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Facts
The assessee, an individual, did not file a return for AY 2011-12. Information revealed the sale of immovable property for ₹70,00,000 and a deposit of ₹6,00,000. The Assessing Officer (AO) issued a notice under section 148, and the assessee filed a return declaring income of ₹1,38,774. The AO accepted the return after scrutiny. Subsequently, the Principal Commissioner of Income Tax (PCIT) revised the assessment order under section 263, citing that the original order was erroneous and prejudicial to the revenue.
Held
The Tribunal held that the revision initiated by the PCIT under section 263 was not legally sustainable as it was based on an audit objection and a proposal from the AO, without an independent application of mind by the PCIT. Furthermore, the AO had conducted a reasonable inquiry and accepted the assessee's explanation during the original assessment.
Key Issues
Whether the PCIT was justified in invoking revisional jurisdiction under Section 263 when the revision was based on audit objections and without independent application of mind, and whether the original assessment order was erroneous and prejudicial to revenue.
Sections Cited
263, 148, 142(1), 143(3), 54B, 50C
AI-generated summary — verify with the full judgment below
PER PAWAN SINGH, JUDICIAL MEMBER:
This appeal by the assessee is directed against the order of learned Principal Commissioner of Income Tax (in short, the “ld. PCIT") – 2, Nagpur dated 30/03/2021 for the Assessment Year (AY) 2011-12. The assessee has raised following grounds of appeal:
1. Whether on the facts and circumstances of the case, the learned Principal CIT was justified in invoking explanation 2 to section 263 of the Income-tax Act for the period prior to AY 2015-16.
2. Whether on the facts and circumstances of the case, the learned Principal CIT was justified in invoking revisionary jurisdiction under section 263 on the basis of change of opinion.
Fattesing Punaji Dhabre 3. Whether on the facts and circumstances of the case, the learned Principal CIT was justified in setting aside the original assessment order and directing the AO to carry out the assessment de novo. 4. Appellant craves leave to add or alter any other ground that may be taken at the time of hearing.”
Vide application dated 26.08.2024, the assessee has raised following additional grounds of appeal: “
1. On the facts and circumstances of the case and the law, the learned PCIT erred in passing revisional order under section 263 even when the assessment order sought to be revised was non–est in the eyes of laws in view of following that: a. Reassessment proceedings were initiated by order under section 148 by the assessing officer who had no territorial jurisdiction over the assessee and which is admitted fact. The Assessing Officer who has issued the notice under section 148 and Assessing Officer who has issued notice under section 142(1) are holding different territorial jurisdictions. c. As the reassessment proceedings are illegal and invalid, the reassessment order passed in consequence of such invalid notice, is also non–est in the eyes of law.
2. On the given facts and the law, the learned Assessing Officer erred in issuing reassessment notice under section 148 and also erred in passing assessment order in consequence of invalid and illegal proceedings.”
3. Facts in brief, as extracted from the order of lower authorities are that assessee is individual and has not filed return of income for A.Y. 2011–12. The assessing officer received information that assessee has sold immovable property of `. 70,00,000/ during the relevant financial year and also deposited `. 6,00,000/– in cash in his bank account. On verification of information, the assessing officer find that assessee has not filed return of income. The assessing officer after obtaining necessary approval from higher authorities recorded reasons and issued notice under section 148 on 28.03.2018. In response to notice under section 148, the assessee filed return of income for A.Y. 2011–12 on 13.11.2018 declaring income Fattesing Punaji Dhabre of `. 1,38,774/–. The assessing officer after issuing notice under section 143(2) proceeded for assessment. The assessing officer recorded that he issued various notices under section 142(1), in response to such notices, Shri Vinod Gandhi, CA appeared and made necessary compliance from time to time. It was explained that assessee is a retired Central Government employee and was deriving income from pension and bank interest. From the details furnished, it was seen that assessee claimed exemption under section 54B of `. 53,25,700/– on investment in agriculture land within the period prescribed in section 54B. The details were furnished and were placed on record. The assessing officer finally accepted the return of income in assessment order dated 21.12.2018 passed under section 143(3) r.w.s.
147. The assessment order was revised by ld. PCIT by exercising his jurisdiction under section 263. Before revising the assessment order, the ld. PCIT recorded that assessing officer / ITO, Ward –3(1), Nagpur submitted a proposal under section 263 vide proposal dated 06.02.2020. The proposal was sent through Additional Commissioner of Income Tax, Range–3 vide his letter dated 17.02.2020 agreeing with the proposal of assessing officer for revision. The ld. PCIT in para 4 of his order recorded that in receipt of proposal under section 263, he examined the record and issued show cause notice under section 263 dated 16.11.2020. The relevant part of show cause notice is recorded as page no. 2 & 3 in para 4 of his order. In the show cause notice, the ld. PCIT recorded that assessee has sold ancestral agriculture land at Vela, Harishchandra Taluka Nagpur (Rural) District Nagpur for `. 70,00,000/– on 01.02.2011. As per sale deed, the market value of Fattesing Punaji Dhabre property was of `. 1.20 crore. The assessee while filing return of income in response to notice under section 148 had considered sale consideration of `. 70,00,000/– instead of `. 1.20 crore has required under section 50C of Income Tax Act. The assessee has adopted cost of acquisition of said asset at `. 10,00,000/– as on 01.04.2021 in supporting evidence which remains unverified. The ld. PCIT further noted that assessee claimed exemption for purchase of two agriculture lands at Sonegaon for `. 32,00,000/– on 28.12.2010 and for `. 18,00,000/– on 12.03.2010. The agriculture land was purchased prior to date of transfer. The claim of exemption under section 54B was not allowable in this case. The condition of section 54B was not fulfilled. The ld. PCIT noted that order passed by assessing officer is erroneous in so far as prejudicial to the interest of revenue and deserves to be revised. The assessee filed his application dated 26.11.2020 short extension of time for filing reply. Time was allowed twice to the assessee. The ld. PCIT recorded that finally no compliance / reply was received from assessee. The ld. PCIT on considering the material on record was of the view that from the submission furnished by assessee during assessment, it is seen that assessee claimed that on sale of asset, assessee suffered capital loss. He had purchased two agriculture lands for a consideration of `. 53,25,700/– and due to capital loss he has not availed exemption. However, in computation of capital gain filed during assessment proceeding, the assessee adopted cost of acquisition at `. 10,00,000/– as on 01.04.1981 and that assessee claimed exemption under section 54B to work out capital loss of `. 98,730/–. The assessing officer accepted the explanation and Fattesing Punaji Dhabre computation of long term capital gain without further verification and enquiries. The order passed by ld. Assessing Officer is silent on the basis of cost of acquisition and computation of long term capital gain remained unverified. The ld. PCIT was of the view that order passed by ld. Assessing Officer is erroneous and prejudicial to the interest of revenue. The details on record clearly indicates that issues and discrepancies were neither verified nor enquired by ld. Assessing Officer. The ld. Assessing Officer has not properly made necessary enquiries and verification. The ld. PCIT after referring certain case law set aside the assessment order and directed the AO to reassess the income of assessee afresh after examining the relevant details and other issues and conduct proper and necessary enquiry, as may be relevant and necessary passed a speaking assessment order after allowing reasonable and fair opportunity to the assessee. Being aggrieved the assessee has filed present appeal before Tribunal.
We have heard the submissions of learned Authorized Representative (ld. AR) of the assessee and the learned Commissioner of Income Tax – Departmental Representative (ld. CIT–DR) for the Revenue. At the outset of hearing, the ld. AR of the assessee fairly submits that there is delay in filing present appeal before Tribunal. The impugned order was passed by ld. PCIT on 30.03.2021, at the time of passing of order under section 263, it was a severe Covid-19 pandemic. The assessee is a retired government employee and senior citizen and was suffering from various old age related medical issues. The Hon’ble Apex Court has extended the time period for taking recourse of law by ordinary citizen up to 28.02.2022 and Fattesing Punaji Dhabre 90 days grace period was allowed. If such period is excluded, the delay is only of 242 days. Since the assessee is a senior citizen and was suffering from various age related ailment was not keeping well. The assessee has filed his own affidavit along with medical prescription from his doctor about various ailment which is also supported with various check–ups and follow–ups and medical treatment certificate of various dates from April 2022 to September 2022. The doctor has certified that assessee was under his treatment from 2021 and was bed ridden with multiple chronic disabling health issues and also suffering from dementia. The ld. AR of the assessee submits that delay in filing appeal is absolutely neither intentional nor deliberate. The assessee is not going to be benefitted by filing appeal belatedly. The ld. AR of the assessee submits that technical consideration should not be taken against the casue substantial justice. The assessee has good case on merit and is likely to succeed if his case is head and decided on merit.
On merit, the ld. AR of the assessee submits that he has raised additional ground of appeal. The additional grounds of appeal are purely legal in nature and does not require to bring additional fact on record. The assessment order which was sought to be revised is null and void and such assessment order cannot be given new lease of life by revising such assessment order. To support such view, the ld. AR of the assessee relied upon decision of Delhi High Court in CIT vs Escorts Farma Pvt. Ltd. 180 ITR 280 (Delhi) and the decision of Mumbai Tribunal in Essar Shipping Limited in ITA No. 3156/Mum/2018. The ld. AR of the assessee further submits Fattesing Punaji Dhabre that in addition to original ground of appeal
additional ground of appeal he may also be allowed to raise other legal issues that revision was made on the basis of audit objection. It is settled law that assessment cannot be revised on the basis of mere audit objection. The ld. AR for the assessee submits that he has placed on record, copy of audit objection at page no. 31 to 33 of paper book. On the basis of audit objection, the assessing officer prepared proposal for revising assessment order vide his proposal dated 06.02.2020. The proposal of ld. Assessing Officer was forwarded by Additional Commissioner to the office of ld. PCIT vide his letter dated 17.02.2020. Thus, there was no independent application of mind by ld. PCIT for invoking his jurisdiction rather it was made on the basis of audit objection and proposal of assessing officer which is not sustainable in the eyes of law. The ld. AR of the assessee submits that there are series of decision on such issue and he may be allowed to place on record such decisions.
6. In support of original grounds of appeal
, the ld. AR of the assessee submits that during the reassessment proceeding, the assessing officer extensively examined the issue by issuing details show cause notice dated 20.11.2018. In the said show cause notice, the ld. AO required details of capital gain with computation and deduction / exemption with supporting evidence as well as justification of cash deposit of `. 6,00,000/–, copy of such show cause notice is filed at page no. 19, 20 & 21 of paper book. In response to such show cause notice, the assessee filed his reply on 17.12.2018, copy of which along with along with details furnished therewith are also filed on record at page no. 22 to 24 of paper book. In the reply, Fattesing Punaji Dhabre 01.02.2011 for a consideration of `. 70,00,000/–. The land was acquired on inheritance. Copy of sale deed was furnished. As per direction of ld. AO, the assessee also furnished computation of capital gain. The ld. AR of the assessee submits that assessee furnished two working of capital gain, first on considering sale consideration at `. 70,00,000/– and after reducing investment made as per section 54B, the assessee has suffered capital loss and in second working in considering deemed sale consideration of `. 1.20 crore, the assessee also suffered capital loss. The assessee also furnished detail explanation and submitted that if valuation of property as on 01.04.1981 is not acceptable to AO, the AO has power to refer the matter to DVO. The assessing officer was fully satisfied with the explanation furnished by assessee thereby no addition was made. The view of assessing officer is one of the legally and sustainable view which cannot be treated as erroneous view. The ld. PCIT has not considered the reply of assessee and has not specified as to how he is not satisfied as he was acting on the proposal of assessing officer which is based on audit objection. Thus, the twin condition for invoking jurisdiction under section 263 is not satisfied in the present case. If the assessing officer was not satisfied with the view of AO, it was incumbent on him to conduct fresh enquiry before setting aside the assessment order. The direction in the order under section 263 are not inconsonance with the issues in show casue notice under section 263. To support his various view on merit, the ld. AR relied upon the following decision: CIT vs Sunbeam Auto [(332 ITR 167 (Del)] CIT vs Gabriel India Ltd. [(1993) 203 ITR 108 (Bombay)]
8. (Del)] Amira Pure Foods vs The PCIT [ITA 3205/Del/2017] Narayan Tatu Rane vs ITO [ITA 2690/2691/Mum/2016 dated 06.05.2016] Arun Kumar Garg HUF vs PCIT [ITA 3391/Del/2018 dated 08.01.2019] PI Industries Limited vs LEARNED PCIT [ITA 04/Jodh/2021 (2021)
63. CCH 0156 (Jodh Trib.)] Suresh Chand Surana vs ACIT [ITA 25/RPR/2021] Grasim Industries Ltd. vs PCIT [(2021)
62. CCH 0148 Mum. Trib] Sri Kumar Pappu Singh vs DCIT [(2019) 198 TTJ 0310 (Visakha)”
On the other hand, the learned Commissioner of Income Tax – Departmental Representative (ld. CIT–DR) for the Revenue, on the plea of condonation of delay would submit that assessee has not explained the delay properly. The assessee is relying upon self–serving story and delay may not be condoned. On the admission of additional ground of appeal, the ld. CIT–DR submits that no such ground of appeal was raised before assessing officer, thus, at this stage, the assessee is not eligible to raise such plea. Even otherwise the jurisdiction of assessee, being a retired Government employee lies with assessing officer / ITO, Ward–3(1), Nagpur. On merit, the ld. CIT–DR for the revenue submits that assessment order is silent on the issues on which the ld. PCIT revised the assessment order. The assessing officer has not made any enquiry about the allowability of deduction under section 54B. Thus, the assessment order is erroneous and in so far as prejudicial to the interest of revenue. On other legal submission of ld. AR of the assessee submits that revision was proposed by assessing officer on the report of audit objection, would submit that it is an internal communication of department. Fact remains the Fattesing Punaji Dhabre same that assessing officer has not made proper enquiry. The ld. CIT–DR further submits that assessee has not taken all such objection before ld. PCIT. The assessee was allowed full opportunity to contest the revision proceeding but assessee has not contested such proceeding.
8. We have considered the submissions of both the parties and have gone through the orders of lower authorities carefully. Firstly, we are considering the plea of condonation of delay in filing appeal by assessee. We find that before Tribunal, the ld. AR of the assessee has vehemently argued that order under section 263 was passed during the severe Covid–19 pandemic and that limitation for taking recourse of law was extended by Hon’ble Supreme Court in Suo Moto Writ Petition No. 3 of 2020 up to 28.02.2022 and further 90 days grace period was allowed. The ld. AR of the assessee also explained that assessee was suffering from various old age related ailment and was under treatment of Dr. Nilesh Gharpure, copy of various medical prescription starting from 27.03.2022 to 20.09.2022 has been placed on record. The assessee has also placed on record various medical test and prescription along with medical certificate of Dr. Manjiri Jain certifying that assessee was under her treatment since 2021 and was bed–ridden with multiple chronic disabling health issues. Considering the plea of ld AR of the assessee, various medical prescripts of assessee and medical certificate issued by Dr. Nilesh Gharpure, we are satisfied that the delay in filing appeal is not intentional or deliberate or delibrate. Therefore, keeping in view the principle of law that when technical consideration and cause of substantial justice are kept against each other, Fattesing Punaji Dhabre the cause of substantial justice may be preferred. The assessee is not going to be benefitted by fling appeal belatedly. Thus, in view of the aforesaid factual and legal position, the delay in filing appeal is condoned. Now, adverting to merits of the case.
We find that assessment under section 147 read with section 143(3) was completed on 21.12.2018. in the assessment order, the Assessing Officer (AO) recorded that notices under section 142(1) was issued to the assessee and that such notices were replied by assessee with details, which were examined and were placed on record. The AO accepted return of income filed on 13.11.2018, filed in response to notice under section 148. We find that assessment was revised by ld PCIT. We find that in para 3 of order under section 263, the ld. PCIT recorded as under: “Receipt of proposal from AO Having noted the above facts, the assessing officer ITO, Ward–3(1), Nagpur submitted a proposal under section 263 in the case of this case vide letter F. No. ITO/W–3(1)/NGP/263/FPD/2019–20 dtd. 06.02.2020 through the proper channel and the same was forwarded to this officer by the concerned Addl. Commissioner of Income Tax, Range–3, Nagpur vide letter dated 17.02.2020 agreeing with the contention of the Assessing Officer that this was a fit case for revision.”
Perusal of the aforesaid observation of ld. PCIT clearly shows that action of revision was initiated at the behest of AO. Before us, the ld. AR of the assessee vehemently argued that there is no independent application of mind by ld. PCIT. The ld. PCIT initiated revision proceeding on the basis of audit objection. Copy of audit objection is placed on record at page no. 32 to 33 of paper book. Thus, it is Fattesing Punaji Dhabre crystal clear that there was audit objection in the present case and on the basis of audit objection, the assessing officer made a proposal for revision. We find that Delhi Tribunal in Ahlcon Parenterals (India) Ltd Vs PCIT (2024) 162 taxmann.com 759 (Delhi-Trib) held that jurisdiction under section 263 cannot be invoked by principal Commissioner on basis of audit objections and proposal of AO. We further find that Hon’ble Gujarat High Court in Adani Power Rajasthan Ltd. v. Assistant Commissioner of Income-tax [2023] 147 taxmann.com 548 (Gujarat)/[2023] 292 Taxman 475 (Gujarat)/[2023] 454 ITR 734 (Gujarat) also held that where Assessing Officer issued reopening notice on basis of audit objection that assessee had not disallowed entire amount of CSR expenditure which resulted in under assessment of tax, since Assessing Officer earlier himself disagreed with objections of audit party on ground that assessee-company was not required to incur any CSR expenses as per section 135 of Companies Act 2013 and CSR expenses incurred voluntarily would be allowable expenses, reopening notice was to be set aside. We further find that Special Leave Petition of the Department is also dismissed by Hon’ble Apex Court reported viz; [2026] 182 taxmann.com 367 (SC). We find that exactly similar issue was considered by Pune Bench in the case of Alfa Lavan Lund AB vide order dtd. 02.11.2021.
In view of the aforesaid factual and legal position, we find that revision proceeding on audit objection as well as proposal of assessing officer is not legally sustainable. Hence, the revision order under section 263 is set aside / quashed.
Fattesing Punaji Dhabre 12. Even on merit, we find that during assessment, the assessing officer issued various show cause notices and examined the issue which is sought to be revised. We find that assessee in its submission dated 17.12.2018, wherein the assessee furnished complete details about and contended that he suffered loss on sale of such land. He also furnished two alternative working of capital gain, copy of which along with along with details furnished therewith are also filed on record at page no. 22 to 24 of paper book. Thus, we find that AO examined the issue on merit. No doubt, there is no reference about the inquires carried out by AO, but fact remains the same that the AO made reasonable investigation of facts and accepted the return of income. As noted above the revisions was initiated on the objection of audit. Therefore, even on merit, we find that assessing officer has taken reasonable, plausible and legally sustainable view, if the same is not acceptable to ld. PCIT, the same is nothing but change of opinion. Thus, the assessee is also succeeded on merit. Considering the facts, that we have allowed appeal of assessee on two primary submissions of ld AR, therefore, adjudication on other contentions have become academic.
In the result, this appeal of assessee is allowed. Order announced in open court on 24th February 2026 Sd/– Sd/– KHETTRA MOHAN ROY PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER Nagpur: Dated: 24/02/2026 Biswajit 13 Fattesing Punaji Dhabre