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Facts
The assessee did not file an ITR for A.Y. 2010-11 but deposited Rs. 12,00,000/- cash. The assessment was reopened u/s 147 and completed u/s 143(3) r.w.s 147 after the assessee's explanations for the cash deposit were accepted. Later, the PCIT initiated revisionary proceedings u/s 263, alleging the assessment was erroneous and prejudicial to revenue due to discrepancies regarding the sale of a car and purchase of immovable property not adequately verified.
Held
The Tribunal found that the PCIT's jurisdiction under Section 263 was wrongly invoked. The Assessing Officer had duly considered and accepted the assessee's explanations for the issues that prompted the reassessment, and no additions were made on those grounds. Citing judicial precedents, the Tribunal emphasized that an AO cannot make additions on issues beyond the initial reasons for reopening unless directly related to the escaped income and discovered during the proceedings after a fresh notice. Therefore, the assessment order was not erroneous, and the PCIT's order was set aside, restoring the original assessment.
Key Issues
Whether the PCIT correctly assumed jurisdiction under Section 263 to revise an assessment order completed under Section 147/143(3) when the Assessing Officer had already addressed and accepted the issues that formed the basis of the reassessment, and no new related escapement of income was found requiring a fresh notice.
Sections Cited
263, 147, 148, 143(3), 139(1), 80HH, 80-I
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Income Tax Appellate Tribunal, DELHI ‘H’ BENCH,
Before: SHRI SAKTIJIT DEY, & SHRI N.K. BILLAIYA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the assessee is preferred against the order of the ld. PCIT, Gurgaon dated 26.02.2020 pertaining to A.Y. 2010-11.
2. The sum and substance of the grievance of the assessee is that the PCIT erred in assuming jurisdiction u/s 263 of the Act and further erred in holding the assessment order as not only erroneous but also prejudicial to the interest of the Revenue.
3. Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules.
Briefly stated the facts of the case are that on the basis of information in the possession of the department, the assessee was served with a notice u/s 148 of the Income-tax Act, 1961 [the Act, for short] as the Assessing Officer had reason to believe that income has escaped assessment and this is a fit case for reopening the case for assessment u/s 147 of the Act.
The following reasons were recorded for initiating proceedings u/s 147 of the Act:
“The assessee as not filed his return of income for A.Y. 2010-11. As per the information available at ITS Details (CIB/AIR/TDS/OLTAS) for Financial Year 2009-10 relevant to A.Y. 2010-11, the assessee has deposited cash of Rs.1200000/- in his bank account maintained with Standard Charted Bank and Yes Bank Gurgaon during the F.Y. 2009- 10. Therefore, a letter dated 18.02.2017 was issued to assessee, to provide an opportunity before taking any further action in this matter. In response to this letter, the assessee neither attended nor filed any reply in this office. Since the assessee failed to submit the response of the letter and assessee had not filed his return of income for A.Y. 2010-11. Therefore source of cash deposit of Rs.12,00,000/- is not proved, and hence, it is clear that he has deposited this cash in bank account, form his undisclosed income. Therefore, the same has not been disclosed to tax, as the assessee has not filed any return during the year under consideration.
Therefore, I have reason to believe that the income to the extent of Rs.12,00,000/- chargeable to tax has escaped assessment for the assessment year 2010-11 within the meaning of section 147 of the Income Tax Act, 1961. I therefore, proceed to initiate proceedings u/s 147 of the I.T. Act, 1961 in the case of assessee for A.Y. 2010- 11.”
6. The assessee replied to the satisfaction of the Assessing Officer in respect of sources of cash deposit in the bank and being satisfied with the reply of the assessee, returned income of the assessee was assessed as such.
Assuming jurisdiction conferred upon him by provisions of section 263 of the Act, the PCIT issued the following notice:
“The assessment in this case was completed u/s 143(3) r.w.s 147 of the Income Tax, 1961 at the returned income of Rs.1,47,540/- for the A.Y. 2010-11.
On perusal of the assessment records of the aforesaid assessee for the A.Y. 2010-11, following discrepancies are noticed:
On going through the record it was noticed that, the assessee filed details of assets in which it was admitted that he has sold as car for Rs. 9,31,516/- and purchase immovable property at Kanina for Rs. 28,26,580/- but no evidence regarding sale of car and purchase of immovable property has been furnished by the assessee.
On the basis discrepancies, it is observed that the assessment framed by the Assessing Officer u/s 143(3) r.w.s 147 is Prima Facie erroneous in so far as it is pre-judicial to the interest of revenue.
Keeping in view the above facts, you are provided an opportunity to show cause as to why the assessment order passed by the ITO, Ward 2(2) Gurugram, dated 23.08.2017 for the A.Y. 2010-11 in your case should not be revised u/s 263 of the Act. You are requested to attend my office on 28.01.2020 at 11:30 AM either in person or through representative duly authorized in writing on your behalf or produce or cause to be produced at the said time, any documents or any other evidence on which you rely in your support.
4. In case of no reply/non-attendance as per above, it shall be assumed that you do not wish to say anything in the matter and the matter would be decided as per material available on record without any further notice/intimation to you.”
On identical set of facts, this Tribunal in the case of Shri Paramjit Singh in order dated 01.12.2022 has held as under:
“14. In our considered opinion, for exercise of power u/s 263 of the Act, it is mandatory that the order passed by the Assessing Officer should be erroneous and prejudicial to the interest of the Revenue. A perusal of the assessment order shows that the returned income was accepted by the Assessing Officer and no addition was made for reasons recorded at the time of issue of notice u/s 148 of the Act.
15. This is an undisputed fact that the issues which prompted the Assessing Officer to reopen the assessment were duly considered and reply of the assessee was accepted and no addition was made. This fact has also not been disturbed by the PCIT in his order u/s 263 of the Act.
In our considered opinion, the Assessing Officer could not have made the addition on the issues raised by the PCIT in his order as no addition was made on account of reasons recorded for reopening the assessment.
The Hon'ble High Court of Delhi in the case of CIT Vs. Software Consultants I.T. Appeal No. 914 of 2010 order dated 17.01.2012 21 Taxmann.com 155 was seized with the following question of law:
“Whether the Tribunal was right in law in holding that the CIT had wrongly invoked the jurisdiction u/s 263 of the Act.”
The Hon'ble High Court, on facts similar to the facts of the appeal under consideration, held as under:
“9. One of the contentions, which has been accepted by the tribunal is that the order of the Assessing Officer cannot be regarded as erroneous even if the Assessing Officer had failed to carry out necessary verification and required enquiries in respect of the share application money, as no addition has been made on account of the reasons for reopening, which were recorded before issue of notice under Section 148 of the Act. It has been held that the Assessing Officer could not have made an addition on account of share application money as no addition has been made on account of FDRs of Rs.20 lacs. The tribunal has noticed and recorded that in the reasons for reopening it was mentioned that the assessee had made investment in form of FDRs of Rs.20 lacs but in the assessment order passed under Section 147/143(3) of the Act it has been held that the respondent assessee had been able to show and establish the genuineness of and capacity to make the said investment.
Similar issue had arisen before this Court in Ranbaxy Laboratories Limited versus CIT, (2011) 336 ITR 136 (Delhi). In the said case, the Division Bench had also examined Explanation 3 to Section 147, which was inserted by Finance (No. 2) Act of 2009 with retrospective effect from 1st April, 1989. Reference was made to the decision of the Bombay High Court in CIT versus Jet Airways India Limited, (2011) 331 ITR 236 (Bom.) in which it has been held as under:
"The effect of section 147 as it now stands after the amendment of 2009 can, therefore, be summarised as follows : (i) the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year ; (ii) upon the formation of that belief and before he proceeds to make an assessment, reassessment or recomputation, the Assessing Officer has to serve on the assessee a notice under sub- section (1) of section 148 ; (iii) the Assessing Officer may assess or reassess such income, which he has reason to believe, has escaped assessment and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section ; and (iv) though the notice under section 148(2) does not include a particular, issue with respect to which income has escaped assessment, he may none the less, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section."
Thereafter, the High Court referred to the decision of the Rajasthan High Court in the case of CIT versus Shri Ram Singh, (2008) 306 ITR 343 (Raj.) in which it has been observed as under:
"It is only when, in proceedings under section 147 the Assessing Officer, assesses or reassesses any income chargeable to tax which has escaped assessment for any assessment year, with respect to which he had 'reason to believe' to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under section 147.
To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under section 147, the Assessing Officer were to come to the conclusion, that any income chargeable to tax, which, according to his 'reason to believe', had escaped assessment for any assessment year, did not escape assessment, then, the mere fact that the Assessing Officer entertained a reason to believe, albeit even a genuine reason to believe, would not continue to vest him with the jurisdiction, to subject to tax, any other income, chargeable to tax, which the Assessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course of proceedings under section 147."
The Division Bench in Ranbaxy Laboratories Limited (supra)considered the judgment of the Supreme Court in the case of V. Jagmohan Rao versus CIT and EPT, (1970) 75 ITR 373(SC) and CIT versus Sun Engineering Works Private Limited, (1992) 198 ITR 297 (SC) and has then elucidated:
"18. We are in complete agreement with the reasoning of the Division Bench of the Bombay High Court in the case of CIT v. Jet Airways (I) Limited [2011] 331 ITR 236 (Bom). We may also note that the heading of section 147 is "income escaping assessment" and that of section 148 "issue of notice where income escaped assessment". Sections 148 is supplementary and complimentary to section 147. Sub-section (2) of section 148 mandates reasons for issuance of notice by the Assessing Officer and sub-section (1) thereof mandates service of notice to the assessee before the Assessing Officer proceeds to assess, reassess or recompute the escaped income. Section 147 mandates recording of reasons to believe by the Assessing Officer that the income chargeable to tax has escaped assessment. All these conditions are required to be fulfilled to assess or reassess the escaped income chargeable to tax. As per Explanation 3 if during the course of these proceedings the Assessing Officer comes to conclusion that some items have escaped assessment, then notwithstanding that those items were not included in the reasons to believe as recorded for initiation of the proceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not be presumed to have intended to give blanket powers to the Assessing Officer that on assuming jurisdiction under section 147 regarding assessment or reassessment of the escaped income, he would keep on making roving inquiry and thereby including different items of income not connected or related with the reasons to believe, on the basis of which he assumed jurisdiction. For every new issue coming before the Assessing Officer during the course of proceedings of assessment or reassessment of escaped income, and which he intends to take into account, he would be required to issue a fresh notice under section 148.
In the present case, as is noted above, the Assessing Officer was satisfied with the justifications given by the assessee regarding the items, viz., club fees, gifts and presents and provision for leave encashment, but, however, during the assessment proceedings, he found the deduction under sections 80HH and 80-I as claimed by the assessee to be not admissible. He consequently while not making additions on those items of club fees, gifts and presents, etc., proceeded to make deductions under sections 80HH and 80-I and accordingly reduced the claim on these accounts.
The very basis of initiation of proceedings for which reasons to believe were recorded were income escaping assessment in respect of items of club fees, gifts and presents, etc., but the same having not been done, the Assessing Officer proceeded to reduce the claim of deduction under sections 80HH and 80- I which as per our discussion was not permissible. Had the Assessing Officer proceeded to make disallowance in respect of the items of club fees, gifts and presents, etc., then in view of our discussion as above, he would have been justified as per Explanation 3 to reduce the claim of deduction under sections 80HH and 80-I as well."
On the second aspect raised by the Commissioner of Income Tax with regard to the Assessing Officer accepting the loss return of Rs.1,02,756/-, we are of the view that the same did not require exercise of revisionary power under Section 263 of the Act. The observations of the Assessing Officer were only to the extent of stating that he had accepted the return. Benefit of carry forward of loss can be claimed in case a return is filed under Section 139(1). It is not the case of the Revenue that the assessee had tried to claim benefit of carry forward of loss on the basis of the order passed under Section 147/143(3) of the Act.
For exercise of power under Section 263 of the Act, it is mandatory that the order passed by the Assessing Officer should be erroneous and prejudicial to the interest of the Revenue. In the present case, the Assessing Officer did not make any addition for the reasons recorded at the time of issue of notice under Section 148 of the Act. This position is not disputed and disturbed by the Commissioner of Income Tax in his order under Section 263 of the Act. Sequitur is that the Assessing Officer could not have made an addition on account of share application money in the assessment proceedings under Section 147/148. Accordingly, the assessment order is not erroneous. Thus, the Commissioner of Income Tax could not have exercised jurisdiction under Section 263 of the Act.
The question of law is accordingly answered in affirmative against the Revenue and in favour of the assessee. There will be no order as to costs.”
As mentioned elsewhere, the facts of the case in hand are pari materia same as the facts considered by the Hon'ble High Court [supra]. Therefore, we have no hesitation in setting aside the order of the PCIT dated 26.02.2020 and restore that of the Assessing Officer dated 23.08.2017.
In the result, the appeal of the assessee in is allowed.
The order is pronounced in the open court on 03.04.2024.