SATYA NARAIN PRAKASH PUNJ,NEW DELHI vs. CIT, NEW DELHI

PER H.S. SIDHU, JM

This is an appeal filed by the assessee against the impugned

order of the Ld. Commissioner of Income Tax, Delhi-XI, New Delhi

dated 27.03.2014 passed u/s. 263 of the Income tax Act, 1961

(hereinafter referred as the Act). The assessee has raised the

following revised grounds:-

order passed by the learned Commissioner of

Income Tax (CIT) under Section 263 of the Act is bad, both in the eye of law and on facts.

order passed by the learned CIT under Section 263

is bad in law as the same is barred by limitation as provided under section 263(2) of the Act.

order passed by the learned CIT cancelling the

assessment order passed by the A.O. is untenable

in the absence of order of the A.O. being erroneous

as well as prejudicial to the interest of the Revenue.

4.(i) On the facts and circumstances of the case, the

initiation of proceedings u/s 263 is bad in law, in

view of the assessment order, made u/s 153A

which the CIT intended to revise u/s 263, itself

being bad is law and a nullity.

(ii) That the order u/s 153A is null and void, as in the

absence of any search having been carried out on

the assessee, no proceedings u/s 153A can be

initiated.

(iii) Without prejudice to the above and in the

alternative, in the absence of any incriminating

material found during the course of search original

assessment having not been abated, no addition

u/s 153A can be made.

(iv) Without prejudice to the above and in the

alternative, on the facts and circumstances of the

case in the absence of any satisfaction being

recorded by the AO of the searched person and the

AO of the assessee, proceedings initiated against

the assessee and the consequent order passed by

the AO was without jurisdiction and bad in law and

hence can't be subject matter of revision under

section 263 of the Act.

learned CIT has erred both on facts and in law in

ignoring the fact that both the issues raised by him

in notice under Section 263 were before the A.O.

and as such the jurisdiction on this issue under Section 263 cannot be assumed by him.

learned CIT has erred both on facts and in law in

ignoring the contention of the appellant that the

proceeding under Section 263 cannot be used for substituting opinion of the A.O. by that of the CIT.

learned CIT has erred both on facts and in law in

setting aside the matter to the file of the A.O. to

assess afresh without giving a finding as to the

error and prejudice caused to the revenue by the assessment order.

the contention of the CIT that the income received

from M/s Punj Lloyd Ltd., Nehru Place is to be taxed

under the head ‘House Property’ as against

‘business income shown’ by the assessee is bad both in the eyes of law and on facts.

(ii) That the above stand of the assessee having

been accepted in other years also, the view of the

CIT is against the settled principle of consistency.

alter any of the grounds of appeal.

income on 31.10.2006 declaring an income of

Rs. 8,22,85,380/-. The assessment of the same was completed after

scrutiny under Section 143(3) of the Act vide order dated 14.11.2008

at an income of Rs. 8,28,57,070/-. Thereafter a search took place on

the Punj Lloyd Group. Consequent to that, 153A notice was issued to

the assessee to file the return in response thereto. The assessee filed

the return u/s 153A on 15.10.2010. The AO completed the

assessment u/s 153A vide order dated 28.12.2011. No additions

were made in this reassessment in the absence of any incriminating

material being found during the course of the search. The Ld. CIT

however, issued a notice dated 19.03.2014, proposing to revise the

reassessment order passed by the AO under Section 153A on the

ground that said order is erroneous and prejudicial to the interest of

the Revenue. It was alleged in the said notice that long term capital

gain of Rs. 7,15,31,199/- should have been taxed at the rate of 20%

as against the rate of tax of 10%. It was further alleged that a sum

of Rs. 3,45,03,001/- received by the assessee during the year should

have been assessed as income from house property. The assessee

submitted a detailed reply where it was pointed out that assessee

has not been subjected to any search and as such the proceeding

under Section 153A per se are bad in law. Further, in the absence of

any incriminating material being found during the search, the

assessment originally completed cannot be tinkered with as the same

has not abated. It was contended that the assessment for the year

was not pending on the date of the search. The Ld. CIT however

rejected the contention of the assessee on the ground that assessee

has not challenged the validity of the order passed by the AO under

Section 153A read with Section 143(3) of the Act and as such the

order passed by the AO can be subject matter of revision. Based on

this reasoning the Ld. CIT cancelled the order passed by the AO with

a direction to frame the same afresh. It was contended by the Ld. AR

that the order of the Ld. CIT is not sustainable in the eyes of law as

he does not have the power in the revision proceeding to do what AO

could not have done in the reassessment proceeding under Section

153A. It was contended that no incriminating material was found

during the course of the search. It is not the case of the AO as well

as that of the Ld. CIT as is evident from the assessment order

passed under Section 153A and revision order passed by Ld. CIT u/s.

263 that any incriminating material relating to the assessee was

found in the search. In the absence of any incriminating material

being found, the original assessment has to be reiterated and cannot

be tinkered with as has been held by the Jurisdictional High Courts in

the various judgments. As regards the contention of the Ld. CIT that

order passed under Section 153A has not been challenged, it was

submitted that since the assessee was not aggrieved by that order, it

has not challenged the said order. But that does not give power or

authority to the Ld. CIT to revise the order u/s. 263. It was further

contended that what cannot be done directly cannot be done

indirectly. In the reassessment proceeding u/s. 153A, in respect of

assessment which has not abated, the AO cannot tinker with the

assessment without there being any incriminating material. When the

AO cannot tinker with the original assessment in the absence of any

incriminating material, the Ld. CIT cannot do in the revision

proceeding u/s. 263 of the Act. The Ld. Counsel of the assessee

placed reliance on the decision of the Coordinate Delhi Bench of the

ITAT in the case of Mahesh Kumar Gupta vs. CIT, ITA no.

1347/Del/2014 dated 8.6.2016 which has been confirmed by the

Hon’ble Jurisdictional Delhi High Court in ITA No. 810/2016 vide

order dated 22.11.2016. The Ld. Counsel for the assessee further

placed reliance on the following judgments:

- M/s Classic Flour and Food Processing Pvt. Ltd. vs CIT ITA No. 764 to 766/Kol/2014 dated 5th April 2017

- M/s Tanuj Holdings Pvt. Ltd. vs DCIT[2016] 46 ITR (Trib) 420 dated 20th January, 2016

- Paul John Delicious Cashew Company vs ITO (2005) 94 ITD

131 (Coch.)

the powers u/s. 263 of the Act to revise the order passed by the AO.

The Ld. DR placed reliance on the following judgments in support of

his contention: • Malabar Industrial Co. Ltd. Vs CIT (243 ITR 83) • Rajmandir Estates (P.) Ltd. Vs PCIT 386 ITR 162 (Cal.) • Rajmandir Estates (P.) Ltd. Vs PCIT [2017] 77 taxmann.com

285(SC) • Deniel Merchants Pvt. Ltd. Vs. ITO (Appeal No. 2396/2017)

dated 29.11.2017

especially the orders passed by the authorities below as well as the

case laws relied upon by both the parties. We find that the issue

here is whether Ld. CIT was within her rights to cancel the

reassessment order passed under Section 153A of the Act on the

ground that the said order is erroneous and prejudicial to the interest

of the Revenue. We note that the reasoning given by the Ld. CIT for

such revision is taxability of capital gain at the rate of 20% as

against the rate of 10% and taxability of income from house

property. From the facts, it is evident that the assessee has filed the

return on 31.10.2006. The said return was taken up for scrutiny.

During the course of the scrutiny the assessee has filed all the details

regarding computation of long term capital gain as well as the details

of the memberships and subscriptions and service charges. It has

also filed service agreement between Punj Business Center and M/s.

Punj Lloyd Ltd. The AO after examination of the above details has

completed the assessment u/s. 143(3) of the Act vide order dated

14.11.2008. Thereafter, there was a search on M/s Punj Lloyd Group

on 17.3.2010. It is an admitted position that no incriminating

material was found during the course of the search relating to the

assessee. This fact also gets corroborated from the assessment order

passed by the AO under Section 153A of the Act and the revision

order passed by the Ld. CIT u/s. 263 of the Act as there is no

reference to any seized material. The Ld. CIT now u/s. 263 of the Act

want to revise the order passed by the AO under Section 153A of the

Act. The issue is whether Ld. CIT can do this in the absence of any

incriminating material. As rightly contended by the Ld. AR of the

Assessee, the Ld. CIT cannot do indirectly what AO could not have

done directly. The two issues raised by the Ld. CIT in the show cause

notice, could not have been dealt with by the AO in the proceedings

u/s. 153A of the Act. If the AO could not have done this exercise,

we are of the view that Ld. CIT cannot do in her revision power

under 263. The power to revise u/s. 263 is where the order passed is

erroneous and prejudicial to the interest of the Revenue. In the

present case, the reassessment order passed under Section 153A,

the same is neither erroneous nor prejudicial to the interest of the

Revenue. The AO has done what was permissible for him to do. It is

not the case of the Ld. CIT that she intends to revise the original

assessment order dated 14.11.2008. In any case, the order dated

14.11.2008, 2008 otherwise cannot be revised because of the

limitations of two years under Section 263 of the Act. Accordingly,

the order passed by the Ld. CIT cancelling assessment and directing

the AO to frame the assessment afresh is bad in law. Our aforesaid

view is fortified by the decision of the Coordinate Bench of the ITAT

in the case of Mahesh Kumar Gupta vs. CIT ITA No. 1347/Del/2014

dated 8.6.2016. In this case, the CIT had invoked revisionary powers

u/s 263 holding an assessment u/s 153A to be erroneous and

prejudicial to the interest of Revenue. However, during the course of

search in pursuance of which the assessment u/s 153A was made, no

incriminating material was found. In such circumstances as the AO in

proceedings u/s 153A did not have jurisdiction to make addition in

the absence of any incriminating material, the Tribunal held even the

order u/s 263 revising such illegal order to be bad in law. The

relevant findings of the ITAT read as under:

“Thus, in present case the issue of deemed

dividend does not arise from the provisions of

Section 153A of the Act and there is no

seized material unearthed at the relevant

time. Thus it is beyond Assessing Officer’s

power to address the said issue in

proceedings initiated under Section 143(3)

read with Section 152A of the Act. The CIT

was wrong in directing the examination of

taxability of deemed dividend under Section

2(22)(e) of the Act, in the proceedings u/s

153A of the Act while passing order under

Section 263 of the Act when the proceedings

under Section 153A itself has not unearthed

the said issue. Thus, the CIT do not have

power under Section 263 of the Act to give

its own opinion when there is no new

material unearthed. The issue taken up by

the CIT was not within the purview of the

Assessing Officer at the inception of

assessment proceedings.”

4.1 We further find that the aforesaid order passed in ITA

1347/Del/2014 dated 8.6.2016 in the case of Mahesh Kumar Gupta

vs. CIT of the Tribunal has been confirmed by Hon’ble Delhi High

Court in ITA No. 810/2016 vide order dated 22.11.2016 title as Pr.

CIT, Central-1, Delhi vs. Sh. Mahesh Kumar Gupta. The relevant

findings of the Hon’ble High Court are reproduced as under:-

“1. The Revenue is aggrieved by the order of the Income

Tax Appellate Tribunal (ITAT) and urges that the

impugned order, inasmuch as it upset and set aside the

addition made by the Commissioner of Income Tax (CIT)

in exercise of the powers under Section 263 of the

Income Tax Act, 1963 (in short the Act) bringing to tax

certain amounts as “deemed dividend” under Section

2(22)(e) of the Act, was erroneous.

and seizure proceedings the assessee filed its returns

under Section 153A of the Act. The assessment was

completed by the Assessing Officer (AO). The

jurisdictional CIT was of the opinion that the assessment

order was both prejudicial and erroneous to the interest

of the Revenue and directed its revision inasmuch as an

addition under Section 2(22)(e) of the Act was

mandated. The assessee successfully appealed to the

ITAT.

that the search and seizure operations did not yield any

fresh material warranting addition under Section 153A of

the Act, and therefore, could not clothe the CIT with the

authority to add an amount on the basis of a fresh

appraisal of the existing materials that formed part of the

original assessment. It is urged by the Revenue that CIT

acted within his jurisdiction in concluding that the AO

erroneously did not bring to tax the amount that had to

be included under Section 2(22)(e) facially itself,

therefore, the CIT’s order was justified, consequently, the

ITAT should not have interfered with that determination.

of returns as filed originally and validly under Section 263 of the Act.

disclosing that the issue of deemed dividend had been

wilfully derived or had been deemed or otherwise

withheld from the assessment an addition under Section

153A was warranted – based on the proposition taught

by this Court in judgment dated 28.08.2015 in ITA

707/2014 titled: CIT vs Kabul Chawla. Therefore, we

concur with the ITAT’s opinion in this regard. The search

and seizure proceedings in such cases are undoubtedly

meant to bring to tax amount that are to be determined

on the basis of materials seized in the course of such

searches; permitting anything over and above that would

virtually amount to letting the Revenue have a third or

fourth opinion as it were. Searches – to quote the view of

Attorney-General (NSW) vsQuin (1990) HCA 21 in

another context are “not the key which unlocks the

treasury” of the Revenue’s jurisdiction in regard to

matters that had attracted attention in the regular course

of assessment.

questions of law arise. The appeal is, therefore,

dismissed.”

4.2 We further find that similar view has been taken by the Cochin

Bench of the ITAT in the case of Paul John Delicious Cashew

Company vs. ITO (2005) 94 ITD 131 (Coch.) wherein, the Tribunal

has held as under:

“16. In the present case also the re-assessment proceedings have been initiated only for the purpose of verification and examination which is not the scope of reassessment proceedings. It would be the case of rather reasons to suspect rather than reasons to belief that there was escapement of income. It is a case of the AO seeking to make fishing and roving inquiry without any basis. We have no hesitation in concluding that initiation of reassessment proceedings in the present case was not valid as the mandatory requirement of such 147 has not been satisfied. We therefore hold that reassessments orders for A.Y.2007-08 and 2008-09 dated 30.12.2011 were invalid. Consequently order passed u/s 263 of the Act dated 21.03.2014 for A.Y.2007- 08 and 2008- 09 are also held to be invalid and quashed. Thus the appeals being ITA No.765 and 766/Kol/2014 are allowed.”

4.3 We note that the case laws cited by the Ld. CIT(DR), are on

distinguished facts. In all the four case laws the issue before the

court was appreciation of facts on merit. In the present case, the

issue is whether Ld. CIT can do what AO could not have done in the

absence of incriminating material. As discussed above, the issue in

dispute is squarely covered in favour of the assessee by the aforesaid

order of the Jurisdictional Delhi High Court dated 22.11.2016

passed in the case of Pr. CIT vs. Sh. Mahesh Kumar Gupta (Supra)

and therefore, respectfully following the same ratio, we quash the

order passed by the Ld. CIT under Section 263 of the Act and allow

the appeal of the assessee. Since we have quashed the order u/s.

263 of the Act and allow the appeal of the assessee, hence, there is

no need to adjudicate upon the other grounds raised in the appeal of

the assessee.

Order pronounced on 04-06-2018.

Sd/- Sd/-

[N.K. BILLAIYA] (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER

Dated : 04-06-2018

SR BHATANGAR