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Appellant by : Dr. P. Daniel (AR) Respondent by : Shri B. Jaya Kumar (CIT-DR) Date of Hearing : 06.06.2019 Date of Pronouncement : 21.06.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This appeal by assessee is directed against the order of Principle Commissioner of Income Tax-14 [the ld. PCIT], Mumbai dated 31.03.2019 for Assessment Year 2011-12. The assessee has raised the following grounds of appeal:
1. The Learned Principal CIT -14, Mumbai have erred on facts and on Law in passing an order under section 263 of the Income Tax Act, 1961 dated 31-03- 2019.
2. The Learned Principal CIT-14, Mumbai has erred in revising the order of the A.O. without assigning any pertinent and discerning reason as to why and how such order was erroneous as well as prejudicial to the interests of revenue. 3. The Learned Principal CIT -14, Mumbai erred in law and on the facts and circumstances of the case, in setting aside the assessment order passed u/s. Mum 2019- Goldcity Properties Pvt. Ltd.
143(3) r.w.s 147 of the Income Tax Act, 1961 passed by the Learned A.O. during 1st reassessment proceeding dated 29-12-2016 and issuing directions of reassessment pursuant to the provisions of Section 263 of the I.T. Act.
4. The Learned Principal CIT - 14, Mumbai has erred in not appreciating the facts that the Learned A.O. had made all relevant enquiries and verified all related documents and specifically mentioned in the assessment which have been the focus of the order passed u/s. 263 of the Income Tax Act, which amounts to the re-appreciation of the same facts.
5. The Learned Principal CIT - 14, Mumbai has erred by not taking cognizance of Affidavit to this effect from Minaxi Suppliers Pvt. Ltd. and not appreciating the facts that during the 2nd reassessment proceeding the Learned A.O. after being satisfied with the submission of Appellant has dropped the reassessment proceeding on 28/12/2018 u/s.152(2). The order passed by the Principal C.I.T. - 14 may please be cancelled.
Brief facts of the case are that assessee is a company, engaged in the business of consultancy, filed its return of income for assessment year 2011- 12 on 20th September 2011 declaring total income at Rs. 40033/-. The assessment was completed under section 143(1) on 11th January 2012. Thereafter, assessment was reopened on 23rd March 2016 under section 147 after recording the reasons for reopening. Notice under section 148 was served on the assessee on 23rd March 2016. The assessing officer communicated following reasons to the assessee: “In this case, the assessee filed its return of income on 20th September 2011 declaring total income of Rs. 40,033/-, the summary assessment under section 143(1) was completed on 11th January 2012. On verification of the records, it is seen that the income had escape assessment for the following reasons. Mum 2019- Goldcity Properties Pvt. Ltd.
An enquiry was conducted in the case of Shri Sanjoy Kumar proprietor of KJM international. It was found that Shri Sanjoy Kumar was maintaining a bank account in his individual capacity with ICICI bank, Kolkata. Large value cash deposits from different other branches and debits through RTGS and transfer to third parties account were observed. The enquiry concluded that the transactions made into this account are not for any genuine business and are utilised for the purpose of converting cash into banking instrument which is further transferred to various layers to reach the final beneficiary. It is revealed that the amount which have been deposited in the account of Sanjoy Kumar have travelled through various layers symbolised by various companies having no real business and the various amounts have been transferred through bank account to the ultimate beneficiary. In this case, an amount of Rs. 7.25 crore is received from M/s Minaxi Suppliers Private Ltd which is the last stage company prior to the transfer of funds to the beneficiary. Accordingly M/s Minaxi Suppliers Private Ltd’s bank account have been utilised for receiving accommodation entries. This information has been perused and it is found that the assessee is a beneficiary of the said accommodation entries. Therefore, I have reason to believe that the assessee has under assessed the tax of Rs. 2,46,42,750/- and has escape assessment for the assessment year 2011-12 within the meaning of section 147 of the income tax act along with the explanation 2(b) of section 147.”
The assessing officer after considering the detail submission furnished by assessee completed the re-assessment on 29th of December 2016. The assessing officer accepted the income returned by the assessee without making any addition, while passing assessment order under section 143 (3) read with section 147 on 29th of December 2016. Mum 2019- Goldcity Properties Pvt. Ltd.
4. The assessing officer again vide notice under section 148 dated 13th March 2018 reopened the assessment. The assessing officer recorded the following reasons of reopening under section 147.
“ Reasons for re-opening of the assessment u/s .. 147 r.w.s. 148 of I TAct 1 Name of the assessee Goldcity Properties Pvt. Ltd. 2 Address of the assessee B-123, Vrindavan, LBS Marg,Ghatkopar West, Mumbai- 400086 3 Permanent Account No. AACCG 1757H 4 Assessment Year 2011-12 5 Details of Assessing Officer ITO 14(1 )(4), Mumbai having jurisdiction over the Assessee
The assessee, Goldcity Properties Pvt. Ltd. is a company and as per the records the assessee has filed Return of income for A. Y. 2011-12 on 20.09.2011declaring total income of Rs. 40,033/ - The return was processed u/s 143(1) of the Income-tax Act, 1961.
2. In this case, the information is received from the ADIT (Inv), Unit 2(1), Kolkata, that the assessee .company was beneficiary in money layering transactions involved shell companies. It is informed that one Lalit Sharma was involved in routing large cash transactions, through various shell companies and making it available to the ultimate beneficiary. 3. The information is examined by me. It is seen from the balance sheet of the assessee that it has shown loans and advances of Rs. 17.23 crores, which were advanced to some other persons. Thus, the involvement of the assessee in receipt of funds from the shell companies is established. The turnover of the assessee is shown as nil. This indicates that the assessee company was not involved in any business activity and it had merely routed its funds, through various layers.
Mum 2019- Goldcity Properties Pvt. Ltd.
The assessee have no active business for the years. It has received the large amount of funds and which were shown as advances to some other associates. In view of the information, it is obvious that the sources and true of funds received by the assessee are not explained. From the information it is clear that the total income of the assessee had exceeded the maximum amount which is not chargeable to tax for the year under consideration and the assessee was assessable under the Act.
The Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers Pvt Ltd has held that Section 147 authorizes and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase 'reason to believe' would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. In the present case, since the assessee has failed to make true disclosure of its income, which leads to sufficient cause for forming of belief by the undersigned regarding escapement of income during the year under consideration. 6. It is, therefore, concluded that the assessee has failed to fully disclose its true and correct income for A. Y. 2011-12 as the loans and advances received by it are not explained. In view of the facts of the case as discussed above I have reason to believe that income of the assessee being unexplained loans and advances has escaped assessment. 7. Accordingly, subject to the provisions of section 148 there is a need to re- assess the income of assessee which has escaped assessment in the A Y 2011- 12. Since the scrutiny assessment in this case has not been completed u/s. 143(3) of the IT. Act, but four years has expired from the end of the relevant assessment year 2011-12, kind administrative sanction of the Pr Commissioner of lncome-tax-14, Mumbai, is solicited m accordance with the provisions contained in sub-section (1) of See. 151 of the IT Act, for issue of Notice u/s 148 Mum 2019- Goldcity Properties Pvt. Ltd.
of the IT Act to bring to tax the escaped income and also any other income chargeable to tax which has escaped assessment which comes to notice subsequently in the course of proceedings for reassessment for that assessment year.”
5. No further re-assessment order was passed or communicated to the assessee by assessing officer in the second notice under section 147 dated 18.03.2018.
Subsequently, the learned Principal Commissioner of Income tax (PCIT) by invoking power under section 263 revised the assessment order dated 29th of December 2016 passed under section 143(3) read with section 147. Before revising the assessment order the learned PCIT issued show cause notice dated 6th March 2019. In the show cause notice the learned PCIT disclosed that perusal of record it was noted that the case was reopened to verify the transaction made by the assessee received a sum of Rs. 7.25 Crore from Minaxi Suppliers Private Ltd. The assessing officer recorded satisfaction whereby he had reason to believe that assessee was a beneficiary of accommodation entry. However, on examination of the record, it is seen that during the course of assessment proceeding no specific enquiries was caused to verify the genuineness of transaction from Minaxi suppliers private Ltd, before completion of assessment proceeding. It was further mentioned in the show cause notice that the assessing officer failed to carry out independent inquiry or verification on the information received which was the basis for reopening of the assessment. Therefore, the assessment order passed under 6 Mum 2019- Goldcity Properties Pvt. Ltd. section 143(3) on 19th December 2016 is erroneous and in so far as it is prejudicial to the interest of revenue. 7. The assessee filed its reply to the show cause notice under section 263 on 22.03.2019. The ld. PCIT extracted the entire reply of the assessee is para - 4 of his order. In the reply to the show cause notice under section 263, the assessee stated that initially the assessment was processed under section 143(1) on 11.01.2016. The case was reopened under section 147 vide notice dated 23.03.2016. The basis of reasons of reopening was that the assessee received a sum of Rs.7.25 Crore from M/s Minaxi Suppliers Pvt Ltd (MSPL). In the reassessment proceedings the assessee was served notice under section 142(1) with the questionary with specific question related to the nature of transaction with MSPL and the copy of the bank statement was also sought. The assessee vide its reply/ submissions dated 16/12/2016 furnished all the details of MSPL. The assessment was completed under section 143(3) r.w.s. 147 on 29.12.2016 after full verification and enquiry with regard to the transaction of MSPL. The assessee further stated that second notice under section 148 was issued on 30.03.2018 in the name of Goldcity Property Pvt. Ltd (GPPL), a non exiting entity. M/s Goldcity Private Limited was merged with Super Gold Property Pvt Limited (SGPL) w.e.f. 01.04.2016. The reasons of reopening in the second notice were the same as was in the first notice. The assessee challenged second reopening on various grounds and filed various documentary evidences vide their 7 ITA No. 2179 Mum 2019- Goldcity Properties Pvt. Ltd. submissions dated 25.12.2018. It was further stated that the reassessment has been completed twice and no adverse opinion was recorded by both the officer. The assessee contended that the assumption of jurisdiction under section 263 is wrong, when the transaction has been verified twice; therefore, the assessment order passed under section 143(3) cannot be revised. The proposed revision is merely a change of opinion and amounts to fishing inquiries. The assessee also relied on various case laws.
The reply of the assessee was not accepted by ld. PCIT. The ld. PCIT concluded that the contention of the assessee that the assessment was completed twice is incorrect. In the notice under section 148 dated 30.03.2018 (second notice), the AO proposed to examine the transaction of funds received from MSPL. However, the AO realised that the notice was issued on erroneous assumptions of facts; therefore, the AO dropped the proceedings under section 152(2). Thus, the only assessment order for reckoning is the order dated 29.12.2016 (passed after first notice under section148). The ld. PCIT further took the view that the assessment was reopened that the assessee was beneficiary of series of transactions put through the several paper companies. Cash was seen to have been deposited in several bank accounts in ICICI Bank, the amount was transferred via RTGS/TRF in other bank accounts along with other deposits and ultimately to MSPL. The AO made no efforts to call the records from banks to examine the objective of the transaction. The AO failed examined the transaction 8 Mum 2019- Goldcity Properties Pvt. Ltd. which was expected from him. The order of the AO is silent about the transaction with MSPL. It was further concluded that in absence of any inquiry in to the probabilities of the way the transaction was structured, the genuineness of the transaction remained unexplained. Though, the ld PCIT recorded that the AO issued notice under section 142(1) dated 13.10.2016 and sought the details of the transactions made with MSPL and that no other information was obtained. The AO has not made any inquiry with regard to source of funds and the genuineness of the transaction. The ld PCIT finally concluded that the assessment order passed under section 143(3) r.w.s. 147 dated 29.12.2016 is erroneous in so far as prejudicial to the interest of revenue and set aside to the file of AO for examination of the genuineness of the transaction and credit received from MSPL. Aggrieved by the order of ld. PCIT the assessee has filed the present appeal before this Tribunal.
We have heard the submissions of the ld. authorised representative (AR) for the assessee and the ld. departmental representative (DR) for the revenue and also perused the order of ld. PCIT and the material on record with the assistance of the ld. AR and ld. DR very carefully. The ld AR for the assessee submits The ld. PCIT erred in revising the order of the A.O. without assigning any specific discerning reasons as to why and how such assessment order was erroneous as well as prejudicial to the interests of revenue. The ld. PCIT was not justified on the facts in setting aside the assessment order passed u/s. 143(3) r.w.s 147 dated 29-12-2016 and issuing 9 Mum 2019- Goldcity Properties Pvt. Ltd. directions of reassessment pursuant to the provisions of Section 263. The AO examined all the aspect of the case and was fully satisfied about the identity, creditworthy and genuineness of the transaction with MSPL.
During the assessment the A.O. had made all relevant enquiries and verified all related documents and specifically which have been the focuses of the order passed u/s. 263 of the Income Tax Act, which amounts to the re- appreciation of the same facts.
The ld PCIT failed by not taking cognizance of Affidavit to this effect from MSPL and not appreciating the facts that during the 2nd reassessment proceeding the A.O. after being satisfied with the submission of Appellant has dropped the reassessment proceeding on 28/12/2018 u/s.152(2). The ld. AR for the assessee submits that the assessee was not communicated about the dropping of the reassessment only through the order of ld. PCIT. It was argued that in response to the notice under section 148 dated 22.03.2016, the assessee filed detailed submissions dated 21.010.2016 and again on 16.12.2016. The ld. AR submits that the copies of the submissions are filed on record. The ld. PCIT has admitted that the AO sought explanation about the transaction with MSPL. The detailed submissions of the assessee were furnished along with the documentary evidences, which consist of copy of income tax returns for AY 2011-12, copy of audit balance sheet, profit and loss account with full set of accounts, copy of assessment order under section 143(3) for AY 2010-11 &2012-13, copy of Company master as per 10 Mum 2019- Goldcity Properties Pvt. Ltd. website of MCA, details of the Directors. It was submitted that the assessee received the amount through RTGS. All the payments were received on account of joint venture agreement.
The ld AR for the assessee further submits that the AO issued notice under section 142(1) in case of amalgamated Company M/s Supergold Property Pvt Ltd (SPPL), wherein the similar quarries was raised with regard to transaction with MSPL. Reply was furnished on behalf of SPPL and after satisfaction no additions was made. The ld. AR submits that the copy of the notice under section 142(1) and the assessment order passed under section 143(3) rws 147 dated 28.12.2018. Copy of notice under section 142(1) dated 12.112018 and the assessment order passed under section 143(3) rws 147 dated 28.12.2018 are filed on record. It was submitted by ld AR for the assessee that the order passed by assessing officer is not erroneous, which was passed after detail inquiry. Even if inadequate inquiry, that would not itself give the occasion to the ld PCIT to revise the assessment merely the ld PCIT has different opinion. In support of his submission the ld AR for the assessee relied on the following case laws; (i) Small wonder Industries Vs CIT (ITA No. 2464/M/2013) dated 24,02.2017, (ii) M/s Poseidon Shipping Agency Vs PCIT (ITA No.2446/M/2018 dated 14.12.2018, (iii) Amira Pure Foods Pvt Ltd Vs PCIT (ITA No. 3205/Del/2017) dated 29.11.2017, (iv) Care view Investment & Trading Pvt Ltd Vs CIT (ITA 53/M/2012 dated 31.10.2013, 11 Mum 2019- Goldcity Properties Pvt. Ltd. (v) CIT Vs Gabriel India ( 203 ITR 108 Bom), (vi) CIT Vs Development Credit Bank Ltd ( 323 ITR 206 Bom), (vii) CIT Vs Max India (295 ITR 282 SC), (viii) CIT Vs Sunbeam Auto Ltd ( 332 ITR 167 Delhi), (ix) CIT Vs Vikas Polymers (341 ITR 537 Delhi), (x) CIT Vs Arvind Jewellers (259 ITR 502 Guj), (xi) Malabar Industrial Company Vs CIT (243 ITR 83 SC), (xii) Mehta Trading Vs CIT ( ITA No. 2838/M/2013 dated 31.10.2014, (xiii) PCIT Vs Ginger Properties (P) Ltd. (396 ITR 496 Guj), (xiv) Pyre Lal Jaiswal Vs CIT (146 ITD 555 Allahabad), (xv) Rashtriya Chemical & Fertilizers Vs CIT ( ITA No. 3625/M/2017 dated 14.02.2018, (xvi) Reliance Gas Transportation Infrastructures Ltd Vs CIT ( ITA 4746/M/2012 dated 10.01.2014, (xvii) Bhavesh Vs CIT ( ITA No. 5688/M/2014 dated 25.03.2015, (xviii) CIT Vs Fine Jewellers (India) (ITA No 296 of 2013 dated 03.02.2015, (xix) CIT Vs Anil Kumar Sharma ( 335 ITR 83 Delhi), (xx) PCIT Vs Kaizen Products (P) Ld (406 ITR 311 Delhi), (xxi) DIT Vs Jyoti Foundation (357 ITR 388 Delhi) (xxii) Narayan Tatu Rane Vs ITO (2690 & 2691/ M/2016) dated 06.05.2016.
The following documents were filed by the ld AR for the assessee; (i) Copy of return of income with computation of income with Audited report, (ii) Notice under section 148 dated 23.03.2016, (iii) Notice under section 142(1) dated 13.10.2016, with reasons of reopening, (iv) Reply to Notice u/s 142(1) dated 21/10/2016 submitted on 05/12/2016. (v) Scrutiny Reply to dated 16/12/2016. (vi) Second Re-Assessment Notice u/s 148 of the Income Tax Act, 1961 dated 30/03/2018 (vii) Notice u/s 142(1) along with Reason for Reopening dated 21/09/2018 (viii) Notice u/s 142(1) issued in the name of Supergold Properties Pvt. Ltd. with annexures of Goldcity Properties Pvt. Ltd. dated: 12/11/2018 (ix) Submission for Objection on notice u/s 148 dated: 48-67 27/11/2018 (x) Affidavit filed by Minaxi Suppliers Pvt. Ltd. for joint ventures transaction dated: 18/12/2018 12 Mum 2019- Goldcity Properties Pvt. Ltd. (xi) Reply notice u/s 148 with details of Minaxi Suppliers Pvt. Ltd. dated: 25/12/2018 (xii) Common Reply filed by Supergold Properties Pvt. Ltd. With details of Minaxi Suppliers Pvt. Ltd. dated: 20/12/2018 (xiii) Assessment Order of Supergold Properties Pvt. Ltd. Passed with u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 dated 28/12/2018 (xiv) Submission of Petition before honorable Principal Commissioner of Income Tax-14 Mumbai against revision u/s 263 of the Income tax Act, 1961 Dated: 22/03/2019 .
On merit of the case, the ld. AR of the assessee submits that the contribution received from MSPL was capital in nature and not liable to tax. The contribution received from MSPL was invested in their name in the Joint Venture. It was not on account of income of the assessee, therefore, cannot be taxed at the hand of assessee.
On the contrary the ld. DR for the revenue supported the order of ld. PCIT.
The ld. DR for the revenue submits that the AO passed the assessment order under section 143(3) r.w.s. 147 dated 29.12.2016, without examining the details of the transactions made with MSPL and that no other information with regard to source of funds and the genuineness of the transaction of funds received from MSPL was examined. The assessment order is silent about the transaction of MSPL. The ld. DR submits that the order passed by the assessing officer in certainly erroneous as well as prejudicial to the interest of revenue. The ld. DR for the revenue also argued that the newly inserted Explanation 2(a) to sec. 263 of the Act is applicable on the facts of the present case as the AO failed o make required investigation. Mum 2019- Goldcity Properties Pvt. Ltd.
We have considered the rival submissions of the ld. representative of the parties and also deliberated on various case laws relied by ld. PCIT in the impugned order as well as by ld. representatives of the parties. We have noted that initially the return of income was processed under section 143 (1) on 11 January 2012. The assessment was reopened under section 147 on 23rd of March 2016. The assessment was reopened to examine the transaction of Rs. 7.25 crore received from MSPL. During the reassessment, the assessing officer issued notice under section 142(1) and raised specific question relating to the nature and transaction made with MSPL. The assessing officer also sought the copy of complete bank statement of the parties. The assessing officer raised the following question in its notice dated 13 October 2016. "Please submit the details of transactions made with M/s Minakshi Suppliers Pvt Ltd indicating the nature of transaction.”
The assessee filed its reply vide reply dated 21.10.2016. Along with the reply the assessee furnished copy of the ledger of MSPL it its books for the period 04.04.2010 to 31.03.2011. The assessee specifically stated that the said amount was received as part of contribution for joint venture agreement.
The assessee again vide its reply dated 16.10.2016 filed its detailed reply and explained that MSPL has no connection with Sanjoy Kumar and that the entire amount was received through banking channel for joint venture agreement. In order to prove the identity, genuineness and creditworthy of Mum 2019- Goldcity Properties Pvt. Ltd. MSPL, the assessee along with reply dated 16.10.2016, filed the following documents before the assessing officer;
(a) Copy of Income Tax Acknowledgement for A.Y. 2011-12. (b) Copy of Audited Balance Sheet, Profit and Loss Account along with full set of accounts for the year ended 31.03.2011. (c) Copy of Income Tax Assessment order u/s. 143(3) for A.Y. 2010-11 (d) Copy of Income Tax Assessment order u/s. 143(3) for A.Y. 2012-13 (e) Copy of company Master Data as per MCA Website (f) Details of Directors as on date is as follows: i) Jashmin Ramesh Bhayani ii) Sagar Pankaj Bhayani 17. The assessing officer (ITO-14(3)(4) Mumbai, again issued notice under section 148 on 30.03.2018 in the name of Goldcity Property Pvt Ltd. M/s Goldcity Property Pvt Ltd was already merged with Super Gold Properties Pvt Ltd w.e.f. 01.04.2016. The perusal of reasons of second re-opening shows that it was exactly the same as was in respect of first reopening. We have seen that the assessee filed its reply in response to notice dated 30.03.2018 vide reply dated 23.11.2018 and further on 25.12.2018. Copy of the said replies are already placed on record along with the reply dated 25.12.2018, the assessee has again furnished the following documents:
(a) Copy of Incorporation Certificate of MSPL. (b) Copy of PAN of MSPL. (c) Memorandum of Article of MSPL, (d) Article of Association (e) Income Tax Return for A.Y. 2010-11 of MSPL (f) Balance-sheet, Profit & Loss Account with schedule for A.Y. 2011-12 Mum 2019- Goldcity Properties Pvt. Ltd. (g) Director’s Report of MSPL, (h) Auditor’s Report of MSPL, (i) Assessment Order for A.Y. 2010-11 & 2012-13 of MSPL, (j) Copy of Affidavit dated 18.12.2018 from MSPL confirming Joint Venture Contribution with Artline Properties Pvt. Ltd. for the period 01.04.2010 to 31.03.2011 for genuineness of transaction.
No further information was received by the assessee about the outcome of second re-opening of the assessment. We have noted that the ld. PCIT in his order has stated that A.O. dropped the proceeding on 28.12.2018 under section 152(2). It was further noted by ld. PCIT that the only assessment order for reckoning is order dated 29.12.2016. After considering the reply of the assessee the ld. P CIT has taken the view that the assessing officer has completed the assessments without making proper enquiries with regard to the transaction with MSPL. As per ld. PCIT, the AO should have made further enquiries in this matter.
The Hon’ble Supreme Court in Malabar Industrial Co Ltd (supra) has laid down the principal that for the exercise of suo moto jurisdiction under section 263 by the CIT that the order of AO is erroneous, so far as it is prejudicial to the interest of revenue. The CIT has to be satisfied twin conditions, namely (i), the order of AO sought to be revised is erroneous and (ii) it is prejudicial to the interest of revenue. If one of them is absent- if the order of AO is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue, recourse cannot be had to section Mum 2019- Goldcity Properties Pvt. Ltd. 263 (1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the A.O., it is only when an order is erroneous and prejudicial to the interest of revenue that the section will be attracted. An incorrect assumption of fact or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principle of natural Justice or without application of mind. The ‘phrase prejudicial to the interest of revenue’ is not an expression of art and is not defined in the Act. Its ordinary meaning is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provision of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of revenue. The phrase prejudicial to the interest of revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO, cannot be treated as prejudicial to the interest of revenue, for example, when an ITO, adopted one of the course permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of revenue. Unless the view taken by ITO is unsustainable in law. Mum 2019- Goldcity Properties Pvt. Ltd.
The Hon’ble Jurisdictional High Court in case of CIT Vs Gabriel India Ltd (203 ITR 108) (Bom), held that the power of suo moto revision under subsection (1) of section 263 of the Act is in the nature of supervisory direction and can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the CIT to exercise the power of revision under this sub section viz (i) the order should be erroneous and (ii) by virtue of the order being erroneous prejudice must have been caused to the interest of the revenue. And order cannot be termed as erroneous unless it is not in accordance with law. If ITO Act in accordance with law makes certain assessment; the same cannot be branded as erroneous by the CIT simply because according to him, the order should have been written more celebratory. This section does not visualise a case of substitution of the judgement of the CIT for that of the ITO, who passed the order, unless the decision is held to be erroneous. This is may be visualised where the ITO while making the assessment examines the accounts, makes enquiries, applied his mind to the facts and circumstances of the case and determine the income either by accepting the accounts for by making some estimate himself. The CIT on perusal of records, may be of opinion that the estimate made by the officer concerned was on the lower side and left to the CIT, he would have estimated the income at a higher figure than one determine by the ITO. That would not vest the CIT with power to re-examine the accounts and determine the income himself at the higher figure. This is because ITO 18 Mum 2019- Goldcity Properties Pvt. Ltd. has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous, simply because the CIT does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the CIT the order in question is prejudicial to the interest of revenue. But that by itself would not be enough to vest the CIT with the power to suo moto revision because the first requirement, namely that the order is erroneous, is absent.
Similarly, if an order is erroneous but not prejudicial to the interest of the revenue, then the power of suo moto revision cannot be exercised. And every erroneous order cannot be subject matter of revision because the second requirement must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully eligible has not been imposed or that by the application of the relevant statue, on an incorrect or incomplete interpretation, a lesser tax than what was just has been imposed. When exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have material on record to satisfy in that regard. If the action of the authorities challenged before the court, it would be open to the courts to examine whether relevant objective factors were available from the records called for and examined by such authority.
Further, the Hon’ble Delhi High Court in CIT Versus Anil Kumar Sharma (335 ITR 83 Delhi ) held that the AO had examined every aspect and 19 Mum 2019- Goldcity Properties Pvt. Ltd. applied his mind on all facts before accepting the computation of income submitted by the assessee and passed the assessment order. It was the assessee’s contention that a specific reply had been submitted by the assessee with regard to the purchase of land at village Tugalkabad and the copy of the award passed by Hon’ble High Court in respect of this land was also submitted to the AO. The Tribunal after examining the fact of the case observed that although it is not discernible from the assessment order whether the assessing officer had applied his mind or not, it was the prerogative of the AO to draft his order, and if he failed to record certain finding the assessee could not be penalised. Therefore, what has to be ascertained is, whether assessing officer had investigated the issue and applied his mind to the whole record. In this behalf it is noted that AO had asked the assessee to submit the purchase date in respect of purchase of land at village Tugalkabad was and that assessee in response thereto had supplied requisite details and submitted a copy of high court decision in relation to the award of compensation, etc. The Tribunal therefore came to the conclusion that the complete detail filed before the AO and he applied his mind to the relevant material and facts, although such application of mind is not discernible from the assessment order. The tribunal held that the Commissioner in proceedings under section 263 also had all these details and materials available before it, but had not able to point out defects conclusively in the said material, for arriving at a conclusion that particular 20 ITA No. 2179 Mum 2019- Goldcity Properties Pvt. Ltd. income had escaped assessment on account of non-application of mind by the assessing officer. The Tribunal, therefore, allowed the appeal of the assessee and quashed the order of the Commissioner passed under section 263of the Act.
Further Hon’ble Delhi High Court in case of DG Housing Projects Ltd (supra) held that the order is erroneous is a condition which must be satisfied for exercise of jurisdiction under section 263 of Income-tax Act. The matter cannot be remitted back for fresh decision to the assessing officer to conduct further inquires without a finding that order is erroneous. The commissioner must after recording reasons hold that order is erroneous. The Commissioner cannot direct reconsideration only when the order is erroneous. An order of remit cannot be passed by the commissioner to ask the assessing officer to decide whether the order was erroneous, which is not permissible. In Jyoti Foundation (supra) the Hon’ble Delhi High Court while distinguishing the order passed after proper inquiry and without inquiry held that the orders which are passed without inquiry or investigation are treated as erroneous and prejudicial to the interest of revenue, but orders which are passed after inquiry or investigation on the issues are not per se or normally treated as erroneous and prejudicial to the interest of revenue. Because the revisionary authority feels and opines that further inquiry or investigation was required or deeper or further scrutiny should be undertaken, the Commissioner must record a finding that the order made is erroneous. 21 Mum 2019- Goldcity Properties Pvt. Ltd. This can happen if an inquiry and verification is conducted by Commissioner and he is able to establish and show the error or mistake made by assessing officer, making the order unsustainable in law. An order of remit cannot be passed by ld. Commissioner to ask the assessing officer to decide if the order is erroneous.
As per settled law the ld. PCIT can revised the order only if it is shown that the assessment order passed by AO is erroneous in so far as prejudicial to the interests of the revenue. The question as to when an order can be termed as "erroneous" was explained by Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) as under:—
"From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income- tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income tax officer. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It is because the Income tax officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be 22 Mum 2019- Goldcity Properties Pvt. Ltd. erroneous simply because the Commissioner does not feel satisfied with the conclusion. . . . There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed." 24. The Hon'ble High Court has considered the definitions given to the words "erroneous", "erroneous assessment" and "erroneous judgment in Black's Law Dictionary and accordingly held that an order cannot be termed as erroneous unless it is not in accordance with law. An order can be termed as erroneous" only if it is not in accordance with the law.
The Hon'ble Delhi High Court has also followed the above said view in the case of Sunbeam Auto Ltd. (supra). The Hon'ble Delhi High Court has also extracted following observations made by the Tribunal:—
38. Still further, the Hon'ble Supreme Court in Malabar Industrial Co. (2000) 243 ITR 83 has held that when two views are possible and the Assessing Officer has taken one of the possible view, then the order cannot be held to be prejudicial to the interest of the Revenue. Since the Commissioner of Income tax could not come to a definite finding that the expenditure in question was a capital expenditure in the proceedings under section 263, in our opinion, the order of the assessing officer could not be held to be erroneous.
Considering the facts of the present case and the law interpreted by various High Courts makes it clear that the ld PCIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the ld PCIT should have shown that the view taken by the AO is unsustainable Mum 2019- Goldcity Properties Pvt. Ltd. in law. In the instant case, the ld. PCIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the ld. PCIT is not in accordance with the mandate of the provisions of sec. 263 of the Act.
The ld. DR for the revenue has argued that the newly inserted Explanation 2(a) to sec. 263 of the Act is applicable on the facts of the present case. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon'ble Delhi High Court, referred above. If that be the case, then the ld. PCIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by ld. PCIT, thus prejudicing the independent application of mind of the AO. In our considered view this could not be the intention of the legislature in inserting Explanation 2 to sec.
263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon'ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 that there must be a point of finality in all legal 24 Mum 2019- Goldcity Properties Pvt. Ltd. proceedings and the stale issues should not be reactivated beyond a particular stage and the lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.
Clause (a) of Explanation to section 263 states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by ld PCIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Therefore, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the ld. PCIT to revise each and every order, if in his opinion; the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the ld. PCIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquires or verification that would have been carried out by a prudent officer. Hence, in our view, 25 Mum 2019- Goldcity Properties Pvt. Ltd. the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.
Now turning to the fact of the present case again, as noticed earlier, the AO has accepted the explanations of the assessee, with regard to the transaction MSPL. The ld. PCIT has not identified any material that the explanations given by the assessee were wrong or incorrect. In our view the AO was satisfied with the explanations given by the assessee and did not make any addition. Hence, in our view, it cannot be held that the assessing officer did not carry out adequate enquiry or verification which should have been done.
Thus, we are of the view that the assessing officer has taken a plausible view in the facts and circumstances of the case. Further, as noticed earlier, the ld. PCIT has not brought any material on record by making enquiries or verifications to substantiate his inferences. He has also not shown that the view taken by him is not sustainable in law. Thus, we are of the view that the ld. PCIT has passed the impugned revision orders only to carry out fishing and roving enquiries with the objective of substituting his views with that of the AO. Hence we are of the view that the ld. PCIT was not justified was not correct in law in holding that the impugned assessment orders were erroneous.
In view of the foregoing discussions, we are of the view that the ld PCIT has failed to show that the impugned assessment orders passed by the assessing Mum 2019- Goldcity Properties Pvt. Ltd. officer were not only erroneous but also prejudicial to the interests of the revenue. It is a well established proposition that both the above said conditions are required to be satisfied before invoking the revisional powers given under section 263 of the Act. In the instant case, we are of the view that the ld. PCIT has failed to show that both the conditions exist in the instant case. Accordingly we find merit in the contentions of the assessee that the revision orders passed by ld. PCIT for the year under consideration are beyond the scope of sec. 263 and hence not valid. Accordingly we set aside the revision orders passed by ld. PCIT.
Since we have set-aside the order passed by ld. PCIT on legal issues, therefore, discussion on merit of the case have become academic. In the result, the grounds of appeal
raised by the assessee are allowed.
32. In the result, appeal of the assessee is allowed.