MRS. SONALI HEMANT BHA vs. AR,MUMBAIVS.PR.CIT-29, MUMBAI

Per Rajesh Kumar, Accountant Member:

3 Mrs. Sonali Hemant Bhavsar that assessment order dated 29.11.2017 appears to be prima- facie erroneous and prejudicial to the interest of the revenue by exercising the revisionary jurisdiction under section 263 of the Act. A notice under section 263 dated 10.12.2018 was issued, giving show cause notice to the assessee as to why the assessment order completed under section 143(3) dated 29.12.2017 should not be revised under section 263 of the Act as the same is erroneous and prejudicial to the interest of the revenue. The assessee filed return submission on 27.12.2018 which are reproduced as under: “You have stated in your notice that you have received information from DDlflnv.). It says that Mr. Subodh Runwal- Director of Runwal Homes Pvt. Ltd. has given a statement in search proceeding u/s 132 that he received from me a sum of Rs.1,14,06,000/- in cash as 'on money' while purchasing a shop in his project. Therefore, you intend to revise my assessment and add the alleged sum of Rs. 1,14,06,000/- as my undisclosed income.

I was then a simple salaried person working with H.S.Modak & Co. I have been filing my returns of income very regularly. For the relevant year, it was even assessed u/s 143(3) after a thorough scrutiny. My net taxable income for the relevant year was Rs. 819,91 Q/-. Against this background, the figure of Rs. 1.14 cr in cash as mentioned in your notice is astronomical to me. Even in my dream, I have never seen such kind of cash. I state categorically that I have never ever paid any such cash to Runwal Homes Pvt. Ltd. I would like to see if the deponent Mr. Subhash Runwal has produced any evidence. They are very big builders and I am a very small ordinary person. I guess he is just giving such baseless information only to reduce his penal consequence and to shift his burden on somebody. He may be asked to furnish a strict proof of his statement. The question of my paying him Rs. 1.14 cr, simply does not arise. I reiterate that I have never paid the alleged cash to Runwal or any other party ever in my life. Therefore, the revision proceedings u/s 263 may kindly be dropped."

Thereafter the Pr. CIT, the after considering the submissions of the assessee, found the same as untenable by holding that the AO has failed to make necessary enquiries in respect of cash transactions and source thereof and accordingly held the assessment order dated 29.11.2017 is erroneous and prejudicial to the interest of the Revenue. The Ld. Pr. CIT set aside the 4 Mrs. Sonali Hemant Bhavsar assessment order by directing the AO to frame the assessment denovo after making necessary enquiries and verifications. The Ld. A.R. vehemently assailing the order of Ld. Pr. CIT passed under section 263 dated 02.01.2019 whereby the Ld. Pr. CIT set aside the order of AO by directing the AO to frame the assessment order denovo after examining the issues relating to payment of on money on the purchase of two shops by the assessee from M/s. Runwal Homes Pvt. Ltd. The Ld. A.R. submitted that the case of the assessee was selected for limited scrutiny under section 143(2) of the Act for examination of transaction of purchase of property for which the notice under section 143(2) dated 19.09.2016 was issued to the assessee wherein the specific issue of purchase of property was raised. Thereafter, the transaction was thoroughly examined by the AO by issue of notice under section 142(1) by calling various details and thereafter assessment was framed without making any addition accepting the details/ information as filed by the assessee. The Ld. A.R. submitted that the Ld. Pr. CIT has treated the assessment as erroneous and prejudicial to the interest of the Revenue as AO has not enquired and examined the issue of on money paid as has been admitted by Shri Subodh Runwal, Director of M/s. Runwal Homes Pvt. Ltd. from whom the assessee has purchased two shops. The Ld. A.R. assailed the order of Ld. Pr. CITon the ground that as per the CBDT instructions the scope of limited scrutiny can be extended only if the AO noticed that potential escapement of income has exceeded Rs.10 lakhs and in that case the AO has to covert it into complete scrutiny with the approval by Ld. Pr. CIT. If the AO after considering the submissions and contentions of the 5 Mrs. Sonali Hemant Bhavsar assessee does not come to a conclusion of potential escapement the Ld. Pr. CIT can not hold the assessment order as erroneous on the ground that AO ought to have come to a such conclusion by placing reliance on the decision of Sanjeev Kr. Khemka vs. Pr. CIT in ITA No.1361/Kol/2016 A.Y. 2011-12. The Ld. A.R. submitted that the order passed by the AO under limited scrutiny is as per the established procedure and by not converting the limited scrutiny into completed scrutiny as per the wisdom and judgment of the AO. The issue raised by the Ld. Pr. CIT is not part of the assessment order in the limited scrutiny and hence the revision of such order is again beyond the scope of section 263 of the Act. The Ld. A.R. argued that situation is similar to a case where AO makes addition in the assessment order but does not initiate penalty proceedings under section 271(1)(c) of the Act. The Ld. A.R. submitted that such inaction of the AO is as per his wisdom and decision and can not be subject matter of revision under section 263 as has been held in the case of CIT vs. C.R.K. Swamy (2002) 254 ITR 158 (Madras). The Ld. A.R. submitted that in view of these facts the exercise of revisionary jurisdiction under section 263 of the Act and the consequential order is bad in law and has to be quashed. The Ld. A.R. while arguing the issue on merits submitted that there is no scope for any addition even on the basis of statement of Shri Subodh Runwal as it has been assumed that all the shops were sold @ Rs.26,000/- per sqr. ft. inclusive of on money however in the appellant case the agreement itself has been executed at @ Rs.26,000/- per sqr. ft. and hence there is no scope for any on money addition. The Ld. A.R. submitted that the agreement for purchase of shop was 6 Mrs. Sonali Hemant Bhavsar duly examined by the AO where rate itself was Rs.26,000/- per sqr. ft. The Ld. A.R. submitted that even in the case of seller M/s. Runwal Homes Pvt. Ltd. the co-ordinate bench of the Tribunal vide order dated 20.12.2017 in ITA No.5621/M/2017 has deleted the addition of on money calculated by taking rate @ Rs.26,000/- per sqr. ft. by placing a copy of the decision before the Bench. Thus the Ld. Counsel submitted that even on merit the order of the AO is not erroneous and prejudicial to the interest of the Revenue and therefore the revisionary order passed under section 263 is wrong and may kindly be quashed.

5. The Ld. D.R., on the other hand, relied heavily on the order of Ld. Pr. CIT by arguing that it has very common practice in the industry to pay on money at the time of purchase property which issue has escaped the attention of the AO and thus the revisionary jurisdiction was rightly exercised when the issue of on money came to light during the course of recording of statement under section 132(4) of the Act Shri Subodh Runwal a director of the seller company M/s. Runwal Homes Pvt. Ltd. admitted that on money was accepted on the sale of property which was sold @ Rs.26,000/- per sqr. ft. The case of the assessee was selected for limited scrutiny vide notice dated 19.09.2016 in order to verify the purchase of property in question by issuing notice under section 143(2) of the Act on which it is clearly mentioned on the top that it is a limited scrutiny case. Thereafter, the AO after examining the various details and information which was supplied by the assessee in response to various queries by the AO on the purchase of said property framed the assessment under section 143(3) dated 29.11.2017 accepting the returned income without examining

7 Mrs. Sonali Hemant Bhavsar the issue of on money. Thereafter the Ld. Pr. CIT exercising the revisionary jurisdiction under section 263 of the Act set aside the said order of the AO by holding the assessment order is erroneous and prejudicial to the interest of the Revenue and directed the AO to make the assessment afresh after carrying on the necessary verification on the issue of receipt of on money of Rs.1,14,06,000/-. Ld. Dr submitted that the interest of the assessee is not prejudiced as the Pr CIT has given only direction for making assessment afresh after enquiries and therefore if the AO finds merits in the contentions of the assessee there would not be any addition. Therefore the ld DR prayed before the bench to dismiss the appeal of the assessee.

6. After hearing both the parties and perusing the materials before us, we observe from the notice issued under section 143(2) of the Act for limited scrutiny dated 19.09.2016 and find merits in the contentions of the assessee that the said limited scrutiny can not be expanded unless the AO converted it into complete scrutiny with the approval of Ld. Pr. CIT and if the AO after considering the submissions of the assessee does not come to the conclusion of potential escapement the Ld. Pr. CIT can not hold the order to be erroneous on the ground that AO ought to have reached to such conclusion. The case of the assessee is squarely covered by the decision of Kolkata Bench in the case of Sanjeev Kr. Khemka vs. Pr. CIT in A.Y. 2011-12 dated 02.06.2017 wherein the co-ordinate bench of the Tribunal has held as under: “4. We have heard the rival contentions of the parties and perused the materials on record. The primary issue in the case on hand revolves whether it is a case selected under CASS for limited scrutiny or regular scrutiny. It can be seen from the grounds of appeal that the assessee wants to contend that the very initiation of proceedings

8 Mrs. Sonali Hemant Bhavsar u/s 143(3) of the Act on the basis of regular scrutiny under the Act was bad in law. The proceedings under section 143(3) of the Act should have been limited to the extent of the information gathered through AIR. Accordingly the proceedings u/s 263 of the Act cannot be expanded beyond the issue raised in AIR. Thus the order u/s 143(3) of the Act beyond the points of AIR is invalid in law and so the same is with the order passed u/s 263 of the Act. It is the further contention of the assessee that in the items which are not subject matter of AIR cannot subject matter of scrutiny. Such matters include salary of the assessee, loans & interest on loans, payment of LIC, Commission & brokerage income etc. It is the case of the assessee that in the assessment order passed u/s 143(3) of the Act, the AO has travelled beyond the points of the AIR on the basis of which the case of scrutiny was selected under CASS module. It is the plea of the assessee that when no addition/disallowance can be made beyond the points mentioned in AIR in the assessment proceedings then same is the case with proceedings initiated u/s 263 of the Act.

4.1 The first aspect which needs to be examined is as to whether the assessee is entitled to challenge the validity of initiation expanded in the proceedings u/s 143(3) of the Act in the present appeals in which he has challenged the validity of expanded order passed u/s 263 of the Act covering the points which are not part of the AIR. The ld. Counsel for the assessee submitted before us that it is open to an assessee in an appeal against the order u/s 263 of the Act which seeks to revise an order passed u/s 143(3) of the Act, to challenge the validity of the expansion of order passed u/s.143(3) of the Act covering the points which are not part of the AIR. In this regard we find that Lucknow Bench of Hon'ble ITAT in the case of Inder Kumar Bachani (HUF) vs ITO 99 ITD 621 (Luck) and ITAT Mumbai 'G' Bench in the case of M/s. Westlife Development Ltd. Vs Principal C.I.T. in have taken a view that when an Assessment order passed u/s 147 of the Act was illegal the Ld.CIT cannot invoke the jurisdiction u/s 263 of the Act against such void or non-est order. In the second decision cited the Hon'ble Mumbai bench of the Tribunal has specifically framed the following questions :-

"1.Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263? 2. Whether the impugned assessment order passed u/s 143(3) dated 24-10- 2013 was valid in the eyes of law or a nullity as has been claimed by the assessee? 3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order?"

On question no. 1 and 3 which is relevant to the present case the Hon'ble Mumbai bench of the Tribunal has taken the view that when the original assessment proceedings are null and void in the eyes of law for want of proper assumption of jurisdiction then such validity can be challenged even in collateral proceedings. The Mumbai bench took the view that the proceedings u/s 147 of the Act are primary proceedings and proceedings u/s 263 of the Act are collateral proceedings and in such collateral proceedings, the validity of initiation of the original proceedings u/s 9 Mrs. Sonali Hemant Bhavsar 147 of the Act can be challenged. The Mumbai bench of the Tribunal in this regard has placed reliance on several decisions, the principal decision being that of the Hon'ble Supreme Court in the case of Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117(SC) wherein the Hon'ble Supreme Court observed as follows :-

"It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties."

Now coming to the facts of the instant case, we find that the instant case was selected on the basis of AIR Information as evident from the order of AO under section 143(3) of the Act. There is also no whisper in the order of the AO for expanding the scope of limited scrutiny after obtaining the permission from the Administrative CIT. The ld. DR has also failed to bring anything contrary to the argument of the ld. AR. Therefore in our considered view the scrutiny should have been limited only to the information emanating from the AIR. Admittedly, the assessee has claimed to have filed an appeal before Ld. CIT(A) challenging the jurisdiction exceeded by the AO while framing the assessment order u/s 143(3) of the Act. We find that the impugned issue being legal in nature and goes to the root of the matter therefore we are inclined to proceed with this issue first by holding that, from the above submission and after examining of the records, we find that the Ld. CIT in his impugned order u/s 263 of the Act has exceeded his jurisdiction while holding the order of AO as erroneous in so far prejudicial to the interest of Revenue. In view of the above we hold that the ld. CIT has in his order u/s. 263 of the Act exceeded the jurisdiction by holding the order of AO as erroneous in so far as prejudicial to the interest of Revenue on those items which are not emanating from the AIR. Thus, we are inclined to adjudicate only those matters which are emanating from the AIR as discussed above.

4.2 The assessment was framed by AO for the A.Y. 2011-12 under section 143(3) of the Act vide order dated 29.03.2014 after making certain additions/ disallowances to the total income of assessee. Subsequently, Ld. CIT u/s 263 of the Act observed certain errors in the order of AO, therefore, he was of the view tht the order passed by the AO is erroneous in so far as prejudicial to the interest of Revenue on account of no proper-enquiry before completing assessment as discussed below:-

(i) The assessee has deposited in its bank account in HDFC bank Goa for ₹17.56 lakh and out of that there was a withdrawal only for ₹1.50 lakh but the AO has made the addition only to the extent of ₹4 lakh on account of unexplained cash credit. Therefore, certain unexplained cash credit of the assessee has been under assessed by the AO. ii) There was another bank account of the assessee in HDFC bank in Goa where total deposits of Rs. ₹19,31,750/- was made by the assessee but the 10 Mrs. Sonali Hemant Bhavsar AO found credited amount of Rs. ₹5,76,056/- only. Thus, total deposits made in the bank were not brought to tax; (iii) There was transactions of ₹3 76,225/- through credit card which was not explained and thus the entire amount was liable to be added to the total income of assessee but the AO has added only a sum of ₹2,98,225/- to the total income of assessee. Thus, there was under assessment of income by ₹78,000/-; (iv) The assessee during the year has sold property for ₹36 lakh and exemption of ₹19,74,763/- was claimed by assessee u/s. 10(38) of the Act. This fact was not verified by the AO at the time of assessment proceedings.

In view of above, the Ld. CIT found the order of AO is erroneous in so far as prejudicial to the interest of Revenue and therefore show-cause notice was issued u/s. 263 of the Act vide dated 13.10.2015 for the clarification of the above transactions.

In compliance thereto, the assessee submitted as under : i) The deposit in HDFC bank account No. 03151930000609 was duly reflected in his IT return. Therefore, no cause has happened to the Revenue which is prejudicial to the interest of Revenue. ii) The deposit of ₹19,73,750/- was duly reflected in the IT return and therefore there was no error which is prejudicial to the interest of Revenue. iii) Regarding the credit card payment, the addition on account of undisclosed cash deposit has already been added by the AO and therefore there is no error causing prejudice to the interest of Revenue. iv) There was no sale of the property and therefore no exemption u/s10(38) of the Act was claimed.

However the Ld. CIT after considering the submission of assessee has held the order of AO is error and prejudicial to the interest of Revenue by observing as under:-

"I have carefully considered the issues with specific reference to the relevant assessment records as well as written submission furnished by the A/R. The AO has not taken cognizance of the following issues, despite being apparent from record:-

(1) Addition of Rs. 4 lakhs only was made against total cash deposit of Rs.17,56,000/- without taking any explanation from the assessee. (2) The balance deposits in another account with HDFC, Porvorim, Goa was not considered in assessment. (3) Interest income from all savings accounts and FDRs was not considered at the time of assessment. (4) Submission of assessee regarding explanation of credit card payment of Rs.3,76,225/- was partly accepted in assessment without proper verification. (5) Although a salaried person, the assessee's bank account reflect huge transactions/transfer entries, which required further investigation. (6) Long term capital gain of Rs.19,74,763/- was not properly verified. (7) Loan transactions and 11 Mrs. Sonali Hemant Bhavsar interest on loans required proper verification. (8) Salary was received in cash without TDS, which should have been viewed adversely. (9) LIC premium was paid for a minor but assessee's capital account did not reflect the same. (10) Lastly, the assessee declared income from commission/brokerage in the previous two AYs but no such income was shown in this year.

"An incorrect assumption of facts or an incorrect application of law will always make the order passed by the Assessing Officer erroneous. The Assessing Officer has not made proper enquiry before completing assessment regarding above issues. By not checking the above issues and by not making adequate enquiry the Assessing Officer has not assessed the proper income and the order has become erroneous and prejudicial to the interest of the revenue. In view of the above, the order dated 29/03/2014 passed by ACIT, Circle-43, Kolkata is found to be erroneous and prejudicial to the interest of revenue and hence it is set aside with the direction to pass fresh assessment order after examining the evidences and documents in respect of the above issues raised after giving opportunity to the assessee and in accordance with law."

Being aggrieved by this order of Ld. CIT assessee is in appeal before us on the following grounds:-

"(1) For that the L'd Pr. Commissioner of Income Tax erred in exercising the power of revision for the purpose of directing the AO to hold another investigation when the order passed by the AO was neither erroneous nor prejudicial to the interest of revenue. (2) For that the L'd Pr.CIT erred and exceeded jurisdiction by giving direction in respect of the matters which are subject matters of appeal before the CIT(A), therefore order passed by Pr. CIT-15 is unlawful, beyond provision of law and therefore liable to be quashed. (3) For that the L'd Pr. CIT had alleged arbitrarily irrelevant matters, factual and untrue position in the show cause notice u/s. 263 and therefore order passed by Pr. CIT-15 Kolkata u/s. 263 is nullity and liable to be quashed. (4) For that L'd Pr. CIT has wrongly assumed the jurisdiction u/s. 263 by wrongly mentioning that deposits in HDFC Goa A/c & HDFC Porvorim Goa A/c were under-assessed by the AO despite these two a/cs were disclosed in the balance sheet and deposits were explained, therefore allegation so made is bad in law and void ab-initio. (5) For that on the facts & in the circumstances of the case L'd Pr. CIT was not justified in initiating proceeding u/s. 263. (6) For that your petitioner craves the right to put additional grounds and/or to alter/amend/modify the present grounds before or at the time of hearing."

The ld. AR before us filed two paper books which are running from pages 1 to 27 and 28 to 31. The ld. AR before us submitted that the necessary enquiries were made by the AO at the time of assessment. Thus the order of the AO cannot be held

a) deposit of cash of ₹17.56 lakh in HDFC bank a/c No.03151930000609 From the order or AO, we find that the AO at the time of assessment proceedings has applied his mind while determining the undisclosed income from the said bank account for Rs. 4 lacs. Thus the AO after considering the bank statements of the assessee has consciously made the addition of ₹ 4 lakh as unexplained cash credit against which assessee claimed to have filed appeal before Ld. CIT(A). Therefore, in our considered view, the allegation of Ld. CIT that proper enquiry was not made by the AO is not true. b) Deposit of cash ₹19,31,750/- in HDFC bank A/c 0315100006743 From the order of AO we find that AO has already made the addition of the entire amount as unexplained cash credit. Therefore, the allegation of the ld. CIT-A that the order of AO is erroneous and prejudicial to the interest of Revenue is not true. c) Credit card payment of ₹3,76,225/-

From the order of AO, we find that the AO has made the addition of ₹2,78,225/- out of total credit card payment of ₹3,76,225/-. Therefore, it is clear that AO has applied his mind while framing the assessment proceedings u/s. 143(3) of the Act. Thus, the allegation of the AO in the impugned order or Ld. CIT u/s. 263 of the Act that there was no proper enquiry conducted by AO at the time of assessment proceedings is not true. d) Sale of property for consideration of ₹ 36 lakh.

On perusal of AIR information which is placed on page 1 of the paper book, we find that no immovable property has been sold by assessee in the year under consideration. Besides the above, there is also no whisper in the assessment order for any addition on account of capital gains. Therefore, we find that the allegation of Ld. CIT that AO has not conducted sufficient enquiry in relation to sale of immovable property is not true.

5.1 In view of the above we find that Ld. CIT has passed impugned order u/s. 263 of the Act by holding the order of AO as erroneous in so far as prejudicial to the interest of revenue on account of inadequate enquiry made by AO while passing order u/s. 143(3) of the Act. However, we find that proper and sufficient enquiries were conducted by the AO at the time of assessment as evident from the order of AO. Therefore it cannot be concluded that no proper enquiry has been conducted

13 Mrs. Sonali Hemant Bhavsar by the AO at the time of assessment proceedings. The AO has taken conscious view after considering the facts and circumstances of the case and giving proper opportunity to the assessee. Thus, the view expressed by AO in the form in his assessment order cannot be replaced with the view of Ld. CIT u/s 263 of the Act. In holding so, we find support and guidance from the judgment of Hon'ble jurisdictional High Court in the case of CIT vs. M/s. J.L. Morrison (India) Ltd.(ITA No 168 of 2011) in GA No 1541 of 2012 dated 15.05.2014, wherein it was held as under:-

"By sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision."

We also rely on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Max India Limited reported in 295 ITR 282 wherein it was held as under :

"When the CIT passed the impugned order under s. 263, two views were inherently possible on the word "profits" occurring in the proviso to s.80HHC(3) and therefore, subsequent amendment of s. 80HHC made in the A.Y. 2011-12 S.K. Khemka Vs. Pr. CIT-15 Kol. Page 12 year 2005, though retrospective, did not render the order of the AO erroneous and prejudicial to the interest of the Revenue, and CIT could not exercise powers under s. 263."

In view of the above proposition, and respectfully following principle laid down by the Hon'ble courts and keeping in view all these discussion, as also bearing in mind entirety of the case, we deem it fit and proper to uphold the grievance of the assessee and quash the impugned revision order as devoid of jurisdiction. The assessee gets the relief, accordingly.

14 Mrs. Sonali Hemant Bhavsar higher than the maximum rate which was taken by the DDIT (Inv.), Mumbai to ascertain the amount of on money received by the builder. Moreover, the case of M/s. Runwal Homes Pvt. Ltd. vs. DCIT in ITA No.5621/M/2017 A.Y. 2015-16 the issue of on money has been decided in favour of the M/s. Runwal Homes Pvt. Ltd. by deleting the addition on account of on money. In view of the aforesaid facts, we are of the view that the revisionary order passed by the Ld. Pr. CIT(A) is without jurisdiction and has to be quashed on legal issue as well as on merit. Accordingly, we quash the revisionary order passed under section 263 of the Act by Ld. Pr. CIT.

Order pronounced in the open court on 17.05.2019.