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Facts
The assessee filed a return of income declaring Rs. 9,86,130. The case was reopened based on information that the assessee received on-money of Rs. 40,00,000 on the sale of land. The Assessing Officer (AO) initially accepted the assessee's explanation and made no addition. However, the Principal Commissioner of Income-tax (PCIT) invoked Section 263, holding the AO's order to be erroneous and prejudicial to revenue.
Held
The Tribunal held that the PCIT erred in invoking Section 263. The AO had considered the issue of on-money, sought explanations, and applied his mind, ultimately forming a considered view not to make an addition. The Tribunal also noted that the sale of the property occurred in AY 2015-16, not AY 2014-15, making the taxation of on-money in AY 2014-15 inappropriate.
Key Issues
Whether the PCIT was justified in invoking Section 263 to revise the assessment order when the AO had considered the issue and applied his mind, and whether on-money received for land sold in a subsequent assessment year is taxable in the current assessment year.
Sections Cited
263, 147, 144, 114B, 69A, 115BBE
AI-generated summary — verify with the full judgment below
Before: MS SUCHITRA RAGHUNATH KAMBLE & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from the order passed under section 263 of the Income-tax Act, 1961 (in short, ‘the Act’), dated 31.10.2023, by the learned Principal Commissioner of Income-tax, Surat [in short Ld. PCIT’] for the assessment year (AY) 2014-15, which in turn arises from the assessment order passed by National-e Assessment Centre, Delhi/Assessing Officer u/s 147 r.w.s. 144 r.w.s. 114B of the Act on 28.03.2022.
Grounds of appeal
raised by the assessee are as under:
1. On the facts and circumstances of the case as well as law on the subject, the learned Pr.Commissioner of Income-tax has erred in passing revisionary order u/s 263 of the I.T. Act, 1961 setting aside the order of ld. Assessing Officer passed u/s 147 r.w.s. 144 read with section 114B of the I.T.Act, 1961 dated 28.03.2022 for the year under consideration although said order is neither erroneous nor prejudicial to the interest of revenue.
2. On the facts and circumstances of the case as well as law on the subject, the learned Pr.Commissioner of Income-tax has erred in holding that on-money to the extent of RS.40,00,000/- received by assessee has to be taxed u/s 69A of the Act &that the provisions of section 115BBE of the Act are applicable which is not considered by Assessing Officer during the assessment proceedings.
3. On the facts and circumstances of the case as well as law on the subject, the learned Pr.Commissioner of Income-tax has erred in passing revisionary order u/s 263 of the I.T. Act, 1961 setting aside the order of ld. Assessing Officer passed u/s 147 r.w.s. 144B of the I.T. Act, 1961 dated 28.03.2022 with a direction to the assessing office to pass fresh assessment order after taking into consideration the issues as may have been already considered together with the issue covered u/s 263 of the I. T. Act.
It is therefore prayed that order passed by Pr.Commissioner of Income-tax u/s 263 of the I. T. Act 1961 setting aside the order of assessing officer and directing assessing officer to pass fresh assessment order may please be quashed.
Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
Brief facts of the case are that the assessee filed his return of income on 30.03.2015 declaring total income of Rs.9,86,130/-. Based on information received from the ACIT-Central Circle, Surat, the case was reopened on the ground that the assessee had received on-money of Rs.40,00,000/- on his 1/3rd share of land sold through registered deed dated 16.08.2014. The notice u/s 148 was issued on 31.03.2021 but assessee failed to furnish return u/s 148 of the Act. The assessee was issued show cause notice along with draft assessment order by the AO, in response to which the assessee furnished his submission on 19.03.2022. The AO perused the submission of assessee and found it to be acceptable. Accordingly, order u/s 147 r.w.s 144 r.w.s. 144B of the Act was passed on 28.03.2022 accepting the returned income.
/AY.2014-15 Yogeshkumar Harishbhai Mali 4. Subsequently, the Ld. PCIT called for the record and found that contention of the assessee that all the payments have been received by account payee cheques only as per the Jantry value of Rs.69,81,847/- was accepted by the AO without any further enquiry and application of mind. Further, AO also did not place the information available with him before the assessee to show that there was payment of on-money in the impugned land deal. The impugned land was sold by assessee along with his father and brother for total consideration of Rs.69,81,847/- and on-money in cash of Rs.1,20,00,000/-. The land is also within the municipal limit of Surat Municipal Corporation. Hence, the order was passed by AO without proper verification/inquiry on the issue during the course of re-assessment proceedings rendering the order erroneous in so far as prejudicial to the interest of Revenue u/s 263 of the Act. The Ld. PCIT issued a show cause on 14.02.2024 which is reproduced at pages 5 to 8 of the order u/s 263 of the Act. Reply of the assessee is at para-3.1 at pages 8 to 12 of the above order. The assessee contended before Ld.PCIT that on-money is taxable on the basis of sale which was in AY 2015-16 and not taxable on receipt basis in AY 2014-15. For this, the assessee relied on the decision in the cases of (i) CIT vs. Ashaland Corporation (1982) 113 ITR 55 (Guj) and (ii) D.R. Construction dated 08.04.2011. It was also submitted that addition on account of on-money has already been made in case of assessee and co- owners amounting to Rs.3,80,00,000/- including Rs.60,00,000/- in case of /AY.2014-15 Yogeshkumar Harishbhai Mali assessee for AY 2015-16. Addition of Rs.1,60,00,000/- has already been made in case of other two co-owners in AY 2014-15. It was also submitted that AO has reopened the case of assessee for the succeeding AY 2015-16 and addition of Rs.60,00,000/- was made. Thus, any addition during the year would amount to double addition of the same amount. 4.1 The Ld. PCIT did not find any substance in reply of the assessee and observed that on-money of Rs.1,20,00,000/- was received in FY 2013-14 (AY 2014-15) and Rs.1,80,00,000/- was received in FY 2014-15 (AY 2015-16). Hence, assessee had received his 1/3rd share of on-money of Rs.40,00,000/- in AY 2014-15 and Rs.60,00,000/- in AY 2015-16. He observed that the AO passed the assessment order without proper verification/inquiry, application of mind and correct law on the issue and failed to make the impugned addition to the total income as per law. There was also short levy of tax of Rs.30,72,000/-. He has relied on the decisions of Hon’ble Supreme Court in case of Malabar Industries Ltd. vs. CIT (2000) 243 ITR 83 (SC), CIT vs. Paville Projects (P.) Ltd. (2023) 149 taxmann.com 115 (SC), CIT vs. NageshKnitwears P. Ltd. and Others (2012) 345 ITR 135(Del) and Gee Vee Enterprises vs. ACIT (1975) 99 ITR 375 (Del) and held that the order passed u/s 147 r.w.s. 144 r.w.s. 144B of the Act dated 28.03.2022 for AY 2014-15 is erroneous in so far as it is prejudicial to the interests of Revenue. He set aside the order and directed AO to pass fresh assessment order as per the discussion made in the order u/s 263 of the Act.
/AY.2014-15 Yogeshkumar Harishbhai Mali 5. Aggrieve by the order of PCIT, the assessee has filed present appeal before the Tribunal. The learned Authorized Representative (ld. AR) of the assessee filed paper book of 64 pages including the show cause notice and draft assessment order by the AO, written submission before AO and Ld. PCIT, relevant part of sale deed dated 16.08.2014, assessment orders of other co- owners for AYs 2014015 and 2015016 and assessment order of assessee for AY 2015-16. He submitted that the AO had issued an exhaustive show cause notice along with draft assessment order dated 16.03.2022 proposing addition of on-money of Rs.40,00,000/-. The same is at pages 13 to 17 of the paper book. In response to the same, assessee filed detailed reply dated 19.03.2022, which is at pages 10 to 12 of the PB. After considering the reply of the assessee the AO has made no addition. Since the AO has applied his mind to the facts of the case and did not make any addition and just because the Ld. PCIT has taken a different view, the same will not render the assessment order as erroneous. The Ld. AR also submitted that there is no evidence that assessee received on-money. He also submitted that the property was not even sold during the year under consideration but was sold in the subsequent year i.e., AY 2015-16 and hence, the question of taxing the on-money in AY 2014-15 does not arise. For this, he relied on the decisions in the cases of Ashaland Corporation (supra) and CIT vs. Motilal C. Patel & Co. (1988) 173 ITR 666 (Guj). He further submitted that the Department has also made huge additions f Rs.3,80,00,000/- in case of the assessee and other co-owners, as evident from /AY.2014-15 Yogeshkumar Harishbhai Mali submission before the Ld. PCIT (page-4 of the PB). Since the additions made by the AO for the assessee and other co-owners are more than the impugned alleged amount of Rs.3,00,00,000/- no further addition was needed. Hence, the order passed by the AO cannot be considered as erroneous and prejudicial to the interests of revenue u/s 263 of the Act.
On the other hand, learned Commissioner of Income-tax – Departmental Representative (ld. CIT-DR) supported the order of ld. PCIT and submitted that it is procedurally correct. He has discussed as to how the order of AO is erroneous and prejudicial to the interests of revenue. He submitted that the AO failed to made addition of the on-money received by the assessee during the year.
We have heard both parties and perused the materials available on record. We have also deliberated the case laws relied upon by both sides. The appellant has submitted that the PCIT erred in invoking jurisdiction u/s 263 of the Act by holding that order of the AO u/s 147 r.w.s. 144 r.w.s. 144B of the Act is erroneous and prejudicial to the interests of revenue. Before deciding the ground, it would be proper to reproduce section 263 of the Act to appreciate scope and admit of the said section: “263. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or] Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, [including,- (i) An order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) An order modifying the order under section 92CA; or (iii) An order cancelling the order under section 92CA and directing a fresh order under the said section]. ********* Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.”
It is clear from a plain reading of section 263 of the Act that the PCIT or the CIT may call for and examine the records of any proceedings under the Act. If he considers that any order passed by the AO or the TPO is erroneous in so far as it is prejudicial to the interests of revenue, he is required to give assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary, he may pass such order thereon as the circumstances of the case justify including enhancing or modifying the assessment order, cancelling the assessment and directing a fresh assessment. Explanation 2 was inserted below sub-section (1) of section 263 of the Act with effect from 01.06.2015 to declare as to what shall be deemed to be /AY.2014-15 Yogeshkumar Harishbhai Mali “erroneous in so far as it is prejudicial to the interest of revenue”. The instances which would fall in the above category are:(i) the order is passed without making inquiries and verification which should have been made; (ii) the order is passed allowing the relief without inquiring into the claim; (iii) the order has not been made in accordance with any order, direction, or instruction issued by the Board u/s 119 of the Act; or (iv) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or the Supreme Court in the case of the assessee or any other person.
Let us examine the assessment order u/s 147 r.w.s. 144 r.ws. 144B of the Act, dated 28.03.2022 in the background of statutory provisions discussed above. During the course of re-assessment proceedings, the AO issued a detailed show cause notice along with draft assessment order dated 16.03.2022 wherein the reasons for reopening, provisions of section 144 of the Act and proposal for making addition of on-money of Rs.40,00,000/- was made. The assessee was required to submit his response by 19.03.2022. In response thereto, the assessee filed a reply dated 19.03.2022 wherein he submitted that there is no evidence that he was paid on-money of Rs.40,00,000/- by the buyers. The burden was on Department to prove that he had received the on-money. He was also not given opportunity to cross- examine the purchasers. He also submitted that provisions of Section 69A /AY.2014-15 Yogeshkumar Harishbhai Mali cannot be applied in his case. After considering the reply, the AO has not made any addition.
Against the above factual background, let us see whether the order of the AO is erroneous and prejudicial to the interests of revenue within the meaning of section 263 of the Act. As discussed earlier, the Ld. PCIT can call for and examine the record of any proceedings under the Act and if he considers that any order passed by the AO is erroneous in so far as it is prejudicial to the interests of the revenue, he may after giving opportunity of hearing and after making or causing to be made such inquiry as he deems necessary, pass such order as the circumstances of the case justify. The Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) held that every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of revenue. When an AO adopts one of the courses permissible in law and it results in loss of revenue or when two views are possible and the AO has taken one view with which the Commissioner does not agree, it cannot be treated as erroneous order prejudicial to the interests of revenue unless the view taken by the officer is unsustainable in law. In the subsequent decisions, the same principles have been affirmed by the Hon’ble Supreme Court.The Hon’ble Court in case of CIT vs. Greenworld Corporation, 314 ITR 81 (SC) held that the jurisdiction u/s 263 can be exercised only when both the following conditions are satisfied i.e., (i) the order of the AO should be erroneous and (ii) it should be prejudicial to the interests of revenue. These conditions are /AY.2014-15 Yogeshkumar Harishbhai Mali conjunctive. An order of assessment passed by the AO should not be interfered with only because another view is possible. The Hon’ble Apex Court in case of Max India Ltd. vs. CIT, 295 ITR 282 (SC) held that the Commissioner has to be satisfied of the twin conditions as stated above. If one of them is absent, recourse cannot be had to Section 263 of the Act. We find that the impugned issue of on-money receipt of Rs.40,00,000/- was considered by the AO at the time of re-assessment proceedings. He has duly examined the above issue by calling for the details from the assessee by issuing a show cause notice and the draft assessment order. After examination of the reply dated 19.03.2022 (pages 10 to 12 of PB), he has accepted the explanation of the assessee and did not make any addition on the subject issue. Thus, the AO has duly considered the issue, applied his mind and taken a considered view. Hence, in view of the decisions of Hon’ble Supreme Court cited supra, the decision of the ld. PCIT to invoke provisions of section 263 of the Act cannot be sustained.
The impugned issue can also be analysed from another angle. In the instant case, as stated above, the AO had called for the explanation on the subject issue from the assessee and assessee had furnished its explanation and details, which clearly shows that the AO had undertaken the exercise of examining as to whether any addition is called for in respect of on-money of Rs.40,00,000/- on sale of land. It is clear that the AO was satisfied with the assessee’s explanation and therefore, he accepted the returned income. The grievance of the Ld. PCIT is that the AO should have made further inquiry in /AY.2014-15 Yogeshkumar Harishbhai Mali respect of the impugned issue and added the entire on-money. Considering all these facts, it could not be said that it was the case of “lack of inquiry”. There is a distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that could not, by itself, give occasion to the PCIT to pass order u/s 263 of the Act merely because he has different opinion in the matter. It is only in cases of lack of inquiry that such a course of action could be opened. In the present case, the AO has duly examined the facts and formed an opinion that there was no need to add the impugned on-money. Hence, the AO has adopted one of the plausible views on the issue of receipt of on-money. In view of the above facts and decisions cited supra, the decision of Ld. PCIT that the order passed by AO was erroneous and prejudicial to the interests of revenue u/s 263 of the Act is not correct. Accordingly, the order passed u/s 263 of the Act by the Ld. PCIT is liable to be set aside.
The Ld. AR has also relied on the decision of Hon’ble jurisdictional High Court in case of Ashaland Corporation (supra) and submitted that since the property was sold on 16.08.2014 (AY 2015-16), no addition can be made on the subject issue in AY 2014-15. The Hon’ble jurisdictional High Court in the above case held that transaction of sale of land becomes complete only on passing the title, which takes place only when the sale deed is executed. Mere receipt of earnest money and advance receipt of money towards transaction would not, by itself, partake the character of taxable income as the registered sale deed was executed in the subsequent year. The facts of the present case /AY.2014-15 Yogeshkumar Harishbhai Mali are covered by the above decision of the Hon’ble jurisdictional High Court. Hence, the receipt of the impugned on-money was not liable to tax in AY 2014-15.
In view of the above discussion and respectfully following the decisions cited supra, we set aside the order of Ld. PCIT u/s 263 of the Act dated 31.10.2023 and allow the appeal of appellant.
In the result, appeal of the assessee is allowed. Order is pronounced under provision of Rule 34 of ITAT Rules, 1963 on 07/07/2025.