Act and raised the following grounds:
“A. The act of the Respondent (PCIT) without adhering to the plain meaning of Section 263 of the Income Tax Act is illegal, irrational, unfair, arbitrary, and procedurally improper.
B. The PCIT has not satisfied the two-fold conditions in Section 263(1) namely,
(i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. It is further observed that if one of them is absent, recourse cannot be had to Section 263(1) of the Act
C. The Appellant is highly aggrieved by the non- consideration of the fact that at assessment u/s 143(3) and u/s 147 read with 144B, the assessing officer had considered all the matters that were raised in the Order u/s 263 by the PCIT. It is submitted that the fact that the opinion of the PCIT differs with that of other assessing officer is not a reason to initiate action u/s 263 of the Act. The urgent Interference of this Hon'ble tribunal is highly inevitable in this case, failing which, irreparable injuries and hardships may be caused by to the Appellant.
D. The order of the PCIT in the Para 2a and D of the Exhibit P1 are self-contradictory with regard to the providing of the details by the appellant. While in the paragraph "2a" of the Ext P1 order. the PCIT observes that the Appellant did not provide the details that was sought for by the Assessing officer. However, in the paragraph "D" of the same order, the PCIT affirms that the Appellant has deposited all the documents that was sought for, but the AO did not verify.
E. It is submitted that, even if there was any inquiry, even inadequate, that would not by itself give occasion to the Commissioner to pass orders under Section 263 of the Act, merely because he has different opinion in the matter.
F. As per sub clause (a) of the Explanation 2 to subsection (1) of Section 263, "an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if in the opinion of the Pr. Commissioner, (a) the order is passed without making inquiries or verification which should have been made. …………”. In the instant case, all the inquiries or verifications were carried out by the NFAC is evident from the documents that was uploaded and also from the assessment order. Merely the order of the NFAC did not contain detailed reasons recorded does not render the assessment order erroneous. Similarly, the Exhibit P1 order is contradicting the sub clause (b) of the Explanation 2 to subsection (1) of Section 263, as the order of AO has considered the TDS deducted and paid by the Appellant to the income tax department supported by the Exhibit P23 which is speaking evidence of the compliance followed by the Appellant. Hence, the order of the NFAC or the first assessment u/s 143(3) are not erroneous as contemplated in Section 263.
G. The Appellant apprehends that reassessment based on Section 263 order would expose him to the threat of vindicative action by the Assessing Officer (NFAC) u/s 144 (Best judgment assessment) as the same is based on the grounds of erroneous assessment and prejudicial to the revenue. The apprehension gains more significance as the PCIT is aware that the Appellant has already submitted that he has deposited original sales invoices, Bank statement etc. with the AO who has performed the assessment u/s 143(3), and the same has not been returned to him till now. The Appellant has no other efficacious remedy other than to approach this Hon'ble Tribunal.
H. It is admitted fact that when the tax has been deduced by the appellant and the same has been reflected in the from 26AS of the Deductee, and the evidence of which is produced along with the documents that were produced by the Appellant in the Assessment u/s 143, there cannot be any reason for raising the same under revision u/s 263 of the Act. It is pertinent to note that the same issue was raised at the reassessment u/s 147 and the assessment by NFAC has also found the same to be in order. Therefore, when the online portal of the Income tax department is self-explanatory with regard to the deduction and payment of the TDS u/s 194A, raising the same point as noncompliance by the appellant, can be explained as nothing but lack of application of mind and can be seen a prejudicial act against the Appellant who had given all the information.
I. It is submitted that the NFAC had completed the assessment U/s 147 read with 144B after making appropriate inquiries and examination of records, which, is evidenced by the documents that were required to be submitted through various notices issued by the NFAC to the Appellant, which the appellant had enclosed as exhibits in the instant Appeal.
J. In the assessment order of NFAC it is stated that "Afterwards notice u/s 142(1) of the income tax was issued to assessee for compliance from time to time the assessee submitted his compliance". Therefore, in the said assessment u/s 147 read with 144B. the NFAC assessment order does not refer to lack of time to complete the assessment or non-application of mind or lack of information/documents filed by the Appellant. It is pertinent to note that the Appellant had submitted all the details along with additional supporting evidences like original sales invoices in the First Assessment stage itself. The said original sales invoices that was submitted were not returned to the Appellant and is still with the AO on the pretext of a possible internal audit by the CAG / department.
K. The appellant reserves his right to amend/ add the grounds of appeal, with the leave of this Hon'ble Tribunal. For these and other submissions and decisions to be urged at the time of hearing. the Hon'ble Appellate Tribunal may be pleased to set aside Order dated 18/03/2024 passed by the Principal Commissioner of Income Tax, Kochi-1 and allow the Appeal filed by the assessee, with consequential reliefs.”
As against the order of the Ld.PCIT made u/s. 263 of the Act originally, the assessee filed a Writ Petition before the Hon’ble High Court of Kerala in W.P.C. No. 23942/2024 dated 06/08/2024 and the Hon’ble High Court was pleased to dispose of the writ petition by giving time to the assessee to file the statutory appeal before this Tribunal within the period of two weeks from the date of receipt of a certified copy of the judgment. The Hon’ble High Court further, observed that if the appeal was filed within such period, it should be treated as one filed in time and shall be heard and disposed of by the Tribunal in accordance with law. It seems that the order of the Hon’ble High Court was received on 09/08/2024 and the appeal was filed on 22/08/2024 and therefore the appeal was filed within the period granted by the Hon’ble High Court. In such circumstances, there is no delay in filing the appeal and therefore we are now proceedings to take up the main appeal for adjudication.
The brief facts of the case are that the assessee was doing the business of retail sale of dry fruits and also doing the real estate and construction activities. The nature of the business is like that the assessee will have only cash transactions. The assessee filed their return of income on 31/10/2017 and declared an income of Rs. 1,04,73,320/-. Based on some information, proceedings u/s. 147 was initiated. Accordingly, a notice u/s. 148 was issued for which the assessee had not filed any return of income and subsequently, several notices were issued u/s. 142(1) of the Act for which the assessee filed the details requested by the AO and thereafter, after satisfying, the AO had made the assessment u/s. 147 r.w.s. 144B of the Act.
The Ld.PCIT under the powers vested with him u/s. 263 of the Act had proposed to revise the assessment since the AO had not done proper verification of the records and also the AO had not imposed penalty u/s. 271B of the Act. The assessee appeared in person and also submitted their written submissions on 20/02/2024. The Ld.PCIT had considered the said objections but remitted the issue to the AO to consider the above matters and make appropriate addition.
As against the said order, the assessee is in appeal before this Tribunal.
At the time of hearing, the Ld.AR submitted that the assessee had responded to the various notices issued by the AO and also the necessary documents in support of the cash deposits and payment of interest were furnished. The Ld.AR further submitted that after verifying the various documents filed by the assessee, the AO had concluded the assessment u/s. 143(3) of the Act on 30/12/2019 in which the return of income declared by the assessee was accepted. The Ld.AR further submitted that already penalty proceedings were initiated against which assessee also filed an appeal before the Ld.CIT(A) and therefore without considering the entire facts, the Ld.PCIT had mechanically interfered in the assessment order when there is no error in the order and also the order is not prejudicial to the interest of the revenue. Therefore, the Ld.AR submitted that the invoking of the powers vested u/s. 263 by the Ld.PCIT is not proper and requires interference in the hands of this Tribunal. The assessee also filed a paper book enclosing the copies of the various notices issued by the AO and also the various replies filed by him and also relied on the judgment of the Hon’ble Supreme Court reported in (2000) 2 SCC 718 in the case of The Malabar Industries Co. Ltd. vs. CIT.
The Ld.DR relied on the order of the Ld.PCIT and submitted that appeal of the assessee may be dismissed.
We have heard the arguments of both sides and perused the materials available on record.
As seen from the reply filed by the assessee to the show cause notice issued by the Ld.PCIT, the following facts were emerged. The contention raised by the assessee in the objections are as follows:
From the above said objections made by the assessee, it is clear that the AO had sought for the details in respect of the cash deposits as well as the payment of interest and also about the penalty for which various replies were filed by the assessee and various documents were also filed in support of the query and therefore prima facie we find that the Ld.PCIT had wrongly invoked his powers vested with him u/s. 263 of the Act.
Even though, the Ld.PCIT had accepted that various documents were filed before the AO, the Ld.PCIT had observed that the AO had failed to verify the documents during the assessment proceedings. The Ld.PCIT further stated that the AO has passed the order without making enquiries or verifications and therefore the Ld.PCIT had directed the AO to once again consider the documents submitted before him as well as during the assessment proceedings through ITBA. From the above said findings given by the Ld.PCIT, we are not able to understand what enquiry is to be conducted by the AO when the AO had considered the documents at the time of passing the assessment order. We are also not able to find out what kind of enquiry is to be done by the AO and the Ld.PCIT had not pointed out any lapses in the enquiry conducted by the AO rather than making bald allegations that the AO had not made enquiries or verifications. Further, in respect of the payment of interest on the personal loan and the consequential non-deduction of tax at sources, the assessee explained the facts before the AO and also produced the copy of the loan ledger account, copy of confirmation statement regarding the loan and interest and copy of form 26Q and 16A and also relied on the audit report in form 3CB and 3CD and submitted that all the tax deducted details were filed before the AO and thereafter the AO had accepted the case of the assessee. In such circumstances, the Ld.PCIT had alleged that the AO failed to verify the documents before making the assessment. This finding of the Ld.PCIT also is very vague and the Ld.PCIT is not sure about the verification done by the AO and therefore without pointing out any mistakes by the AO, the Ld.PCIT could not ask again the AO to verify the documents and pass orders accordingly. When the Ld.PCIT is having some evidence to show that the AO had not done proper verification, the same should be spelt out in his proceedings otherwise the order could not be termed as a valid order passed u/s. 263 of the Act.
The Statute has granted special powers to the PCIT u/s. 263 of the Act to correct the errors or mistakes committed by the AOs in the assessment orders which are all prejudicial to the interest of the revenue. This power should not be used in a routine manner but it should be used sparingly and when there are clear cut evidences available to show that the AO had committed mistakes or errors. In the present case, as already stated, the assessee had produced all the details in respect of the clarifications sought for by the AO on various dates which were all perused by the AO and after satisfying himself, the assessment u/s. 143(3) was made.
The show cause notice issued u/s. 263 also speaks about the penalty to be imposed u/s. 271B of the Act, as if the AO had not imposed any such penalty while making the assessment. It is a fact that already the penalty has been imposed by the AO against which the assessee also filed an appeal before the Ld.CIT(A) and the said issue is pending for adjudication. Therefore this is a glaring example to show that the Ld.PCIT had mechanically taken proceedings u/s. 263 of the Act without verifying the assessment records properly. If the Ld.PCIT had verified the records properly, he could not have observed anything about the penalty to be levied u/s. 271B of the Act.
By considering the above said facts and circumstances, we are of the view that the Ld.PCIT had not exercised his jurisdiction properly when there is no error in the assessment order and there is no prejudice caused to the revenue as contemplated u/s. 263 of the Act. Our view is also supported by the principles laid down by the Hon’ble Supreme Court in the above said judgment. Therefore the order of the Ld.PCIT in remitting the issue to the file of the AO, again to verify the documents, which were all produced and verified by the AO in the assessment proceedings are liable to be set aside.
We, therefore, set aside the order of the Ld.PCIT made u/s. 263 of the Act.
In the result, the appeal filed by the assessee is allowed.