SH. SUNIL KUMAR BATTA,PANCHKULALA vs. PR.CIT, PANCHKULA

आदेश/Order

Per Sudhanshu Srivastava, Judicial Member:

This appeal preferred by the assessee against order dated 18.03.2021 passed by the Ld. Pr. Commissioner of Income Tax,

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Panchkula (Ld. PCIT) under section 263 of the Income Tax Act,1961

(hereinafter called ‘the Act’) for the assessment year 2011-12.

2.0 The brief fact of the case are that as per Annual Information

Report (AIR), during the year under consideration, the assessee had

sold an immovable property for a consideration of Rs.51,57,000/-

and, therefore, proceedings under section 147 of the Act were

initiated after recording of reasons by the Assessing Officer (AO).

Thereafter, in response to the notice issued under section 148 of

the Act, the assessee filed return of income declaring income of

Rs.1,75,700/- under the head income from salary and income from

long term capital gain.

2.1 The assessee was required to furnish details in respect of the

sale of immovable property and, it was the submission of the

assessee before the AO that he had sold his residential house at

Panchkula for Rs.51,57,000/-. The assessee also filed documentary

evidences like copies of the sale and purchase deeds and copy of the

bank statements etc. before the AO. It was further submitted by

the assessee before the AO that the assessee had made an

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investment in another residential house- property at Panchkula for

a sum of Rs.27,41,022/- and had claimed deduction under section

54 of the Act in respect thereof. On perusal of the computation

chart, the AO noticed that the assessee had claimed Rs.12,17,106/-

towards cost of improvement of the property sold during the

financial year 2000-01 and Rs.9,38,520/- on account of purchase

consideration of the said property during the financial year 1987-

in form of bills and vouchers with respect to the cost of

improvement and cost of construction claimed but since the

assessee could not furnish the required documentary evidences, the

AO proceeded to disallow an amount of 5% of such expenses

claimed which came to Rs. 1,07,781/-. Thus, this amount was

added to the income of the assessee and the assessment was

completed at taxable income of Rs. 2,83,482/-.

2.2 Subsequently, the Ld. PCIT issued a show cause notice under

section 263 of the Act on 24.02.2021 mentioning instance of failure

on the part of the AO vis-à-vis not having made any enquiry in

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respect of the assessee’s claim of indexed cost of improvement at

Rs. 23,52,633/-. As per the impugned order, no reply to the said

show cause notice was received from the side of the assessee.

Therefore, based on the record before him, the Ld. PCIT observed

that the replies filed by the assessee during the course of the

assessment proceedings were just placed on record and that the AO

had failed to make any independent enquiry to verify the contention

of the assessee with respect to the cost of improvement and further

since no document relating to cost of construction or improvement

was provided by the assessee and the same having been accepted

without enquiry by the AO, this had rendered the assessment order

erroneous in so far has being prejudicial to the interest of the

revenue. The assessment order was set-aside with the observation

by the Ld. PCIT that the AO had passed the order in undue haste

and without conducting worthwhile enquiry. The AO was directed to

pass an order afresh after making detailed enquiries with respect to

the observations of the Ld. PCIT.

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2.3 Aggrieved, the assessee has now approached this Tribunal

challenging the order passed under section 263 of the Act by raising

the following Grounds of appeal:

1.1 The original assessment order passed under section 147 r.w.s. 143(3) did not satisfy the twin conditions of being an “erroneous order” and “prejudicial to the interest of revenue”

1.2 The Worthy Pr. CIT has erred in setting aside the assessment order under section 147 r.w.s. 143(3) and in directing the AO to make assessment afresh on the ground that AO had not conducted worthwhile enquiries.

1.3 The Worthy Pr. CIT erred in holding the cost of improvement of house sold claimed at Rs.23,52,633/- as wrongly allowed by the Ld. AO.

1.4 The Statutory show cause notice u/s 263 was never served till the end of limitation period.

1.5 The Worthy Pr. CIT has conducted the impugned proceedings under section 263 in extreme haste and without affording

ITA No. 47-C-2021 (A.Y. 011-12) – Sunil Kumar Batta, Mohali 6

reasonable opportunity of being heard to the appellant.

denying service of the show cause notice on the assessee. Drawing

our attention to the Affidavit filed by the assessee dated

07.07.2021, the Ld. AR submitted that it was only after the

assessee had received the impugned order via email on 18.03.2021,

he came to know that such an order had been passed and,

thereafter, he checked through the Income Tax portal and found

that the show cause notice was being shown in the e-proceedings

tab. It was further submitted that when the assessee clicked on it,

the contents of the show cause notice were not available for

download. It was further submitted that a copy of screen shot taken

from the portal of the Income Tax department was also being

enclosed as annexure to the Affidavit which showed that the

document (show cause notice) was not available for download due

to server issues. It was further submitted that the assessee had also

ITA No. 47-C-2021 (A.Y. 011-12) – Sunil Kumar Batta, Mohali 7

not received any SMS alert with respect to the show cause notice

having been issued and neither was any show cause notice served

physically on the address of his residence i.e. House No. 105, Sarv

Priya Housing Society, Exotic Heights, Zirakpur, Mohali wherein he

had been residing for the past 10-11 years and even the income tax

returns were being filed showing this address only. He drew our

attention to copy of acknowledgement of the ITR for the captioned

year to demonstrate that the said return also contained the address

of Sarv Priya Housing Society. It was further submitted that the

impugned order contained a different address. i.e. House No. 656,

Sector 2, Panchkula which used to be the address of the house

property which had been sold during the year under consideration.

The Ld. AR submitted that the assessee was contesting the service

of notice and was deposing on oath that the assessee had not

received the show cause notice either physically or electronically

and, therefore, the impugned order had been passed without

affording any opportunity to the assessee to present his case and,

therefore, the impugned order was void ab initio and the same

deserved to be set-aside.

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3.1 On merits, the Ld. AR submitted that the AO had raised

queries regarding the cost of acquisition as well as the cost of

improvement of the house property vide notice issued under section

142(1) of the Act dated 13.10.2018 and placed at Pages 7 and 8 of

the Paper-book requiring the assessee to furnish complete details of

property sold along with the name and address of the buyer and

copy of the sale deed, date and cost of purchase and construction

as well as computation of capital gain. It was further submitted that

in response, the assessee had filed a detailed reply along with the

documentary evidences as required by the AO and same was placed

at Pages 14 to 34 of the Paper-Book. The Ld. AR further submitted

that in the said reply, the assessee had given all the relevant details

giving the cost of acquisition and cost of improvement and since the

evidences regarding cost of improvement pertained to the financial

year 2000-01, the same could not be provided as the same related

to almost 17-18 years ago. It was submitted that even the income

Tax Act does not ordinarily require maintenance and preservation of

documents beyond a period of 8 years.

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3.2 It was further submitted that the query as well as the reply

filed by the assessee before the AO, however, proves that the AO

had made adequate enquiry and the assessee also had duly

complied with such enquiries and the fact that the AO had

disallowed an amount of 5% on account of unverifiable cost of

improvement, made it clear that the non-availability of documents

was within the knowledge of the AO and, therefore, while making

the disallowance @ 5%, the AO had duly applied her mind to the

facts before her and, therefore, the allegation of the Ld. PCIT that

the AO had not conducted any worthwhile enquiry and had

completed the assessment in undue haste was totally against the

facts of on the record.

3.3 The AO placed reliance on numerous judicial precedents to

support his contention that when there is due application mind by

the AO, the Ld. PCIT does not have to power to invoke the

revisionary jurisdiction under section 263 of the Act and further

even an inadequate enquiry will not render the assessment order

erroneous and prejudicial to the interest of the revenue.

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3.4 The Ld. AR also submitted that even the re-assessment

proceedings under section 147 of the Act had been wrongly initiated

as the copy of the reasons recorded would show that the re-

assessment proceedings had been initiated on the ground that the

assessee had not filed his return of income which was a fact

contrary to the record as was evident from the copy of the return

filed and placed in the Paper book at Page 2. The AR submitted that

reopening was based on wrong reasoning and was liable to be set-

aside and if the reopening was set-aside, even the subsequent

proceedings under section 263 of the Act were bad in law and could

not be sustained in the eyes of law.

4.0 Per contra the Ld. CIT DR vehemently supported the order of

the Ld. PCIT and argued that the fact remained that the AO had not

conducted any examination or enquiry vis-à-vis cost of acquisition

and that the ad hoc disallowance of 5% had been made without any

basis. It was further submitted that the assessee cannot take the

excuse of the documents being unavailable due to lapse of time and

escape the rigour of taxation because the assessee cannot avoid the

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onus placed on him to support the claims being made with

documentary evidences. It was argued that the AO also had simply

accepted the assessee’s claim without any proper enquiry and had

simply resorted to an estimated disallowance while completing the

assessment.

4.1 With respect to the assessee challenge to the reopening under

section 14t of the Act, the Ld. CIT DR submitted that the assessee

had not challenged the reopening at the time when the reopening

was initiated and, therefore, raising this issue at this point of time

was beyond the scope of the issue involved in the present appeal.

4.2 With respect to the assessee’s claim of non-receipt of the show

cause notice, the Ld. CIT DR refuted this claim and submitted that

this kind of pleading was more of an after-thought and the assessee

was trying to cover up for his inability to submit the required bills

and documentary evidences with respect of the cost of construction

and cost of improvement. It was further submitted that if the

assessee did not undertake to check the Income Tax portal from

time to time, it was at his own peril and the department cannot be

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expected to withhold any proceeding under the Act until the

assessee acknowledges that he had received the notice regarding

any proceedings under the Income Tax law. The Ld. CIT DR prayed

that appeal of the assessee be dismissed.

5.0 We have heard the rival submissions and have also perused

the material on record. We have also gone through the contents of

the Affidavit filed by the assessee wherein he has denied having

received any show cause notice vis-à-vis the proceedings under

section 263 of the Act. In the said Affidavit, it has been deposed by

the assessee that he came to know about the order passed under

section 263 of the Act only when he received a copy of the

impugned order via email. It also been deposed in the Affidavit that

when the assessee was searching for the show cause notice after

receiving the impugned order, at that point of time also, only the

body of the show cause notice was being shown and the contents of

the show cause notice (in the PDF attachment) was not found. The

copy of screen shot of the portal has also been enclosed with the

Affidavit to demonstrate that the contents of said show cause notice

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were not available on the portal of the Income Tax department. The

assessee has also deposed in the Affidavit that the address from

which he had filed his return of income was that of House No.105,

Sarv Priya Housing Society, Exotic Heights, Zirakpur, Mohali

whereas the order under section 263 of the Act was addressed to

the taxpayer at House No. 656, Sector 2, Panchkula. A perusal of

the record shows that this address of Panchkula was the earlier

address of the assessee and is the address of the property which

was sold by the assessee giving rise to the re-assessment

proceedings. It is also seen that even the re-assessment order which

was passed on 28.12.2018 shows the Panchkula address. However,

the assessee has not disputed the service of this assessment order.

All the same, the fact remains and is evident from the impugned

order also that the assessee had not responded to the show cause

notice issued under section 263 of the Act and further the

impugned order was passed in absence of any representation by the

assessee before the Ld. PCIT. In light of these facts, we are of the

considered opinion that no assessee would benefit from ignoring a

statutory notice when non-compliance of the same might result in

ITA No. 47-C-2021 (A.Y. 011-12) – Sunil Kumar Batta, Mohali 14

the assessee being saddled not only with tax burden but also with

interest as well as penal consequences. Further, no mala fide on the

part of the assessee has been pointed out by the Ld. CIT DR with

respect of the assessee’s claim regarding non-service of the show

cause notice. Although, we do agree with the contentions of the Ld.

CIT DR that the assessee is expected to be diligent towards the

notices and queries issued by the Income Tax department in order

to protect in his best interests, all the same since electronic mode of

communication is still facing teething troubles and as is often

reported in the news papers, it is quite frequent that the assessees

are facing problems receiving notices or uploading replies thereto

and there have been innumerable instances where the assessees

have failed to file their replies within the stipulated period due to

server issues either at the end of the assessee or at the end of the

department. Therefore, we are inclined to accept the contention of

the assessee regarding non-service of the show cause notice at its

face value and we hold that in absence of proof of valid service of

show cause notice under section 263 of the Act, the resultant

proceedings under section 263 of the Act would not hold good.

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While coming to this conclusion were have also given credence to

the fact that there has been a change in the address of the assessee

which has not been taken into account by the department and we

have also duly considered the fact that the impugned order was

passed ex-parte qua the assessee and restoring it to the file to the

Ld. PCIT again at this juncture would not be in the best interest of

the common taxpayer especially when the Government of India is

committed to simplifying the tax regime and ending tax litigation as

far as possible.

5.1 We have also duly taken note of the fact that even on merits,

the AO has made a reasonable disallowance with respect to

unverifiable cost of construction / cost of improvement and, thus,

the AO had taken a possible view based on the facts and record

before him and, therefore, the Ld. PCIT could not have legally set-

aside the order of the AO and directed him to re-examine the issue

as per his directions especially because the Ld. PCIT himself did not

conduct any enquiry himself in this regard as was incumbent upon

ITA No. 47-C-2021 (A.Y. 011-12) – Sunil Kumar Batta, Mohali 16 him as per law. Therefore, we set-aside the order passed under section 263 of the Act.

5.2 Since we have already held that the 263 proceedings are bad in law on account of non-service of show cause notice, we are not inclined to consider the assessee’s ground regarding the re- assessment order being bad in law at this juncture.

6.0 In the final result the appeal of the assessee stands allowed.

Order pronounced on 22.08.2022.

Sd/- Sd/- ( N.K. SAINI) (SUDHANSHU SRIVASTAVA) Judicial Member Vice President Dated : 22.08.2022 “आर.के.” आदेश क� ��त+ल,प अ-े,षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु.त/ CIT 4. आयकर आयु.त (अपील)/ The CIT(A) 5. ,वभागीय ��त�न1ध, आयकरअपील$यआ1धकरण, च3डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

आदेशानुसार/ By order,

ITA No. 47-C-2021 (A.Y. 011-12) – Sunil Kumar Batta, Mohali 17

सहायकपंजीकार/Assistant Registrar