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Facts
The assessee filed an appeal against an order under section 263 of the Income Tax Act, 1961, which had set aside the assessment order and directed a fresh assessment. The assessee had challenged the validity of the section 263 order, claiming it was passed without proper examination and was therefore erroneous.
Held
The Tribunal held that the Principal Commissioner of Income Tax (PCIT) initiated revision proceedings under section 263 of the Act without properly examining the records and without providing specific findings to indicate that the Assessing Officer's order was erroneous. The Tribunal found that the Assessing Officer had conducted necessary inquiries during the assessment proceedings. Therefore, the PCIT's order was deemed unjustified and bad in law.
Key Issues
Whether the order passed by the Principal Commissioner of Income Tax under section 263 of the Income Tax Act, 1961, was justified, or if it was passed without proper examination and thus erroneous.
Sections Cited
263, 143(3), 142(1), 50C, 48
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 06/01/2025 Date of Order – 21/03/2025
O R D E R PER V. DURGA RAO, J.M.
The instant appeal by the assessee is emanating from the impugned order dated 23/03/2022, passed by the learned Principal Commissioner of Income Tax, Nagpur-2 for the assessment year 2017–18.
2. Following grounds have been raised by the assessee:–
“1) The order passed by Hon'ble Commissioner of Income Tax u/s 263 of I.T. Act 1961 is illegal, invalid and bad in law. 2) The Hon'ble Commissioner of Income Tax erred in holding that order passed in the case of assessee u/s 143(3) on 18/12/2019 accepting the returned income is erroneous and prejudice to interest of revenue. 3) The Hon'ble Commissioner of Income Tax ought not to have set aside the assessment framed u/s 143(3) for making fresh assessment by invoking provisions of section 263 of I.T. Act 1961 considering the facts and evidence on record.
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4) Any other ground shall be prayed at the time of hearing.”
3. The Registry has pointed out that there is a delay of 331 days in filing the present appeal by the assessee before the Tribunal. While going through the record available before us, we find that the learned Counsel for the assessee, Shri Dewani, has filed an application dated nil, seeking condonation of delay in filing the present appeal before the Tribunal, which is even supported by a sworn Affidavit. The contents of the application seeking condonation of delay of 331 days is hereby reproduced below:– “1. In the case of assessee, order u/s 263 of I.T. Act 1961 has been passed by Hon'ble Principal Commissioner of Income Tax-2, Nagpur on 23/03/2022 for Asstt. Year 2017-18. The due date of submission of appeal before Hon'ble ITAT against order passed by Hon'ble Principal Commissioner of Income Tax- 2, Nagpur was 22/05/2022.
It is respectfully submitted that order u/s 263 was passed on 23/03/2022 wherein assessment framed was set aside. The assessee entertained mistaken bonafide belief that since assessment framed was set-aside appeal in respect order u/s 263 of I.T. Act 1961 is to be filed after completion of assessment. Assessment u/s 143(3) r.w.s. 263 of I.T. Act 1961 is completed on 20/03/2023. The assessee after completion of assessment approached to counsel Shri K.P. Dewani, Advocate for filing of appeal in respect to assessment order u/s 143(3) r.w.s. 263 of I.T. Act 1961 and order u/s 263 of I.T. Act 1961. Counsel Shri K.P. Dewani informed assessee that in respect to order u/s 263 of I.T. Act 1961 appeal before Hon'ble ITAT was to be filed before 22/05/2022 i.e. 60 days from date of order. The appeal is prepared and filed on 18/04/2023. Thus there is delay of 310 days in filing appeal before Hon'ble ITAT.
3. It is respectfully submitted that delay in submission of appeal is on account of bonafide mistake of assessee and there is no malafide intention to delay the filing of appeal.
Assessee places reliance on the decision of Hon'ble Bombay High Court in the case of Vijay Vishin Meghani in of 2015 vide order dated 19/09/2017 wherein delay of 2984 days in filing appeal has been condoned by Hon'ble Jurisdictional High Court. The ratio laid down by the aforesaid decisions squarely applies to the facts in case of assessee and considering the same delay in filing appeal may kindly be condoned.
5. The assessee submits that no hardship or prejudice will be caused to the revenue in case the application is allowed and delay is condoned however if application for condonation of delay is rejected the assessee may loose a 3 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 valuable right of appeal. In view of above, it is humbly submitted that liberal view be taken and application be allowed and delay be condoned in the interest of justice.”
4. In support of the averments made in the application for condonation, the learned Counsel for the assessee relied on the following case laws:–
“i) Anil Kumar Nehru and Anr v/s ACIT, [2019] 98 CCH 469 (Bom.); and ii) Anil Kumar Nehru through his Power of Attorney Anki tAgrawal v/s ACIT, [2019] 260 Taxman 372 (SC).
5. After considering the contents of the application seeking condonation of delay and the averments made in the Affidavit and the case laws relied upon by him, we are of the opinion that no mal fide intention can be thrust upon the assessee for the delay in filing of appeal and we are satisfied that the delay of 331 days in filing the appeal is due to reasonable/sufficient cause. Consequently, we condone the delay and admit the same for adjudication on merits.
Insofar as the merits of the case are concerned, the facts are, the assessee is an Individual. For the year under consideration, on 31/01/2018, the assessee filed his return of income electronically, disclosing total income of ` 12,96,33,940. During the course of regular assessment framed under section 143(3) of the Income Tax Act, 1961 ("the Act"), reasons for selection under CASS was to verify capital gain declared in the return of income filed by the assessee. The Assessing Officer noted that the assessee, during the year, has derived income from business of trading in Iron & Steel, income from house property, income from capital gain and income from other sources. Necessary enquiries were conducted by the Assessing Officer by issuing
4 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 statutory notices in response to which the assessee furnished details of sources of income, capital introduction and specific details of capital gain were called and examined. The assessee, in response to the notice issued under section 142(1) of the Act, furnished submissions. Keeping this in view, following facts emerges from the facts and evidence on record as submitted in Paper Books during the course of hearing:–
“i) At para 1 details of sources of income, at para 4 specific details of capital gain by referring to Schedule-CG of ITR and at para 5 introduction of capital was called. (P-2) [Vol.- III) ii) At page 6 capital gain is derived from immovable property was submitted and explained at the time of hearing. iii) At page 65 66 computation of capital gain is fully disclosed. iv) At page 92 specific query of capital gain is explained. v) At page 95 details of stamp duty/registration fees paid is evident from sale deed submitted. vi) At page 101 assessee is co-owner of property sold along with two other co- owners is evident. vii) At page 103 expenses of stamp duty etc. to be borne by assessee is evident.”
7. The Assessing Officer, after examining the capital gain so declared in the return of income by the assessee and on being satisfied, accepted the capital gain as shown in the return of income. Computation of capital gain to be assessed to tax has been accepted by Assessing Officer. The Assessing Officer has verified capital gain and accepted the capital gain which the assessee has shown in his return of income. On this basis, the Assessing Officer, while concluding the assessment, determined and assessed the total income of the assessee at ` 12,96,33,940, and accepted the capital gain as shown by the assessee in his return of income.
5 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023
The learned Principal Commissioner of Income Tax (“the learned PCIT"), in exercise of power of assumption of jurisdiction conferred upon him under section 263 of the Act, noted that the counsel for the assessee has not furnished evidence to support his claim that The Assessing Officer has verified the claim of assessee. The assessee, in response to the statutory notices issued by the learned PCIT, furnished detailed written submission which is placed on record at Page–15 to 18 along with gist of submission. It was accompanied by various documentary evidences. It has been dealt with by learned PCIT in the order passed under section 263, vide Para–9/Page–4:–
“9. The assessee's submission in brief is discussed here under:- The counsel of the assessee submitted that the entire issues relating to the income from LTCG was duly and fully covered in the assessment proceedings u/s 143(3) of the I.T. Act, 1961. The issue relating to LTCG were thoroughly and fully looked into by the Ld. AO in the assessment proceedings. Since the issue based on which the revision proceedings is sought to be carried out has itself been dealt with during the course of the assessment proceedings in details and to the satisfaction of the Ld. AO, hence, the order u/s143(3) is neither erroneous nor prejudicial to the interest of the Revenue and hence the carrying out of the revision proceedings are not justified. Further, the assessee in support of his claim furnished working of Indexed Cost of acquisition and Indexed Cost of Improvement. However, he has failed to submit documentary evidence in this regard except copy of the sale deed of the land sold.”
The learned PCIT further noted vide Para–2 to 8 of the impugned order and the same is enumerated below for ready reference:–
“2. On examination of the case records, it is observed that the assessee has shown taxable LTCG on sale of his share in Non Agricultural land bearing 1) Khasara No. 16 having an area of 2.45 H 2) Khasara No. 21 having an area of 2.48 H 3) 2.51 H out of total area of 4.21 H in Khasara No. 22 4) 0.19 H out of total area of 2.26 H in Khasara No. 23/1 5) 0.24 H out of total area of 1.38 H in Khasara No. 24/1 6) 0.02 Η out of total area of 0.47 H in Khasara No. 25/1 (total area 7.89 H i.e. 78900 SqMtrs) at Rs.12,65,15,507/-. The working of Capital Gain as per return of income is as under:
6 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 a. (iii) Full value of consideration adopted as per sec. 50C for the purpose of 22,50,00,000 Capital Gain b Deduction u/s 48 (i) Cost of acquisition with indexation 1,10,53,125 (ii) Cost of improvement with 7,72,61,368 indexation (iii) Expenditure wholly and exclusively 1,01,70,000 in connection with transfer Total Deductions 9,84,84,493 Long Term Capital Gains on sale of above 12,65,15,507 mentioned immovable properties However, no supporting documents or explanation with regard to the claim of cost of acquisition with indexation, cost of improvement with indexation and expenditure wholly and exclusively in connection with transfer has been called for by the AO.
On perusal of sale deed dated 29/09/2016 in respect of above mentioned land available on ITBA Portal, it is observed that the expenses on account of preparation of the sale deed including the cost of Stamp Duty and Registration Fees had to be borne and paid by the Vendors as per para 14 at page 8 of the sale deed dated 29/09/2016. In this regard, it is observed that the assessee has claimed an expenditure of Rs. 1,01,70,000/- wholly and exclusively in connection with transfer but failed to furnish the details of expenditure along with necessary evidences. Therefore, the claim of the assessee for expenditure wholly and exclusively in connection with transfer remains unexplained. 4 The assessee has not furnished the copies of purchase deed(s) in respect of the land sold in support of cost of acquisition. In absence of purchase deed(s), the cost of acquisition with indexation as claimed by the assessee at Rs.1,10,53,125/-remained unexplained. The AO has not verified this issue during the course of assessment proceedings.
5. Further, the assessee has claimed huge amount of Rs.7,72,61,368/- as cost of improvement with indexation but no supporting documents / evidence has been furnished in this regard. It is further observed, on perusal of the sale deed in respect of above mentioned land that all the above mentioned land sold by the assessee is 'Non Agricultural land' and these land were acquired by the assessee as 'duly converted Non Agricultural land'. Thus, there is no change in the nature of land purchased and land sold and therefore does not seem to be any tangible improvement made by the assessee during the holding period. Therefore, the claim of Rs.7,72,61,368/- as cost of improvement with indexation remained unexplained. The AO has not called for supporting evidence in this regard nor has he verified this crucial aspect during the course of assessment proceedings.
7 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 6. The AO has also failed to verify the issue as per CASS criteria that the sale consideration of the property shown in ITR is less than the sales consideration reported in form 26QB.
Therefore, the issues with respect to cost of acquisition with indexation claimed at Rs.1,10,53,125/-, cost of improvement with indexation claimed at Rs.7,72,61,368/-, expenditure wholly and exclusively in connection with transfer claimed at Rs.1,01,70,000/- and difference in sale consideration as per ITR& the amount reported in form 26QB have not been examined thoroughly during the scrutiny assessment. Lack of enquiry by the AO on the aforesaid crucial aspects have made the assessment order dated 18.12.2019 erroneous in so far as prejudicial to the interests of revenue. I am therefore, of the opinion that the assessment order passed u/s 143(3) of the Act, dated 18.12.2019 deserves to be revised u/s 263 of the I.T. Act, 1961. [emphasis supplied] 8. Accordingly, provisions of section 263(1) was invoked in this case by issuing notice u/s. 263 of IT Act, 1961 to the assessee on 18.01.2022 giving an opportunity of being heard by 25.01.2022. In response the assessee neither attended nor filed any written submission in this regard. Subsequently, the assessee has sought for adjournment for 7 days in this case vide his online request dated 21.02.2022.Accordingly, the assessee was given an opportunity of being heard by 09.03.2022 vide this office letter dated 01.03.2022 and on the said date the counsel of the assessee Shri Manoj M. Soni attended and filed written submission manually.”
Thus, the learned PCIT, in exercise of power vested upon him under section 263 of the Act, set aside the assessment order dated 18/12/2019, passed by the ACIT, Circle–3, Nagpur, with direction to pass a fresh assessment order after conducting necessary inquiries, as the assessment order passed by the Assessing Officer is erroneous inasmuch as it is prejudicial to the interests of Revenue. The conclusion of the learned PCIT is as under:–
“11. In view of the above factual and the legal matrix, I am satisfied that the order passed by the AO u/s. 143(3) of the IT Act, 1961 for the A.Y. 2017-18 on 18.12.2019 is erroneous in so far as it is prejudicial to the interests of revenue and therefore the same deserves to be revised u/s.263 of the IT Act, 1961. In this case the AO failed to examine the issues with respect to cost of acquisition with indexation claimed at Rs.1,10,53,125/-, cost of improvement with indexation claimed at Rs.7,72,61,368/-, expenditure wholly and exclusively in connection with transfer claimed at Rs.1,01,70,000/- and difference in sale consideration as per ITR& the amount reported in form 26QB during the course of assessment proceedings for A.Y. 2017-18 The AO is 8 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 directed to inquire into these issues. Therefore, in exercise of power vested in me u/s. 263 of the I.T. Act, 1961, I hereby set aside the order dated 18.12.2019 of the ACIT, Circle-3, Nagpur, passed u/s. 143(3) of the IT Act, 1961 in this case for the Assessment Order after giving conducting necessary inquiries year 2017-18 with a direction to pass a fresh opportunity of being heard to the assessee and conducting necessary enquiries.”
Consequent upon issuance of the impugned order so passed by the learned PCIT, the assessee filed appeal before the Tribunal.
Before us, the learned Counsel for the assessee, assailing the impugned order passed by the learned PCIT vehemently argued in support of its claim. He furnished a detailed submission which reads as under:–
“B) Order u/s 263 has been passed by PCIT, Nagpur-2 on 23/03/2022 wherein assessment framed u/s 143(3) has been set aside for making necessary enquiries. PCIT-2 has concluded that capital gain is not been examined thoroughly and thus it is lack of enquiry. It is for this reason it is concluded that order passed is erroneous. (Para-7 to 10 of order u/s 263). C) In the regular assessment framed u/s 143(3) reasons for selection under CASS was to verify capital gain declared in the return. Necessary enquiries were made by issue of necessary notice u/s 142(1) wherein details of sources of income, capital introduction and specific detail of capital gain was called and examined. From Notice u/s 142(1) of I.T. Act 1961 and submission made following facts are evident. i) At para 1 details of sources of income, at para 4 specific details of capital gain by referring to Schedule-CG of ITR and at para 5 introduction of capital was called. (P-2) [Vol.- III) ii) At page 6 capital gain is derived from immovable property was submitted and explained at the time of hearing. iii) At page 65 66 computation of capital gain is fully disclosed. iv) At page 92 specific query of capital gain is explained. v) At page 95 details of stamp duty/registration fees paid is evident from sale deed submitted. vi) At page 101 assessee is co-owner of property sold along with two other co-owners is evident. vii) At page 103 expenses of stamp duty etc. to be borne by assessee is evident.
9 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 D) Voluminous evidences and documents were submitted before A.O. for verification of various details apart from produced before A.O. at the time of hearing in the course of assessment proceedings.(P-1 to 199) [Vol. III] E)A.O. after examining the capital gain declared in the return and on being satisfied accepted the capital gain as shown in the return. Computation of capital gain to be assessed to tax is ministerial act and same has been accepted by A.O. after due application of mind. On facts it cannot be said that there is lack of enquiry for capital gain declared/assessed. Words used in paragraph 7 of order u/s 263 and at para 6 in notice u/s 263 (P-14) as "thoroughly" clearly suggests that it is not the case of no inquiry. F) A.O. has verified capital gain by issue of notice u/s 142(1) more so it was CASS reason. It cannot be said that he has not applied mind or not verified the cost of improvement with indexation as was indicated in the computation of capital gain in the return. A.O. having taken a possible legal view on the facts and evidence on record there could be no justification to say that order passed by A.O. is erroneous or prejudicial to the interest of Revenue. Assumption of jurisdiction u/s 263 is unjustified and consequent order passed is not in accordance with law. G)In notice u/s 263 it has been noted that no supporting documents are submitted (P-13). It is not necessary for A.O. to obtain all the documents verified and place on record. Query raised at para 3 is verifiable with reference to sale deed and documents annexed thereto. Indexed cost of acquisition is verifiable with reference to return of income. Sale consideration as reported in ITR and as reported in Form 26QB was explained to be on account of assessee holding only 90% of property. In the course of revision proceedingsconclusion of PCIT at para 7 that there is lack of enquiry is not correct. H)Before PCIT written submission was made along with documentary evidence (P-15-18). Copy of purchase deed, sale deed and other documentary evidence was placed on record to explain entire issues raised in the notice u/s 263 of I.T. Act 1961. It was submitted that in case any further explanation or details are needed to provide opportunity for furnishing the same. Hon'ble PCIT has not made any enquiry herself. It has found no mistake in any of submission made. In fact no further query is raised before passing order u/s 263 holding that assessment framed is erroneous. Order passed u/s 263 is unjustified. I) Hon'ble PCIT observed necessary enquiries to be made without specifying any specific enquiry to be made in the fresh assessment to be framed. Hon'ble PCIT even after having the entire details has found no mistake so as to point out any error in the assessment/computation framed. Hon'ble PCIT ought to have carried out further enquiries and found error in income determined before setting aside the assessment framed. Assessment framed cannot be merely set aside to make further enquiries. Reliance on: i) (1993) 203 ITR 0108 (Bom.) CIT vs. Gabrial India Ltd. (P-52-60) (59, 60) [Vol.- I] ii) (2012) 343 ITR 0329 (Delhi) ITO vs. DG Housing Projects Ltd. (P-8-18) (17, 18) [Vol.-I]
10 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 iii) (2022) 141 taxmann.com 83 (Punjab &Hayana) PCIT vs. Kanin (India) (P-35-37) (36) [Vol.- I] iv) (2022) 145 taxmann.com 618 (Calcutta) PCIT vs. Britannia Industries Ltd. (P-19-24) (24) [Vol.-1] v) (2007) 295 ITR 0282 (SC) CIT vs. Max India Ltd (P-61-63)[Vol.-I] vi) (2023) 151 taxmann.com 493 (Surat-Trib.) BhikhabhaiRajabhaiDhameliya vs. PCIT (P-41-51) (41, 48, 51) [Vol.-I] vii) ITAT order in ITANo.74/Jab/2024 in the case of TirupatiBuildcon Private Limited vide order dated 28/06/2024 (P-1-7) (6, 7) [Vol.-1] viii) ITAT order in ITANo.73/Ran/2021 in the case of Pato Builders Limited vide order dated 29/02/2024. (P-25-34) (33, 34) [Vol.- I] J) i) In the case of assessee audit objection has been raised by Internal Auditor on 24/08/2021 wherein it has been noted that claim of Indexed Cost of improvement requires detailed verification (P-24 & 25). A.O. vide letter dated 30/08/2021 has sent proposal for remedial action u/s 263 1961 for reopening of assessment (P-19-23). ofI.T. Act ii) PCIT-2, Nagpur issued notice u/s 263 at the instance of proposal received. At para 6 it has been noted that the issue on capital gain has not been examined thoroughly during the scrutiny proceedings. Notice u/s 263 is on same lines as that of audit objection. iii) Proceedings initiated u/s 263 of I.T. Act 1961 is on the basis of proposal received from A.O. It is not Suo Motto examining the record of assessee by PCIT for assuming jurisdiction u/s 263 of I.T. Act 1961. Order u/s 263 of I.T. Act 1961 is not in accordance with law. Reliance on: 1) in the case of M/s. Alfa Laval Lund AB vide order dated 02/11/2021.(P-78-84) (82, 83) [Vol.-1] K) Order passed u/s 263 of I.T. Act 1961 consequent upon audit objection is bad in law and unsustainable. Reliance on: i) 2024) 162 taxmann.com 759 (Delhi-Trib) Ahlcon Parenterals (India) Ltd. vs. PCIT(P-64-67) (67) [Vol.-1] ii) (2008) 296 ITR 0238 (P & H) CIT vs. Sohana Woollen Mills (P-68-72) (68, 71) [Vol.- I] iii) (2018) 103 CCH 0112 (Mum.HC)
11 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 CIT vs. Maharashtra Hybrid Seeds Co. Ltd. (P-73-77) (77) [Vol.1] L) In the case of two co-owners for assessment of capital gain computation as declared by assessee has been accepted by the department. In the case of assessee it cannot be made differently. Order passed u/s 263 of I.T. Act 1961 is not in accordance with law. Reliance on: i)(2023) 151 taxmann.com 493 (Surat-Trib.) BhikhabhaiRajhabhaiDhameliya vs. PCIT – (P-41-51) (41, 48, 51) [Vol.-I] M) Fresh assessment is made u/s 143(3) / 263 on 20/03/2023. Appeal is filed by assessee in respect to addition made at Rs.7,72,61,368/- Compliances made before A.O. ( P - 1 to 138) [Vol. II]. In documentary evidence placed on record no specific mistake is found. On merits no mistake. (P - 28, 120, 121, 146) [Vol.-II]. N) In appellate proceedings voluminous document (Page 1 to 415) [Vol.- IV & V] submitted. It demonstrates bonafides and correctness of computation of capital gain. Interest paid in various years indicating name, PAN and amount (P - 25 - 30) [Vol. IV]. Details of brokerage (P - 212 - 236) [Vol.-IV] Site development expenses. (P - 10)[Vol - IV] Bank Statement (P - 237 - 415) [Vol.-V].”
The learned Counsel for the assessee thus prayed that considering the submissions made by him, judicial precedents relied upon, facts and evidence on record the impugned order passed by the learned PCIT under section 263 of the Act, be quashed.
On the other hand, the learned Departmental Representative, Shri Sandipkumar Salunke, relied on the proposal for remedial action under section 263 of the Act for re–opening of assessment sent by the ACIT, Circle– 3, Nagpur, to the learned PCIT, Nagpur–2, Nagpur, as well as the impugned order passed by the learned PCIT. The learned Departmental Representative also relied on the contents of the proposal for remedial action under section 263 of the Act for revision of assessment proposed by the ACIT, Circle–3, Nagpur, vide letter dated 30/08/2021, which reads as under:–
12 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023
“Respected Madam, Sub.:-Proposal for remedial action U/s 263 for reopening of assessment in the case of VinayAgrawal, PAN ABGPA3839E,A.Y.2017-18-Approval U/s 263 of the I. Tax Act-reg Kindly refer to the subject above. The assessee Shri Vinay Agrawal, (PAN ABGPA3839E) has filed his return of income for A.Y. 2017-18 on 31.03.2018 showing returned income of Rs. 12,96,33,940/-. The assessment u/s 143(3) of I.T. Act, 1961 was completed on 18.12.2019 and the returned income accepted. During the audit, Internal Audit party has raised audit objection that, 'the assessee has shown taxable long term capital gain on sale of land at Rs. 12,65,15,507/ As per computation given in the return for working out capital gain the full value of consideration is taken at Rs.22,50,00,000/- and an amount of Rs.1,10,53,125/- is deducted as cost of acquisition with indexation, an amount of Rs.7,72,61,368/- is deducted as cost of improvement with indexations and an amount of Rs.1,01,70,000/- as expenditure wholly and exclusively in connection with transfer. However, in the online submission submitted by the assessee no documents or explanation has been submitted by the assessee with regard to claim of cost of acquisition with indexation, cost of improvement with indexation and expenditure wholly and exclusively in connection with transfer. The assessee has only uploaded the scanned copy of the sale deed dated 29.09.2016 made in respect of the above land. From the contents of the sale deed it is seen that on page 8 it is mentioned that the expenses on preparation of the sale deed including the cost of stamp duty and registration fees will be paid by the assessee. Based on above the claim of expenditure wholly and exclusively in connection with transfer can be deducted however no details of the same has been furnished. However no purchase deed of the land has been filed/uploaded in supportof the claim of cost of acquisition and as there is no details of when the land was purchased the claim of indexation remains unexplained. Further, the assessee has claim a huge amount of Rs. 7,72,61,368/- as cost of improvement with indexations and no supporting documents/ explanation had been given in support of this claimed made. From the scan copy of the sale deed, it is seen that the sale is of Non-agricultural land admeasuring in total of 7.89 Hectors in different survey numbers in Maouza Junapani, Tahasil Hingna and District Nagpur. From the above contents in sale deed it can be seen that Non-agricultural land was purchased by assessee on 29.05.2007 and sold as Non-agricultural land on 29.09.2016. There is thus no change in the nature of the land purchased and sold and therefore there does not seem to be any tangible improvement made on the land sold. In view of the above, the claim of Rs.7,72,61,368/- as cost of improvement with indexations required detailed verification with regard to the amount claim for improvement and the period year in which such improvement has been made for indexation." Thus in consideration of above facts it is clear that Assessing Officer has not examined the issue thoroughly. Further, it is also seen from the reasons for 13 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 selection of case for scrutiny that the issue is for verification of capital gains/less on sale of property. The sale consideration of property in ITR is less than sale consideration reported in form 26QB. In this regard it is quite essential to call for all details regarding cost acquisition, details of expenditure regarding improvement and any other expenses related to sale of property. The same were not called for. The order passed by AO is not only erroneous but also prejudicial to the interest of revenue. In this case the assessment order is passed on 18.12.2019, therefore remedial action is fit for action u/s 263. Therefore the proposal for revision u/s 263 of the I.T. Act, 1961 is enclosed herewith.
The learned Departmental Representative further submitted that the Assessing Officer did not make any enquiries in respect of claims made by the assessee regarding the cost of acquisition and cost of improvement. He specifically pointed out to note the contents of Para–11 of the impugned order passed by the learned PCIT which is reproduced below Para–10 of this order. The learned Departmental Representative further submitted written submissions which are as under:–
“Merits of the Case: i. The present case was selected for complete scrutiny through Cass for verification of various issues including the capital gain/loss on sale of property. Thus, it was imperative for the Assessing Officer to verify the issue of scrutiny in detail. ii. The assessee has shown long term capital gain on sale of his share of non agricultural land. The working of capital gain has been given on page number 2 of the Order under Section 263. It is pertinent to mention that the assessment Order is just a 2 paragraph order having no discussion of the very issue for which the case was selected for scrutiny. iii. On going through the questionnaire issued by the AO, it is clear that there is no question which mentions the indexed cost of acquisition, indexed cost of improvement, and indexed cost of any other expenses wholly and exclusively related to transfer of Capital Asset. No supporting documents or explanation with regard to the deductions related to the transfer have been called by the AO. This is clear from the notices issued by the AO available in the assessment records. iv. The failure of the Assessing Officer in calling for the details related to the deductions claimed by the assessee have been discussed in detail by the Principal Commissioner of Income Tax from para 4 to 7 of the order under Section 263. The clear and unambiguous terms in which the PCIT has 14 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 concluded is clear from the conclusion drawn by PCIT in para 11 of the order quoted as below:- In this case the AO failed to examine the issues with respect to cost of acquisition with indexation claimed at Rs.1,10,53,125/- cost of improvement with indexation claimed at Rs.7,72,61.368/-expenditure wholly and exclusively in connection with transfer claimed at Rs.1,01,70,000/- and difference in sale consideration as per ITR& the amount reported in form 26QB during the course of assessment proceedings for A.Y. 2017-18" v. Even during the course of 263 proceedings, all these issues were brought to the notice of assessee where the assessee only submitted as under (as mentioned in Para 9 of the 263 order:- "The counsel of the assessee submitted that the entire issues relating to the income from LTCG were duly and fully covered in the assessment proceedings w/s 143(3) of the I.T. Act, 1961. The issue relating to LTCG were thoroughly and fully looked into by the Ld. AO in the assessment proceedings. Since the issue based on which the revision proceedings is sought to be carried out has itself been dealt with during the course of the assessment proceedings in details and to the satisfaction of the Ld. AO, hence, the order u/s 143(3) is neither erroneous nor prejudicial to the interest of the Revenue and hence the carrying out of the revision proceedings are not justified. Further, the assessee in support of his claim furnished working of Indexed Cost of acquisition and Indexed Cost of Improvement. However, he has failed to submitdocumentary evidence in this regard except copy of the sale deed of the land sold. vi. Thus, the assessee has not furnished any additional documentary evidence to support his claim that AO has verified the various issues during the assessment proceedings. No documentary proofs to show that all the details were submitted before AO has been produced by the assessee before Principal Commissioner of Income Tax. They are also not available in the assessment records. vii. Thus, it is clear that the Assessing Officer failed to examine the issues with respect to cost of acquisition with indexation claimed at Rs.1,10,53,125/-, cost of improvement with indexation claimed at Rs.7,72,61,368/-, expenditure wholly and exclusively in connection with transfer claimed at Rs. 1,01,70,000/- and difference in sale consideration as per income tax return and the amount reported in Form 26QB during the course of assessment proceedings. viii.During the course of proceedings initiated under section 263 against the assessee, the assessee filed interest details before the PCIT. However assessee has failed to prove with evidence as to how the payments were made wholly and exclusively for the purpose of acquiring or improving said property or anyway having direct nexus with the transfer of asset. Further Assessee has failed to provide bank statement, It is pertinent to mention that even if assessee had provided bank statement, it would also not be sufficient for claiming deduction because assessee had to prove with evidence as to how the said interest was wholly and exclusively expended for either acquisition or improvement or transfer of property. ix. Without prejudice to the above, it is further important to note that in consequence to the order passed by Principal Commissioner of Income Tax
15 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 under section 263, further order has been passed by the Assessing Officer under Section 143(3) r.w.s. 263 r.w.s. 144 B of the Income Tax Act. The relevant para of the order is reproduced as below:- "From the above table it is found that the assessee's method of calculating Improvement cost which goes beyond the accounting principles in the absence of any suitable explanation. Moreover from the agreement deed dated 22.08.2004 (page 3 st 5) and purchase deed dated 29/05/2007" The party No- 1 shall deliver the actual physical possession of the land to the Party NO-2 or his nominee's in vacant condition at the time of registration of the Sale Deed Here Party No 2. is the above assessee concerned (VINA Y RAMSHARAN DASA GRAWAL PA AL ABGPA3839E). Hence the assessee's Contention that he had investment during the FYs-2004-05, 2005-06 and 2006-07 as Seen from the above table is not tenable as because investment in a property which is not in the possession is not possible. The registration was only done on 29/05/07. x. Hon'ble Tribunal has advantage of having a look at these consequent proceedings also, which make it clear that the original order passed by Assessing Officer was actually erroneous and prejudicial to the interest of Revenue. It is therefore humbly prayed that this Hon'ble Tribunal may be pleased to dismiss the appeal of assessee.”
The learned Departmental Representative thus submitted that the assessment order passed by the Assessing Officer is indeed erroneous inasmuch as it is prejudicial to the interests of Revenue and, therefore, prayed that the order passed under section 263 of the Act by the learned PCIT be upheld by dismissing the appeal of the assessee.
We have heard the rival arguments, perused the material available on record and gone through the orders of the authorities below. We have perused the documents placed on record in Paper Book and considered judicial precedents relied upon. In this case, the Assessing Officer in his assessment order, has noted that the assessee, for the year under consideration, has derived income from business of trading in Iron & Steel, income from house property, income from capital gain and income from other sources. The assessee, in response to the statutory notices issued by the 16 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 Assessing Officer, furnished all the details along with written submissions through online portal of the Department, as desired by the Assessing Officer. It is pertinent to note that during the course of assessment proceedings, the Assessing Officer had issued notice under section 142(1) of Act, on 16/09/2019. In the aforesaid notice, the assessee was called upon to provide details regarding the source of income as mentioned in Para–1 of the said notice. At Para–4, the assessee was called upon to explain sale consideration of property reported in Schedule CG of the return of income at less than the sale consideration of the property reported in Form 26QB. The assessee was called upon to explain the capital introduced being very high as compared to profit after tax and thus was required to explain source of capital introduced in Capital Account. A detailed reply has been submitted by the assessee during the course of assessment proceedings, wherein, it was clearly explained that the assessee has earned income from capital gain on sale of property and securities during the year under consideration. Details of computation of capital gain are evident from the copy of income tax return placed on record on record in Paper Book Page–34 to 82, wherein, at Page–65 & 66, working of capital gain is disclosed. It clearly gives the break-up of indexed cost of acquisition and cost of improvement as well as expenditure wholly and exclusively in connection with transfer. At Page–92, detailed explanations reconciling difference in sale consideration as reported by the assessee in the return of income and in Form 26QB are furnished. The Assessing Officer, after verification of claim of the assessee, has accepted the capital gain as shown in the return of income. It is evident that enquiry has been made in respect to capital gain declared in the return of income and the 17 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 same has been accepted by Assessing Officer after due verification. It is not the case of no enquiry made before accepting the working of capital gain. More so, it was the specific reason for selection of case. From the assessment order passed by the Assessing Officer, it is clearly evident that the Assessing Officer has examined the entire matrix of the case including capital gain and only then he has passed the assessment order and, therefore, it cannot be said that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interests of Revenue for want of enquiry. The learned PCIT, without considering the detailed examination of records and due enquiries made by the Assessing Officer has set aside the assessment order passed by the Assessing Officer directing him to re–frame the assessment after making necessary enquiries which, in our considered opinion, is unwarranted. The mere fact that the assessment order is very brief is immaterial, because under section 114© of the Evidence Act, 1872, there is always a presumption that official and judicial acts have been regularly performed.
We find that the detailed submission was made by the assessee before the learned PCIT-2, Nagpur, vide letter dated 09/03/2022, and same is placed on record at Page–15 to 18 along with gist of submission during the course of hearing. Complete details as regard to capital gain and its computation of income were submitted before the learned PCIT-2, Nagpur. It was requested in the submission to accept the order passed under section 143(3) of the Act as correct and without error and to drop the revisionary proceeding under section 263 of the Act. It was further submitted before the 18 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 learned PCIT that, in case, if the learned PCIT need any further explanation or details, the assessee is ready to provide and submit the same. In the impugned order passed by learned PCIT-2, Nagpur, no mistake or defect in the details submitted along with documentary evidence placed on record in the course of proceedings under section 263 of Act is found. The learned PCIT-2, Nagpur, has made no enquiry, if any, which was considered necessary to be conducted considering the facts and evidence on record. The learned PCIT has not called for any further details, if any, required by him to be considered even though the assessee had offered in the letter to be provided on being so called. The learned PCIT-2, Nagpur, has merely, by referring to reply submitted at Para–9 has noted the submission of the assessee in brief in impugned order passed under section 263 of Act. It is not the complete submission and documentary evidence, as has been submitted by the assessee before the learned PCIT-2, Nagpur, during the proceedings under section 263 of Act. Conclusion drawn by the learned PCIT, without specifying any mistake in the computation of income in setting aside the assessment to make further enquiries is unjustified. The learned PCIT cannot term the impugned order passed as erroneous in the absence of any mistake found in the computation of income when all the details were before him. Thus, the impugned order passed under section 263 of the Act is unjustified, bad–in–law and likely to be overturned.
We deem fit to cull out from the decision of the Co–ordinate Bench of the Tribunal, Pune Bench, in Alfa Laval Lund AB v/s CIT, ITA no.1287/Pun./
19 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 2017, for the assessment year 2012–13, vide order dated 02/11/2021, wherein, the Tribunal, vide Para–3 to 5, observed as under:– “4. Sub-section (1) of section 263 of the Act is an enabling provision which confers jurisdiction on the CIT to revise an assessment order which he considers erroneous and prejudicial to the interests of revenue. The process of revision u/s 263 of the Act initiates only when the CIT calls for and examines the record of any proceeding under this Act and considers that any order passed by the AO is erroneous and prejudicial to the interests of the revenue. The twin conditions of (i) the CIT calling for and examining the record; succeeded by (ii) his considering the assessment order as erroneous etc. are sine qua non for the exercise of power under this section. The use of the word 'and' between the expression 'call for and examine the record ....' and the expression “if he considers that any order is erroneous ...” abundantly demonstrates that both these conditions must be cumulatively fulfilled by the CIT and in the same order, that is, the first followed by the second. In other words, the kicking in point for invoking jurisdiction u/s 263 is calling for and examining the record of any proceedings under the Act by the CIT leading him to consider the assessment order erroneous etc. A communication from the AO is not the record of any proceedings under this Act'. To put it simply, the consideration that the assessment order is erroneous and prejudicial to the interests of the revenue should flow from and be the consequence of his examination of the record of proceedings. If such a consideration is not preceded by the examination of record of the proceedings under the Act, the condition for revision does not get magnetized.
It is trite that a power which vests exclusively in one authority, can't be invoked or cause to be invoked by another, either directly or indirectly. Section 263 of the Act confers power on the CIT to revise an assessment order, subject to certain conditions. Instantly, we are confronted with a situation in which the revision was initiated on the basis of the AO sending a proposal to the CIT and not on the CIT suo motu calling for and examining the record of the assessment proceedings and thereafter considering the assessment order erroneous and prejudicial to the interests of the revenue. The AO recommending a revision to the CIT has no statutory sanction and is a course of action unknown to the law. If AO, after passing an assessment order, finds something amiss in it to the detriment of the Revenue, he has ample power to either reassess the earlier assessment in terms of section 147 or carry out rectification u/s 154 of the Act. He can't usurp the power of the CIT and recommend a revision. No overlapping of powers of the authorities under the Act can be permitted. As the revision proceedings in this case have triggered with the AO sending a proposal to the Id. CIT and then the latter passing the order u/s 263 of the Act on the basis of such a proposal, we hold that it became a case of jurisdiction deficit resulting into vitiating the impugned order. Without going into the merits of the case, we quash the impugned order on this legal issue itself.”
It is evident that the proceedings under section 263 of the Act has been initiated pursuance to audit objection and in fact the Assessing Officer in his
20 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 letter dated 30/08/2021, has communicated that the order passed by Assessing Officer is erroneous and prejudicial to the interests of Revenue. It is on this basis the notice under section 263 has been issued in the case of assessee and consequent impugned order under section 263 of the Act has been passed by holding that the order passed by Assessing Officer is erroneous and prejudicial to the interests of Revenue. The course adopted by the learned PCIT-2, Nagpur, is not in accordance with law and contrary to law laid down in judicial precedents discussed at Para–J & K of the submission of the assessee reproduced in this order at Para–11.
We find substantial force in the submissions made by the learned Counsel for the assessee. Various judicial precedents discussed in the written submission fully support the case of the assessee that the impugned order passed by learned PCIT under section 263 is unjustified and not in accordance with law. The learned PCIT has directed to make necessary enquiries and has not even specified as to what enquiries are required to be made. In fact, except saying that the Assessing Officer has not made proper enquiry, the learned PCIT has not given any clear cut findings to point out mistake in the computation of capital gain as has been accepted by the Assessing Officer during the assessment proceedings. During the course of assessment proceedings, the Assessing Officer has enquired in the computation of capital gain. Even learned PCIT has not specified what enquiry Assessing Officer is required to make. It is excruciating to note that even the learned PCIT did not cause any enquiry particularly when all the documents were placed before him. Thus, the directions of learned PCIT are nothing, but to make a roving
21 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 and fishing inquiry. We do not find any merits in the submission of learned D.R. made before us, because he cannot supplement upon the scope of revision hitherto uncovered. The impugned order passed by the learned PCIT holding the assessment framed erroneous and prejudicial to the interests of Revenue is unjustified.
The Assessing Officer once having taken a plausible view on the facts and evidence on record there could be no justification to say that the order passed by the Assessing Officer is erroneous inasmuch as it is prejudicial to the interests of Revenue. Assumption of jurisdiction under section 263 is unjustified and consequent order passed is bad–in–law. On facts, it cannot be said that there is lack of enquiry for capital gain declared/assessed. Words used in Para–7 of the impugned order passed under section 263 of the Act as "thoroughly" clearly suggests that it is not the case of no inquiry. Degree of examination and the extent thereof cannot be a scope of revision. In the judgment of the Hon’ble Delhi High Court rendered in ITO v/s DG Housing Projects Ltd., [2012] 343 ITR 329 (Del.), the Hon’ble Court held as under:–
“Held: Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. S. 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression "prejudicial to the interest of the Revenue" is of wide import and is not confined to merely loss of tax. The term "erroneous" means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be 22 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word "erroneous" includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits. 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 s. 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 s. 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 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 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. It may be noticed 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. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.
23 Vinay Ramsharandas Agrawal ITA no.110/Nag./2023 Conclusion: The matter cannot be remitted to the Assessing Officer for a fresh decision by the CIT without recording a finding that the order of Assessing Officer is erroneous.”
In view of the forgoing discussions and keeping in view the overall facts and circumstances of the case, we are of the considered opinion that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of Revenue and hence the initiation of revisionary proceedings under section 263 of the Act is unsustainable. Consequently, the impugned order passed by the learned PCIT is hereby quashed.
In the result, appeal by the assessee stands allowed. Order pronounced in the open Court on 21/03/2025