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Facts
The assessee, a liquor retailer, had their assessment for AY 2015-16 completed by the AO. The PCIT initiated revisional proceedings under Section 263, finding the AO's order erroneous and prejudicial to the revenue's interest due to under-declared profits (below 8% u/s 44AD), non-initiation of penalty for not auditing books (turnover above Rs. 1 Crore attracting Section 44AB), and lack of inquiry into cash deposits and other income. The PCIT set aside the assessment, directing a fresh assessment and penalty initiation.
Held
The Tribunal, noting the assessee's repeated absence, decided the appeal ex-parte. Citing similar cases, it upheld the PCIT's order under Section 263. The Tribunal agreed that the AO's original assessment was erroneous and prejudicial to the revenue's interest because it lacked proper inquiry into the assessee's income discrepancies and failure to comply with audit requirements.
Key Issues
Whether the PCIT was justified in invoking Section 263 to revise the AO's assessment order, which was deemed erroneous and prejudicial to the revenue for accepting a low declared profit, not initiating penalty for non-auditing of books, and insufficient inquiry, particularly when the assessee claimed jurisdictional defects in the reassessment proceedings.
Sections Cited
Section 263, Section 147, Section 144B, Section 148A(b), Section 148, Section 143(2), Section 142(1), Section 143(3), Section 44AD, Section 44AB, Section 271B, Section 271F, Section 234A, Section 234B, Section 234C, Explanation 2 to Section 263
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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY, JM & SHRI ARUN KHODPIA, AM
आदेश / O R D E R Per Arun Khodpia, AM:
The captioned appeal of the assessee is directed against the order of the Principle Commissioner of Income Tax, Raipur-1, [in short “Ld. PCIT”], passed on 20.03.2025 under section 263 of the Income Tax Act, 1961 (in short “the Act”) for the Assessment Year 2015-16, which in turn arises from the order u/s 147 r.w.s. 144B of the Act, dated 02.03.2023 passed by Assessment Unit, Income Tax Department (in short “Ld. AO”).
Devendra Kumar Deshmukh, Durg vs. PCIT, Raipur-1 2. The grounds / additional grounds of appeal raised by the assessee are as under:
1. That the learned Principal commissioner of Income Tax erred in law and on facts in invoking jurisdiction under section 263 of the Income Tax Act, 1961, despite the fact that the assessment was completed under section 147 after due inquiry and verification, in which the assesse has duly cooperated.
2. That the order under-section 263 is bad in law as it is based on mere change of opinion and amounts to substituting the learned PCIT's view over that of the learned Assessing Officer without establishing any error that is prejudicial to the interest of revenue.
3. That the learned PCIT failed to appreciate that the learned Assessing Officer had accepted the return of income as filed by the appellant after due application of mind and based on available material on record and after examining every aspect of the case, the order cannot be termed as "erroneous" within the meaning of section 263.
That the show cause notice under Section 148A(b) date 21.3.2022 allowed only 6 days (instead of the mandatory 7 days) to respond, rendering the reassessment proceedings void ab initio, and the learned PCIT erred in invoking his powers u/s 263 to revise an assessment order which is void ab initio.
5. That the notice under Section 148 dated 30.3.2022 was issued by the Jurisdictional Assessing Officer (JAO) and not the Faceless Assessing Officer (FAO), contrary to CBDT Notification No. 18 dated 29.03.2022, rendering the reassessment proceedings void ab initio and the learned PCIT erred in invoking his powers u/s 263 to revise an assessment order which is void ab initio.
6. That the notice under Section 148 curtailed the response time to 30 days instead of the statutory 3 months from the end of the month in which the notice is issued. As such; Jurisdictional Defects in Reassessment Proceedings make the whole assessment defective, rendering the reassessment proceedings void ab initio and the learned PCIT erred in invoking his powers u/s 263 to revise an assessment order which is void ab initio.
7. That the notice u/s 148 was erroneously given by JAO (ITO 2(1), Bilaspur, who lacked jurisdiction-over the assessee, as the assessee falls under the territorial jurisdiction of ITO, Bhilai rendering the reassessment proceedings void ab initio and the learned PCIT erred in invoking his powers u/s 263 to revise an assessment order which is void ab initio.
Devendra Kumar Deshmukh, Durg vs. PCIT, Raipur-1 8. The earned faceless assessing officer failed to issue a statutory notice u/s 143(2) of the Income Tax Act, 1961 after filing of return by the assessee in response to .notice u/s 148 of the Act rendering the reassessment proceedings void ab initio, and the learned PCIT erred in invoking his powers u/s 263 to revise an assessment order which is void ab initio.
9. The appellant craves leave to add, amend, modify or withdraw any ground(s) of appeal with due permission.
Additional Grounds 1. That the learned Principal Commissioner of Income Tax Raipur has grossly erred in assuming power u/s 263 of the Income Tax Act, 1961 based on an objection raised by the Internal Audit Party without application of his mind. That the admission of these additional grounds will not cause any prejudice to the respondent, and is necessary for the proper and complete adjudication of the issues involved. Appellant's submission in support of the above additional ground is contained in the paper book being filed.
Brief facts of the case are that the assessee is a retailer of alcoholic liquor and was awarded liquor contract from C.G. Govt. Excise department for Kera Group of Janjgir District. As per information received from the Insight Portal of the Income Tax Department, the assessee has purchased alcoholic liquor to the tune of Rs. 2,14,73,247/-. The assessee has also made cash deposits to the tune of Rs. 80,92,110/- in its bank account, has received Commission or Brokerage amounting to Rs. 1,14,950/- from Chhattisgarh Distilleries. Ltd and interest income of Rs. 6540/- from Punjab National Bank. An order u/s 148A(d) of the Act was passed on 30.03.2022, accordingly, Devendra Kumar Deshmukh, Durg vs. PCIT, Raipur-1 notice u/s 148 of the Act was issued to the assessee. In response, the assessee has filed its return on 16.10.2022, declaring income of Rs. 11,17,710/-. Statutory notices under section 143(2) and 142(1) of the Income Tax Act, 1961 dated 01.11.2022 were issued, to which the assessee has submitted replies. The assessment, thereafter was completed accepting the return income of assessee. Subsequently, the case of assesse was picked up for revisionary proceedings by the Ld. PCIT u/s 263 of the Act, wherein Ld. PCIT observed the following discrepancies in the assessment order dated 02.03.2023 passed u/s 147 r.w.s. 143(3) r.w.s.. 144B of the Act: (i) That the declared net profit of Rs.11,01,951/- was lower than the minimum 8% profit required u/s 44AD. (ii) That based on a 5% estimate for liquor business, the correct business income was recalculated at Rs.21,98,512/-, therefore, there was an underassessment of Rs.10,80,802/- and under levy of tax of Rs. 3,33,967/-. (iii) Further, it is noticed by the Ld. PCIT that the turnover of the assessee is more than Rs.1 Crore (i.e., Rs. 2,14,73,247/-), and the assessee has failed to get his books of accounts audited u/s 44AB of the Act, thus, penalty proceedings u/s 271B of the Act are clearly applicable, however, the Ld. AO has not initiated the penalty proceedings against the assessee.
Devendra Kumar Deshmukh, Durg vs. PCIT, Raipur-1 4. In terms of aforesaid observations, Ld. PCIT has concluded that the order passed by Ld. AO was erroneous as well as prejudicial to the interest of revenue. The same, therefore, needs to be revised following the provisions stipulated under Explanation 2 to section 263 of the Act. Conclusion drawn by Ld. PCIT, while framing the order u/s 263, reads as under:
Considering the above legal provisions of the Act and the factual position of this case as emanating from the assessment order and case records as well as the judicial precedents as discussed above, I am of the considered opinion that the assessment order is erroneous in so far as it is prejudicial to the interests of revenue in view of Section 263 of the Income tax Act. Thus, the assessment order is held to be erroneous in so far as it is prejudicial to the interests of revenue. The said assessment order is hereby set-aside to the file of the AO with a direction to pass a fresh assessment order in a speaking manner and initiation of penalty u/s 271B & 271F of the Income Tax Act, 1961, after making all necessary enquiries required and after providing due and adequate opportunity of being heard to the assessee and after considering all the submission?, etc. made and counter- reply submitted by the assessee in a fair and judicious manner.
5. In terms of aforesaid observations, assessment order passed by Ld. AO has been set aside with the directions to pass a fresh assessment in a speaking manner and to initiate penalties u/s 271B & 271F of the Income Tax Act, 1961, after making all necessary enquiries required, with adequate opportunity of being heard to the assessee.
6. Being aggrieved with the aforesaid revisionary order u/s 263 of the Act, the assessee has filed present appeal before us.
Devendra Kumar Deshmukh, Durg vs. PCIT, Raipur-1 7. At the out, it is noticed that the appeal was instituted by the assessee on 30.05.2025, thereafter the case was fixed for hearing on 19.06.2025, 08.07.2025, 11.08.2025, 26.08.2025 and 15.09.2025, however, on all the occasions, when the case was called for hearing, the assessee remain absent or non-represented neither any application for adjournment has been furnished. Under such circumstances, the appeal of assessee has been taken as heard after hearing the respondent i.e., the Income Tax Department.
8. The assessee raised various issues by way of its grounds of appeal in Form No. 36, however, had chosen to remain oblivion / negligent towards the proceedings as and when the matter was fixed for hearing.
Coming to the issues assailed in the present matter, which are identical to the issues decided by the coordinate bench of ITAT, Raipur in the case of Tansingh vs. PCIT, Raipur in for AY 2015-16, wherein the Tribunal has upheld the order u/s 263 with the following observations:
At the very outset, it is noted that hearing of the present case had started since 08th July, 2025 and finally, it was taken as heard today i.e. 03.11.2025. In the entire span of time, the matter was posted for hearing on 11.08.2025, 01.09.2025, 15.09.2025, 09.10.2025 and 03.11.2025 and in all these occasions, there were neither any compliances from the assessee for hearing nor any adjournment application had been filed. Even when the matter was called for hearing today, there was none present from the assessee. That from record, it is amply clear that several opportunities have already been provided to the assessee which the assessee had not availed off and as per Devendra Kumar Deshmukh, Durg vs. PCIT, Raipur-1 direction of the Hon'ble Apex Court in the case of Ishwarlal Mali Rathod Vs. Gopal and Ors., passed in Special Leave Petition (Civil) Nos. 14117-14118 of 2021, order dated 20.09.2021, wherein it has been held and observed that as on today the judiciary and the justice delivery system is facing acute problem of delay which ultimately affects the rights of the litigant to access to justice and speedy trial. It cannot be disputed that due to delay in access to justice and not getting timely justice it may shake the trust and confidence of the litigants in the justice delivery system. Therefore, the Hon'ble Apex Court has directed specifically that adjournments should not be granted in a routine manner and mechanically and such grant of adjournment by the Courts should not be a cause for delay in dispensing justice. The assessee cannot be allowed to take undue advantage of the legal process for deliberately delaying the process of law. In this case, the assessee deliberately was absent from hearing from day one itself. There has been no efforts so to say that the assessee was conscious about the proceedings going on before the Tribunal. That any further adjournment would be against the directives of the Hon'ble Apex Court (supra.). The trust of the litigants in the judicial process needs to be upheld and thereby, considering the entire facts and circumstances, the submission of the Ld. CIT-DR are recorded and after careful consideration of the materials/documents available on record, the matter is heard.
3. This is a case where an order was passed by the Pr. CIT, dated 20.03.2025 for A.Y.2015-16 u/s.263 of the Act. The assessee being individual had filed return of income on 19.10.2022 in response to the notice u/s. 148 of the Act declaring total income of Rs.19,10,820/-. The assessee derives income from the business of sales of foreign liquor and country liquor. During the course of assessment proceedings, the assessee submitted that the case deposits of Rs.1,23,14,705/- made by him in his bank account maintained with Punjab National Bank and Rs.12,76,500/- in Dena Bank was from sale of liquor and liquor business all the sales were done in cash. The A.O accepted the returned income and being satisfied with the reply of the assessee vide order dated 24.03.2023 u/s. 147/144B of the Act framed the assessment accordingly.
Devendra Kumar Deshmukh, Durg vs. PCIT, Raipur-1 4. Later on, it was pointed out by the Internal Audit Party that quoting the case of CIT Vs. Mekala Bal Reddy, the Hon'ble High Court of Andhra Pradesh had cited that in liquor business net profit should be estimated to be 5% of the total sales of the assessee. Adhering to the said decision, 5% of the net profit of the total sales arrived at Rs.41,43,906/- (5% of Rs.8,28,78,128/-). Thus, estimated net profit arrives at Rs.41,43,906/- and there was also commission income of Rs.1,61,370/- and interest income of Rs.61,308/- totaling to Rs.43,66,584/-. As such, correct income of the assessee should have been calculated at Rs.43,66,584/- and not at Rs.19,10,820/- as has been calculated by the A.O and therefore, there had been an under assessment of Rs.24,55,764/- [Rs.43,66,584/- (-) Rs.19,10,820/-] and accordingly, under levy of tax of Rs.7,58,831/- plus applicable interest u/s. 234A/234B/234C of the Act.
Thus, it is noted that as per order of the Pr. CIT passed u/s. 263 of the Act, the department is aggrieved on two counts viz. (i) there has been under assessment of Rs.24,55,764/- and corresponding under levy of tax of Rs.7,58,831/- plus applicable interest under relevant provisions of the Act and (ii) since turnover of the assessee is Rs.8,28,78,128/-, the provisions of Section 44AB of the Act gets attracted. In these two areas, we find that there is no discussion by the A.O in the assessment order nor any enquiry has been conducted. That going through the assessment order, it is absolutely clear that such assessment has been done in a summary manner accepting the return income as well as the reply of the assessee. That on plain reading of Section 263 of the Act a/w. Explanation-2 of the said provision of the Act, since the assessment order has been passed without making inquiries or verification and the order is passed allowing relief without inquiring into the claim and also considering the deeming nature in Explanation-2, the assessment order, therefore, is erroneous in so far it is prejudicial to the interest of the revenue.
In the cases of Rampyari Devi Saraogi Vs. Commissioner of Income-Tax, West Bengal, Calcutta, 67 ITR 84 (SC) and Smt. Tara Devi Aggarwal v. Commissioner of Income tax, West Bengal, 88 ITR 323 (SC), the Hon'ble Supreme Court upheld the Devendra Kumar Deshmukh, Durg vs. PCIT, Raipur-1 Commissioners (CIT)'s revisional orders passed u/s. 263 of the Act where the A.O accepted the returned income without making any proper inquiry. The Hon'ble Apex Court held that the assessment order passed without any enquiry results in loss of revenue and makes the order erroneous and prejudicial to the interest of the revenue. In the case of Pr. CIT Vs. Paville Projects Pvt. Ltd. (2023) 453 ITR 447 (SC), the Hon'ble Supreme Court set-aside the High Court judgment and restored the order of the Commissioner of Income Tax u/s. 263 of the Act. The Hon'ble Apex Court found that the A.O's original assessment order accepting the substantial deduction as "cost of improvement" without proper application of the relevant legal provision was both erroneous and prejudicial to the interest of the revenue. In the aforesaid judgment, on perusal of the assessment order and relying on the judgment passed in the case of Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC), it was held by the Hon'ble Apex Court that the order passed by the A.O was erroneous as well as prejudicial to the interest of the revenue and thus, the Hon'ble High Court had committed a very serious error in setting aside the order passed by the Commissioner of Income Tax u/s.263 of the Act. With the above observations, the Hon'ble Apex Court allowed the appeal and set-aside the impugned order passed by the Hon'ble High Court restoring the order passed by the Commissioner of Income Tax in exercise of powers u/s. 263 of the Act.
Reverting to the facts of the present case, the Pr. CIT in the order passed u/s. 263 of the Act has clearly made a case that there has been under assessment in the case of the assessee and subsequent under levy of tax a/w. applicable interest. Further, there has been a turnover of Rs.8,28,78,128/-, for which, provisions of Section 44AB gets attracted. However, these areas have neither been enquired into nor verified by the A.O during the assessment proceedings and the entire assessment order is silent on these aspects.
Considering the aforesaid examination of the facts on record as well as legal spectrum enshrined in the tax law jurisprudence as emanated from the aforesaid judicial Devendra Kumar Deshmukh, Durg vs. PCIT, Raipur-1 pronouncements, we are of the considered view that the Pr. CIT is correct in passing order u/s.263 of the Act holding the assessment order to be erroneous in so far it is prejudicial to the interest of the revenue. The order passed by the Pr. CIT u/s.263 of the Act is upheld.
Since the facts and circumstances of the present case are identical to the 10. case of Tansingh vs. PCIT, Raipur (supra), therefore, our observations and decision therein shall apply mutatis mutandis in the present case also. Accordingly, the instant matter in Devendra Kumar Deshmukh is also decided on parity that the Ld. Pr. CIT is correct in passing order u/s.263 of the Act holding the assessment order to be erroneous in so far it is prejudicial to the interest of the revenue. The order passed by Ld. Pr. CIT u/s.263 of the Act is upheld.
11. In result, the appeal of the assessee stands dismissed in terms of our aforestated observations.
Order pronounced in the open court on 04/11/2025.