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Facts
The assessee's original assessment for AY 2018-19, completed u/s 147 r.w.s. 144B, was taken for revision by the Pr. CIT u/s 263. The Pr. CIT found the assessment order erroneous and prejudicial to revenue due to the Assessing Officer's (AO) failure to conduct proper inquiries regarding claimed excess shortage of diesel (Rs. 1,68,425/-) and certain salary expenses. The assessee challenged the Pr. CIT's order, raising legal grounds concerning approval for reassessment notices and merits related to the factual findings.
Held
The Tribunal dismissed the assessee's legal ground, holding that only one prior approval from the specified authority under Section 148A(d) is required before issuing a notice u/s 148, and the first proviso to Section 148 does not mandate a separate approval. On merits, the Tribunal agreed with the Pr. CIT that the AO failed to conduct full and complete inquiries, specifically regarding the excess shortage of diesel, making the original assessment erroneous and prejudicial to revenue. The Tribunal therefore upheld the Pr. CIT's order u/s 263, setting aside the assessment to the AO for fresh assessment.
Key Issues
1. Whether two separate approvals (under Section 148 proviso and Section 148A(d)) are required for issuing a notice u/s 148 of the Income Tax Act. 2. Whether the Assessing Officer conducted proper inquiries regarding the excess shortage of diesel and salary expenses, making the original assessment order erroneous and prejudicial to the interest of the revenue, warranting revision under Section 263.
Sections Cited
Section 263, Section 148, Section 148A, Section 151, Section 147, Section 144B, Section 37(1), Section 139, Section 142(1), Section 119, Section 234A, Section 234B
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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY & SHRI ARUN KHODPIA
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM:
This appeal preferred by the assessee emanates from the order of the Ld. Principal Commissioner of Income Tax, Raipur-1 (for short ‘Pr. CIT’) passed u/s. 263 of the Income Tax Act, 1961 (for short ‘the Act’) dated 11.03.2025 for the assessment year 2018-19 as per the grounds of appeal on record.
2. The assessee has assailed both legal ground as well as grounds on merits. The legal grounds raised by the assessee is extracted as follows: “In the facts and circumstances of the case and in law, the assessment order passed on 27/03/2023 on the basis of invalid notice u/s. 148 of the Income Tax Act, 1961 is illegal and non-est in so far as there is no valid approval required u/s. 148 and 151 of the Act because the referred approval for order u/s. 148A(d) and for notice u/s.148 is same which cannot be so as per the provisions of the Act and thereby there was no valid assessment order available for revision.”
3. The crux of the grievance of the assessee is with regard to the order passed by the Pr. CIT u/s.263 of the Act. That before entering into the adjudication regarding legal ground raised, it would be appropriate to refer to the provisions of Section 148 of the Act, specifically the “1st proviso” as well as Section 148A of the Act as was there vide the Finance Act, 2021 w.e.f. 01.04.2021 as applicable to the case of the assessee and the same reads as follows:
“148. Issue of notice where income has escaped assessment- Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within a period of three months from the end of the month in which such notice is issued, or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee], a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139: Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice:” “148A. Conducting inquiry, providing opportunity before issuance of notice under section 148.- The Assessing Officer shall, before issuing any notice under section 148,— (a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment; (b) provide an opportunity of being heard to the assessee, by serving upon him a notice to show cause within such time, as may be specified in the notice, being not less than seven days and but not exceeding thirty days from the date on which such notice is issued, or such time, as may be extended by him on the basis of an application in this behalf, as to why a notice under section 148 should not be issued on the basis of information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year and results of enquiry conducted, if any, as per clause (a);
(c) consider the reply of assessee furnished, if any, in response to the show-cause notice referred to in clause (b); (d) decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires:”
4. That placing reliance on the proviso to Section 148 and Section 148A(d) of the Act, the Ld. Counsel for the assessee submitted that the A.O should have taken two approvals from the specified authority, firstly as per proviso to Section 148 of the Act (1st proviso) and then separately also as per the mandate of Section 148A(d) of the Act before issuance of notice u/s.148 of the Act. That in absence of such separate approvals the issuance of notice u/s.148 of the Act gets vitiated so and so forth that the assessment therefore becomes arbitrary, bad in law, liable to be quashed.
Per contra, the Ld. CIT-DR submitted that this is not the correct interpretation of the intent of the legislature as emanated from these provisions of the Act. That prior insertion of Section 148A of the Act, the notice would be issued u/s.148 of the Act directly to the assessee whenever any income chargeable to tax had escaped assessment in terms with Section 147/148 of the Act. Thereafter, as per the wisdom of the legislature one safeguard was provided to the tax payer assessee wherein through Section 148A of the Act, it was mandated that the A.O before issuing of any notice u/s. 148 of the Act shall conduct necessary enquiry etc. and also take prior approval of the specified authority. In other words, before triggering the provision of Section 148, the requirements of Section 148A of the Act has to be complied with by the A.O. It was further submitted by the Ld. CIT-DR that in the present case, it is not disputed that the A.O had taken prior approval from the specified authority as per Section 151 of the Act. When the provision of Section 148A has been complied with especially Section 148A(d) by the A.O, Section 148 gets automatically triggered validly. As per the scheme of the Act there is no provision that two separate approvals should be obtained by the A.O before issuance of notice u/s. 148 of the Act.
6. Having heard the submissions of the parties herein, it is crystal clear that on bare reading of Section 148A which reads that “the A.O shall before issuing any notice u/s. 148- (a) conduct any enquiry, if required, with prior approval………………”. That in effect, Section 148A has to be first complied with and an approval from the specified authority has to be taken by the A.O, which the A.O had complied with in the present case of the assessee. The “1st proviso” to Section 148 of the Act only substantiates the contents of Section 148A of the Act and it does not anywhere spell out for separate approval to be obtained by the A.O from the specified authority. Meaning thereby, if the approval as mandated u/s. 148A(d) of the Act has been obtained by the A.O from the specified authority that also is in conformity with and satisfies compliance of the “1st proviso” to Section 148 of the Act as per the Finance Act, 2021, w.e.f. 01.04.2021. Hence, we hold that the A.O was absolutely correct and was having inherent valid jurisdiction to issue notice u/s.148 of the Act to the assessee. Accordingly, the legal ground raised by the assessee is dismissed being devoid and bereft of any merits.
Coming to the factual merits of the matter, it would be pertinent to extract findings and issues involved as per order passed u/s. 263 of the Act by the Pr. CIT as follows:
“In this case assessment was completed u/s.147 r.w.s. 144B of Income Tax Act, 1961 on 27.03.2023 with Total Income assessed at Rs.5,83,100/- resulting total demand of Rs.84,662/- after making addition of Rs.3,19,908/- on account of variation in respect of salary expenses and addition of Rs.1,13,412/- or account of variation in respect of excess shortage of petrol.
It was later on observed that, the assessee has claimed shortage of HSD of 6778.74 Litres out of total sales of 1880018.59 Ltrs. during the FY 2017-18. However, eligible shortage of diesel for sold quantity of 1880018 Ltrs. arrives at 4060 Ltrs. i.e. 0.25% of 600000 Ltrs + 0.20% 1280019 Ltrs. The average price of diesel sold during the FY 2017-18 arrives at Rs.61.95 ( 116466686/1880018). Thus, excess shortage of diesel to the extent of which was claimed by the assessee has been 2718.74 Ltrs. (6778.74-4060). Thus, excess claim of shortage of Rs. 1,68,425/- is liable to be disallowed u/s 37(1) of the Act. The above omission has led to under levy of tax including Cess of Rs.34,696/- and interest u/s 234a and 234B amounting to Rs.18,041/- and 20,817/- respectively.
Thus, aggregate under levy of tax and interest in this case arrives at Rs.73,554/-.
Considering the facts narrated in the foregoing paras which have emanated from the case record, I am of the considered view that the order passed u/s.147 r.w.s. 144B of the Income tax Act, 1961 vide order dated 27.03.2023 is erroneous in so far as it is prejudicial to the interest of revenue and therefore, needs to be revised under the provisions of section 263 of the IT Act, 1961. The revision proceedings u/s.263 of the Act was therefore initiated in the instant case of the assessee and before initiating such proceedings the assessment records have been gone through and after such thoughtful perusal of the same an independent assessment of the facts are ascertained in the case. The decision for revision of the case is based on fair and thorough investigations in tax matters and the importance of adhering to legal principles to ensure justice and integrity in tax assessments. Thus, an independent application of mind is ensured for revision of the case in hand.
In view of the above facts, a show cause e-notice u/s 263 dated 22.01.2025 was issued to the assessee, incorporating the above facts, asking to furnish her reply with supporting evidence. The said notice was returned un-served. As such, another notice was issued on 17.02.2025 giving the assessee another opportunity of being heard. But, the same fate happened with the notice this time also. The notice was returned un-served with the postal remark "Left". However, the above notices were also sent through the registered mail id of the assessee available in "ITBA Module". Both the notices sent through e-mail were delivered properly.
5. The assessee remained non-compliant throughout the revision proceedings and no-submission whatsoever were submitted to defend herself. As such, this office left with no option but to proceed with the materials available on records.
Thus, it can be stated that this is a case of AO not conducting proper and correct enquiries. It is not out of place to mention that the Explanation-2 introduced in section 263 w.e.f. 01.06.2015 provides that an order passed by the Assessing Officer 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 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 u/s 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. With the insertion of this explanation, the decisions, which hold that PCIT should carry out enquiries, if AO failed to carry out enquiries to show as to how the Order passed by the AO is erroneous, are no longer applicable. Further, it is not out of place to mention that the honorable Supreme Court in the cases of Taradevi Agarwal Vs CIT (1972) 88 ITR 373(SC) and in the case of Rampyari Devi Saraogi Vs CIT (1968) 67 ITR 84 (SC) have already held that failure to conduct enquiries on part of AO constitutes assessment order to be erroneous and prejudicial to the interest of Revenue. Therefore, the decisions rendered without taking into considerations the above decisions of the Supreme Court appear to be incorrect.” xxx xxx xxx xxx xxx 8. 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 after making all necessary enquiries required and after providing due and adequate opportunity of being heard to the assessee and after considering all the submissions, etc. made and counter-reply submitted by the assessee in a fair and judicious manner.”
That as is evident from fore-going paras, it was observed by the Pr. CIT that there has been excess shortage of diesel which was claimed by the assessee amounting to Rs.1,68,425/- which was liable to be disallowed u/s. 37(1) of the Act. Further, there was no enquiry conducted by the A.O regarding excess shortage of diesel which resulted in making assessment order erroneous and prejudicial to the interest of the revenue. Erroneous because, there was no enquiry conducted by the A.O with regard to excess shortage of diesel by the assessee and prejudicial to the interest of the revenue because, by not disallowing such excess shortage of diesel claimed, it resulted in loss of the revenue.
The Ld. Counsel for the assessee brought to our notice the enquiry conducted by the A.O which is also emanating from the assessment order at Page 10 and the relevant para is extracted as follows:
“Summary of information/evidence collected which proposed to be used against it and Variation proposed: As you have not filed any response/explanation to queries vide notice u/s. 142(1) of the Income Tax Act, 1961 dated 21/02/2023. Therefore, it is show caused why addition amounting to Rs.4,62,117/- may not be made in your case on A/c. claim of excess shortage out of petrol diesel sold ( Rs.1,42,209/-) & excess salary expenses amounting to Rs.3,19,908/-. (Proposed Addition: Rs.4,62,117/-)” Similarly, the assessee had filed reply on this query which is extracted as follows:
“(i) As Regards Addition of Rs.1,42,209/- on account of claim of excess shortage out of petrol/Diesel sold. There is a shortage of Petrol of 2902.98 Ltrs during the year under consideration. The Shortage is on account of variation in the quantity of Petrol due to operation, Evaporation/Handling, Shrinkage Losses and Temperature Variation of petrol. This shortage in handling and trading of petrol. According to the guidelines of HPCL, Shortage of Petrol on account of normal operational variation of 4% of tank stock, and Evaporation/ handling loss in petrol 0.75% on quantity sold and Shrinkage & Temperature variation loss is treated as normal loss. Copy of relevant extract of Guideline of HPCL in this regard is enclosed herewith. In view of these facts, Shortage of Petrol is in the course of business, which is beyond the control of the assessee. It is therefore prayed not to make the addition of Rs.1,42,209/-.”
Therefore, as evident the A.O never enquired regarding any excess shortage of diesel to the assessee. Similarly, the assessee had only replied with regard to the shortage of petrol and had not mentioned anything with regard to the shortage of diesel in her reply. As is crystal clear that the enquiry conducted by the A.O was only partly done since he enquired with regard to the shortage of petrol only which the assessee also replied. However, the A.O had drastically failed to make full and complete enquiry specifically regarding excess shortage of diesel. Therefore, the observation of the Pr. CIT is absolutely correct, more so, as per Explanation-(2) to Section 263 of the Act.
As per the aforesaid examination of facts, we do not find any infirmity with the findings of the Pr. CIT, hence, the order passed u/s. 263 of the Act is upheld.
In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 10th October, 2025.