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Income Tax Appellate Tribunal, JAIPUR BENCHES,’A’ JAIPUR
Before: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 133/JP/2022
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,’A’ JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM deys’k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 133/JP/2022 fu/kZkj.k o"kZ@Assessment Year :2012-13 cuke Sh. Narendra Kumar Agarwal PCIT, Vs. Jawali Bhawan, Station Road, Jaipur-1 Alwar LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AKEPA 0553 E vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. P. C. Parwal (CA) jktLo dh vksj ls@ Revenue by : Sh. Avdhesh Kumar (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 15/06/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 21/07/2022 vkns'k@ ORDER PER: RATHOD KAMLESH JAYANTBHAI, A.M. This appeal is filed by the assessee aggrieved from the order of the Pr. Commissioner of Income Tax, Jaipur-1 [Here in after referred as Ld. Pr.CIT] for the assessment year 2012-13 dated 28.03.2022 which in turn arises from the order passed by the Income Tax Officer passed under Section 143(3) of the Income tax Act, 1961 (in short 'the Act') dated 25.11.2019.
Aggrieved from the order of Pr. CIT, the assessee has marched this appeal on the following grounds;
2 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1
“1. Under the facts and circumstances of the case, order passed by the Ld. PCIT u/s 263 is illegal & bad in law and the same be quashed. 2. The Ld. PCIT has erred on facts and in law in holding that assessment order passed by AO is erroneous and prejudicial to the interest of revenue since AO has not examined the assessee’s claim of deduction of stamp duty payment, claim of deduction u/s 54F on purchase of the house property which was made after due date of filing of return u/s 139 and the applicability of section 50C ignoring that all these 3 issues has been explained by the assessee to the AO in reply dt. 19.11.2019, 20.11.2019 & 21.11.2019 and considering the same AO has accepted the calculation of long term capital gain worked out by the assessee.
The Ld. PCIT has erred on facts and in law in holding that the order passed by AO is erroneous in so far as prejudicial to the interest of revenue since he has not initiated penalty proceedings u/s 271F of the Act.”
The fact as culled out from the records is that the assessee filed the return on 19.11.2019 in response to notice u/s 148 declaring total income of Rs.2,03,104/-. In the return assessee calculated long term capital gain on sale of agricultural land at village Mungaska District Alwar at Nil after claiming deduction on account of indexed cost of acquisition and deduction u/s 54F.
The AO completed the assessment at the declared income after considering the reply of assessee dt. 19.11.2019, dt. 20.11.2019 and dt. 21.11.2019 where complete facts about the sale of land, cost of acquisition/ improvement of land and investment in purchase of residential house were explained.
3 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 5. After culmination of the assessment proceedings, the Pr. CIT called for the assessment records of the assessee. It was observed by the ld. Pr. CIT that on sale of agricultural land, the long term capital gain works out at Rs.43,47,290/- for the reason that (i) against the actual sales consideration of Rs.50 lacs, the stamp authorities have evaluated the same at Rs.85,37,160/- (ii) deduction claimed u/s 54F is on account of investment made in purchase of house property in the name of wife Smt. Deepawali Agarwal and sister-in-law Smt. Santosh Agarwal which is not allowable (iii) investment is done after the due date of furnishing the return of income u/s 139 (iv) documentary evidence in support of claim of stamp duty of Rs.4,74,161/- is not furnished and the penalty proceedings u/s 271F has not been initiated.
Assessee submitted detailed reply vide letter dt. 27.02.2022 but the Ld. CIT at Para 10 of his order after admitting that assessee has only reiterated the facts which were mentioned at the time of assessment proceedings observed that AO failed to apply his mind and failed to invoke the applicable provisions of the law making his order erroneous and prejudicial to the interest of revenue which is liable for revision under clause (a) & (b) of Explanation 2 to section 263. Thus, the AO is directed to make necessary verification in respect of the observation made and to pass fresh assessment order. Accordingly, the Pr. CIT not finding favour with the reply of the assessee even though the latter had tried to impress upon Pr. CIT that there is no error on the part of the assessing officer and in turn by assessee too. The ld. AO has
4 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 after taking all the evidences on record and considering the reasons based upon which the assessment was re-opened passed an assessment order. The Pr. CIT has not considered the submission of the assessee and “set aside” the order of the A.O with a direction to re-decide the issue afresh and reframe the assessment. The relevant finding of the ld. Pr. CIT given at para 10 to 12 which reads as under:-
“10. The reply of the assessee has been considered but not found tenable. The assessee has only reiterated the facts which were mentioned at the time of assessment proceedings. No new fact has been brought on record by the assessee. The assessee has submitted that the demand letter issued by the Collector stamp dated 05.05.2014 amounting to Rs. 14,87,735/- is enclosed. But again, no proof of payment of stamp duty has been enclosed. Further, the investment was done after the due date of furnishing the return of income u/s. 139, no proof has been submitted that whether such amount had been appropriated by depositing it in Capital Gain Account. The assessee has submitted that provisions of section 50C are not applicable on the assessee as the Assessee and co owner have invested full sale consideration of Rs. 50 lakhs in Purchase and construction/improvement. However, the argument of the assessee is not acceptable. The stamp duty value of Rs. 85,37,160/- was determined by the stamp authorities and is to be considered for 50C purposes. The assessee has claimed that as the full sale consideration has been invested for purpose of section 54F, the value determined uis. 50C would not be applicable. However, computation of capital gain and computation of exemption have to be worked out on the basis of substituted sale consideration in terms of section 50C as held by the Hon'ble Bombay High Court in the case of Jagdish C. Dhabalia [104 taxmann.com 208(Bombay) Further, as no return of income was filed by the assessee, hence penalty u/s. 271F was also required to be levied.
As discussed above, the Assessing Officer failed to apply his mind and failed to invoke the applicable provisions of law. This is turn has resulted in passing of an erroneous order by the Assessing Officer in
5 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 the case due to non-application of mind to relevant material and an incorrect assumption of facts which is prejudicial to the interest of the revenue and hence liable for revision under section 263 of the Income Tax Act. The Hon'ble Supreme Court in the case of Malabar Industrial Limited Vis CIT 243 ITR it has held as under
“…….An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind."
Considering all the facts and circumstances of the case and for the reasons discussed above, the assessment order dated 25-11-2019 for A.Y. 2012-13 passed by the AO is held erroneous in so far as it is prejudicial to the interests of the revenue for the purpose of section 263 of the I.T. Act. The said order has been passed by the Assessing Officer in a routine and casual manner without applying the applicable sections of the Act. The Assessing Officer has not verified the details which were required to be verified under the scope of scrutiny. The order of the Assessing Officer is, therefore, liable to revision under the explanation (2) clause (b) and clause (a) of section 263 of the Income Tax Act. The assessment order is set aside to be made afresh in the light of the observation made in this order. The AO is required to make necessary verification in respect of the observations made in this order after allowing reasonable opportunity to the assessee.”
On merits, it was submitted by the ld. AR, that as the A.O while framing the assessment had after making necessary verifications taken a plausible view, therefore, the Pr. CIT had exceeded his jurisdiction by seeking to review the order passed by him in the garb of the revisional powers vested with him under Sec.263 of the Act. It was submitted by the ld. AR, that the assessee filed the return on 19.11.2019 in response to notice u/s. 148 declaring total income of Rs. 2,03,104/-. In the return assessee calculated long term capital gain on sale of agricultural land at Village Mungaska District Alwar at Nil after claiming deduction on
6 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 account of indexed cost of acquisition and deduction u/s. 54F. The AO has completed assessment at declared income after considering the reply of the assessee dated 19.11.2019, 20.11.2019 and 21.11.2019 where complete details and facts related to the case showing the details of assets sold, cost of acquisition / improvement claimed and details of the investment made in the new assets everything were filed and explained. The ld. AR of the assessee also explained that there were 5 vigha of land, 1/5th being share of assessee sold at actual consideration of 50 lacs. Accordingly, out of total cost of 5 Bighas 1/5th cost was claimed. Investment were made in the family members only and is not prohibited under the law based on various decided case that the same can be invested in the close family member’s name and when ultimately the investment is made as per law the benefit have been granted by the AO taking a possible view that ld. Pr. CIT cannot direct the AO to take another view than what is taken by the AO and the law does not permit such direction as per provision of section 263. As regards the 50 C and cost of improvement claimed the ld. AR relied on written submission. The ld. AR submitted that based on the submission the ld. AO has taken a considered view. In addition, the ld. AR has submitted a detailed submission in this appeal which is extracted here in below for the sake of convenience: -
“1. At the outset it is submitted that clause (a) & (b) of Explanation 2 to section 263 applies when the order is passed without making enquiries or verification which should have been made and the order is passed allowing any relief without enquiring into the claim. In the present case, the AO before passing the assessment order has made
7 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 necessary enquiry and verification and thereafter allowed the claim of assessee as is evident from the following facts available on record:-
(a) In the computation of total income itself, assessee has stated that he and four co-owners have sold 1 bigha out of 5 bigha ancestral agricultural land for Rs.50 lacs in which his share is only Rs.10 lacs but to purchase piece of mind, the complete sales consideration is declared by him. He further specified that the house is purchased in the name of his wife and wife of the brother who is completely blind and dependent upon him. Further section 50C is not applicable as full sales consideration of Rs.50 lacs is invested in purchase & construction/improvement for which decision of ITAT, Jaipur Bench is referred.
(b) In reply dt. 19.11.2019, complete facts & evidence relating to the sale of agricultural land, investment in the residential house, claim of indexed cost of acquisition & indexed cost of improvement, claim of deduction u/s 54F and non applicability of section 50C supported by the case laws was filed.
(c) In reply dt. 20.11.2019 (PB 25-28), the blindness certificate of brother, evidence of brokerage paid on sale of land and evidence of expenditure incurred on the agriculture land was filed.
(d) In reply dt. 21.11.2019, explanation with respect to investment in house property and evidence of expenditure incurred on construction & improvement in the house property along with the source of same was filed.
The AO after verifying all the documents/ evidences with respect to the cost of acquisition, cost of improvement of agriculture land sold, stamp duty paid vis-à-vis the investment in purchase of house and expenditure on construction incurred thereon as also referred at Pg 2 of the assessment order accepted the working of Nil capital gain on sale of the agriculture land. Thus, when the AO has made necessary enquiries and verification with reference to the computation of long term capital gain and thereafter allowed deduction u/s 54F, his order cannot be held to be erroneous so far as prejudicial to the interest of revenue only because the Ld. CIT held a
8 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 different view. In this connection reliance is placed on the following cases:-
• Sir Dorabji Tata Trust Vs. DCIT(E) 188 ITD 38 dt. 28.12.2020 (Mum.) (Trib.) The Hon’ble ITAT Mumbai Bench in Para 19-22 held as under:- “19. The question that we also need to address is as to what is the nature of scope of the provisions of Expl. 2(a) to s. 263 to the effect that an order is deemed to be "erroneous and prejudicial to the interests of the Revenue" when CIT is of the view that "the order is passed without making inquiries or verification which should have been made".
Undoubtedly, the expression used in Expln. 2 to s. 263 is "when CIT is of the view," but that does not mean that the view so formed by the CIT is not subject to any judicial scrutiny or that such a view being formed is at the unfettered discretion of the CIT. The formation of his view has to be in a reasonable manner, it must stand the test of judicial scrutiny, and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant-that an AO is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once CIT records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a view and we must uphold the validity of revision order, for the recording of that view alone, it would result in a situation that the CIT can de facto exercise unfettered powers to subject any order to revision proceedings. To exercise such a revision power, if that proposition is to be upheld, will mean that virtually any order can be subjected to revision proceedings; all that will be necessary is the recording of the CIT's view that "the order is passed without making inquiries or verification which should have been made". Such an approach will be clearly incongruous. The legal position is fairly well settled that when a public authority has the power to do something in aid of enforcement of a right of a citizen, it is imperative upon him to exercise such powers when circumstances so justify or warrant. Even if the words used in the statute are prima facie enabling, the Courts will readily infer a duty to exercise a power which is invested
9 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 in aid of enforcement of a right—public or private—of a citizen. [ L Hirday Naran vs. ITO (1970) 78 ITR 26 (SC) ]. As a corollary to this legal position, when a public authority has the powers to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the AO does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant–that an AO is expected to be, CIT cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made". The true test for finding out whether Expln. 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the CIT, about the lack of necessary inquiries and verifications, but an objective finding that the AO has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the AO is expected to be.
That brings us to our next question, and that is what a prudent, judicious, and responsible AO is to do in the course of his assessment proceedings. Is he to doubt or test every proposition put forward by the assessee and investigate all the claims made in the IT return as deep as he can? The answer has to be emphatically in negative because, if he is to do so, the line of demarcation between scrutiny and investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within no matter how liberal a time-limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the IT return and claims made therein as to whether these are prima facie in accordance with the law and where one has any reasons to doubt the correctness of a claim made in the IT return, probe into the matter deeper in detail. He need not look at everything with suspicion and investigate each and every claim made in the IT
10 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if at all any, required to be critically examined by a thorough probe. While it is true that an AO is not only an adjudicator but also an investigator and he cannot remain passive in the face of a return which is apparently in order but calls for further inquiry but, as observed by Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs. Addl. CIT & Ors. 1975 CTR (Del) 61 : (1995) 99 ITR 375 (Del) , "it is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. (Emphasis, by underlining, italicised in print, supplied by us). It is, therefore, obvious that when the circumstances are not such as to provoke an inquiry, he need not put every proposition to the test and probe everything stated in the IT return. In a way, his role in the scrutiny assessment proceedings is somewhat akin to a conventional statutory auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston Cotton Mills (1896) 2 Ch.D 279, 288), in respect of the role of an auditor, would equally apply in respect of the role of the AO as well. His lordship had said that an auditor (read AO in the present context)" is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a bloodhound". Of course, an AO cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an AO, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the AO's notice in the assessment proceedings cannot be said to be lacking bona fide, and as long as the path adopted by the AO is taken bona fide and he has adopted a course permissible in law, he cannot be faulted-which is a sine qua non for invoking the powers under s. 263. In the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) , Hon'ble Supreme Court has held that "Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted
11 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law." The test for what is the least expected of a prudent, judicious and responsible AO in the normal course of his assessment work, or what constitutes a permissible course of action for the AO, is not what he should have done in the ideal circumstances, but what an AO, in the course of his performance of his duties as an AO should, as a prudent, judicious or reasonable public servant, reasonably do bona fide in a real-life situation. It is also important to bear in mind the fact that lack of bona fides or unreasonableness in conduct cannot be inferred on mere suspicion; there have to be some strong indicators in direction, or there has to be a specific failure in doing what a prudent, judicious and responsible officer would have done in the normal course of his work in the similar circumstances. On a similar note, a Co-ordinate Bench of the Tribunal, in the case of Narayan T. Rane vs. ITO (2016) 70 taxmann.com 227 (Mumbai) has observed as follows:
Clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by learned Principal CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-a-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for cl. (a) of Expln. 2 to s. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have claimed out or not. It does not authorise or give unfettered powers to the learned Principal CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made."
Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary
12 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 verifications are not done, CIT may indeed have the powers to invoke his powers under s. 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage for such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under s. 263, r/w Expl. 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the CIT can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the AO for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the CIT. In exercise of his powers under s. 263, the CIT may as well direct the AO that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the CIT finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the Revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the CIT is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the AO, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the CIT, in the exercise of his powers under s. 263, can set aside an order, for lack of proper inquiry or verification, and ask the AO to conduct such inquiries or verifications afresh.” • Nalco Company Vs. CIT (2021) 200 DTR 275 (Pune) (Trib.)
If the AO makes inquiry, examines the issue which is borne out from the record of the assessment proceedings and then reaches a conclusion in favour of the assessee which is legally possible, the assessment order cannot be characterized as erroneous and prejudicial to the interest of the Revenue. Since none of the four
13 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 clauses of the Expln. 2 to sec. 263(1) applies to the case under consideration, revisionary power even under the enlarged scope of the Expln. 2 was not legally exercisable.
• Torrent Pharmaceuticals Ltd. Vs. DCIT (2018) 173 ITD 130 (Ahd.) (Trib.)
Even after the insertion of Explanation 2, the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and in turn will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO.
• Amira Pure Foods Pvt. Ltd. Vs. PCIT (2017) 51 CCH 473 (Del.) (Trib.)
Explanation 2 to s. 263 inserted w.e.f. 01.06.2015 does not override the law as interpreted by the various High Courts whereby it is held that the CIT cannot treat the AO's order as being erroneous and prejudicial to the interest of revenue without conducting an enquiry and recording a finding. If the Explanation is interpreted otherwise, the CIT will be empowered to find fault with each and every assessment order and also to force the AO to conduct enquiries in the manner preferred by the CIT, thus prejudicing the mind of the AO. This will lead to unending litigation
14 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 and no finality in the legal proceedings which cannot be the intention of the legislature in inserting the Explanation. • CIT Vs. Vijay Kumar Koganti (2020) 275 Taxman 394 (Mad.) (HC)
Where AO examined issue regarding substantial increase in capital investment reflected by assessee in balance sheet in scrutiny assessment and passed assessment order, in absence of any finding by Pr. Commissioner as to how assessment order was erroneous, Tribunal rightly set aside revisional order passed by Pr. Commissioner on said issue.
The principles laid down in these decisions when applied to the facts of assessee’s case it is evident that in the assessee’s case AO has made all the necessary enquiry and verification as can be expected of a of a prudent, judicious and responsible AO in normal course of his assessment work. The Ld. CIT has not specified as to what type of enquiry ought to have been made by AO which would have resulted into income or disallowance or any other adverse action. Thus, none of the conditions of clause (a) & (b) of Explanation 2 to section 263 is attracted. Hence, the order passed by AO can’t be branded as erroneous and prejudicial to the interest of revenue.
It may be noted that Sh. Ramawtar Agarwal, father of assessee purchased 5 bigha of agricultural land on 10.04.1975 for Rs.20,000/- and as per the court decree the sale deed was executed by the court in his favour on 21.10.2002. However, the Rajasthan Kar Board, Ajmer vide its order dt. 05.05.2014 assessed its value at Rs.1,25,92,121/- and accordingly raised demand of Rs.14,07,735/- on account of short payment of stamp duty. Accordingly in computing the capital gain assessee took cost of 1 bigha of agricultural land sold on 27.09.2011 at Rs.25,18,424/- (1/5th of Rs.1,25,92,121/-) and stamp duty at Rs.2,70,000/- (1/5th of Rs.13,50,000/- instead of 1/5th of Rs.14,07,735/-) and accordingly computed the indexed cost of acquisition. The 1 bigha agricultural land was sold for Rs.50 lacs but the stamp authorities for stamp duty purpose valued it at Rs.85,37,160/- (PB 47-51). However, since the entire sales consideration was utilized on purchase of house property by executing 3 sale deeds dt. 28.09.2012 (PB 59-67), dt. 29.04.2013 and dt. 11.02.2014 for Rs.40 lacs plus stamp duty expenditure of
15 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 Rs.2,34,500/- and incurred expenditure of Rs.7,77,000/- (PB 31-34) on construction, section 50C is not applicable as held by various decisions including ITAT, Jaipur Bench. Further as held by various Courts that if investment is made within the time available for filing the return u/s 139(4) or the investment is made in the name of wife or dependent family members, same is eligible for deduction u/s 54F. The AO considering the same has allowed benefit of section 54F to the assessee and therefore, only because the Ld. CIT held a different view, the assessment order passed by AO cannot be held to be erroneous. In this connection reliance is placed on the following decisions:-
• CIT Vs. Kwality Steel Suppliers Complex (2017) 157 DTR 1/ 250 Taxman 23 (SC)
Where two views are possible and the AO has taken one view, the assessment order cannot be treated as erroneous or prejudicial to the interest of revenue. This is for the reason that while exercising the revisionary jurisdiction, the CIT is not sitting in appeal. In the instant case, the assessee firm was constituted with two partners viz., mother and son. It stood dissolved by the operation of law in view of the death of one of the partners, i.e. the mother but the business did not come to an end as the other partners, viz., son who inherited the share of the mother continued with the business. In this situation, there was no question of selling the assets of the firm including stock-in-trade and therefore, it was not necessary to value stock-in-trade at market price. Thus, the view taken by AO in accepting the book value of the stock-in-trade was a plausible and permissible view and therefore, the CIT could not exercise his powers u/s 263.
• CIT Vs. Max India (2007) 295 ITR 282 (SC)
Where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law—When the CIT passed the impugned order under sec. 263, two views were inherently possible on the word "profits" occurring in the proviso to s. 80HHC(3)—Subsequent amendment of s. 80HHC made in the year 2005, though retrospective, did not render the order of the AO
16 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 erroneous and prejudicial to the interest of the Revenue, and CIT could not exercise powers under sec. 263.
• Malabar Industrial Co. Ltd. Vs. CIT (2000) 243 ITR 83 (SC)
The relevant findings at Para 11 is as under:-
The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue. For example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of Revenue ; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the ITO is unsustainable in law.
The Ld. CIT has also observed that since return of income was not filed, penalty u/s 271F is required to be levied but since the AO has not initiated penalty proceedings, his order is erroneous. It may be noted that u/s 263, where the Commissioner finds while examining the records of an assessment order that AO has not initiated penalty proceedings, he cannot direct initiation of penalty proceedings because penalty proceedings are not part of assessment proceedings. Therefore, the Commissioner cannot pass an order u/s 263 pertaining to penalty. In this connection, reliance is placed on the following cases:-
• CIT Vs. Rakesh Nain Trivedi (2016) 128 DTR 309 (P&H) (HC)
In this decision after considering the decisions of various High Courts, both in favour and against the assessee, it was held that CIT cannot direct the AO u/s 263 of the Act to initiate the penalty proceedings. The relevant Para 5 to 8 of the order is reproduced as under:-
After hearing learned counsel for the parties, we find the issue that arises for consideration of this Court in this appeal is could the CIT in exercise of power under s. 263 of the Act hold the order of the AO to be erroneous and prejudicial to the interest of the
17 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 Revenue where the AO had failed to initiate penalty proceedings while completing assessment under s. 153A of the Act.
It may be noticed that the said issue is no longer res integra. This Court in CIT vs. Subhash Kumar Jain (supra) agreeing with the view of High Courts of Delhi in Addl. CIT vs. J.K. D'Costa (supra), CIT vs. Sudershan Talkies (1993) 112 CTR (Del) 165: (1993) 201 ITR 289 (Del) and CIT vs. Nihal Chand Rekyan (1999) 156 CTR (Del) 59 : (2000) 242 ITR 45 (Del), Rajasthan in CIT vs. Keshrimal Parasmal (1985) 48 CTR (Raj) 61 : (1986) 157 ITR 484 (Raj), Calcutta in CIT vs. Linotype & Machinery Ltd. (1991) 192 ITR 337 (Cal) and Gauhati in Surendra Prasad Singh & Ors. vs. CIT (1988) 71 CTR (Gau) 125 : (1988) 173 ITR 510 (Gau) whereas dissenting with the diametrically opposite approach of Madhya Pradesh High Court in Addl. CIT vs. Indian Pharmaceuticals (1980) 123 ITR 874 (MP), Addll. CIT vs. Kantilal Jain (1980) 125 ITR 373 (MP) and Addl. CWT vs. Nathoolal Balaram (1980) 125 ITR 596 (MP) had concluded that where the CIT finds that the AO had not initiated penalty proceedings under s. 271(1)(c) of the Act in the assessment order, he cannot direct the AO to initiate penalty proceedings under s. 271(1)(c) of the Act in exercise of revisional power under s. 263 of the Act. The relevant observations recorded therein read thus: "9. Now adverting to the second limb, it may be noticed that the Delhi High Court in judgment reported in Addl. CIT vs. J.K. D'Costa (1981) 25 CTR (Del) 224 : (1982) 133 ITR 7 (Del) has held that the CIT cannot pass an order under s. 263 of the Act pertaining to imposition of penalty where the assessment order under s. 143(3) is silent in that respect. The relevant observations recorded are : ‘It is well established that proceedings for the levy of a penalty whether under s. 271(1)(a) or under s. 273(b) are proceedings independent of and separate from the assessment proceedings. Though the expression "assessment" is used in the Act with different meanings in different contexts, so far as s. 263 is concerned, it refers to a particular proceeding that is being considered by the CIT and it is not possible when the CIT is dealing with the assessment proceedings and the assessment order to expand the scope of these proceedings and to view the penalty proceedings also as part of the proceedings which are
18 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 being sought to be revised by the CIT. There is no identity between the assessment proceedings and the penalty proceedings; the latter are separate proceedings, that may, in some cases, follow as a consequence of the assessment proceedings. As the Tribunal has pointed out, though it is usual for the ITO to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the Court of the proceedings for assessment. It is sufficient if there is some record somewhere, even apart from the assessment order itself, that the ITO has recorded his satisfaction that the assessed is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases it is possible for the ITO to issue a penalty notice or initiate penalty proceedings even long before the assessment is completed though the actual penalty order cannot be passed until the assessment finalised. We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the ITO to record in the assessment order his satisfaction or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect. An assessment cannot be said to be erroneous or prejudicial to the interest of the Revenue because of the failure of the ITO to record his opinion about the leviability of penalty in the case.’ 10. Special leave petition against the said decision was dismissed by the apex Court [(1984) 147 ITR (St) 1] The same view was reiterated by the Delhi High Court in CIT vs. Sudershan Talkies (1993) 112 CTR (Del) 165: (1993) 201 ITR 289 (Del) and followed in CIT vs. Nihal Chand Rekyan (1999) 156 CTR (Del) 59 : (2000) 242 ITR 45 (Del). The Rajasthan High Court in CIT vs. Keshrimal Parasmal (1985) 48 CTR (Raj) 61 : (1986) 157 ITR 484 (Raj), Gauhati High Court in Surendra Prasad Singh & Ors. vs. CIT (1988) 71 CTR (Gau) 125 : (1988) 173 ITR 510 (Gau) and Calcutta High Court in CIT vs. Linotype & Machinery Ltd. (1991) 192 ITR 337 (Cal) have followed the judgment of Delhi High Court in J.K. D’Costa's (1981) 25 CTR (Del) 224 : (1982) 133 ITR 7 (Del) case.
19 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 11. However, Madhya Pradesh High Court in Addl. CIT vs. Indian Pharmaceuticals (1980) 123 ITR 874 (MP) which has been followed by the same High Court in Addl. CIT vs. Kantilal Jain (1980) 125 ITR 373 (MP) and Addl. CWT vs. Nathoolal Balaram (1980) 125 ITR 596 (MP) has adopted diametrically opposite approach. 12. We are in agreement with the view taken by the High Courts of Delhi, Rajasthan, Calcutta and Gauhati, and express our inability to subscribe to the view of Madhya Pradesh High Court. 13. Accordingly, it is held that the initiation of proceedings under s. 263 was not justified. The Tribunal was right in holding that after examining the record of the assessment in exercise of powers under s. 263, where the CIT finds that the AO had not initiated penalty proceedings, he cannot direct the AO to initiate penalty proceedings under s. 271(1)(c) of the Act."
In view of the above, equally we are unable to subscribe to the view adopted by Allahabad High Court in Surendra Prasad Aggarwal's case (supra) where judgment of Madhya Pradesh High Court in Indian Pharmaceuticals' case (supra) noticed hereinbefore has been concurred with. 8. Accordingly, it is held that the initiation of proceedings under s. 263 of the Act was not justified and we uphold the order of the Tribunal cancelling the revisional order passed by the CIT.
• CIT Vs. Keshrimal Parasmal (1986) 157 ITR 484 (Raj.) (HC)
CIT in revision is not entitled to set aside the assessment order on the ground of non-mention of initiation of penalty proceedings. Also, he cannot direct the ITO to make fresh assessment to initiate penalty proceedings. Thus, the order of Tribunal cancelling CIT's order u/s 263 whereby the CIT set aside the assessment order to be made de novo for initiation of penalty proceedings is justified.
Hence, on this issue the order passed by AO cannot be held to be erroneous.
In view of above, order passed by Ld. PCIT u/s 263 is illegal & bad in law and be quashed.”
20 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1
Per contra, the ld. Departmental Representative (for short ‘’D.R’’) relied on the order passed by the Pr. CIT under Sec.263 of the Act. It was submitted by the ld. DR, that there are various flows in the order of the assessment passed by the assessing officer as pointed out the ld. Pr. CIT. The assessee has not filed any valuation report for taking cost of 2001 and has merely relied upon the value adopted by the court order and the same is not as per provision for allowing the cost. The assessing officer has not taxed the assessee as per provision of section 50C of the act even though same is applicable to the facts of the case. The ld. AO has also not applied the 50C for the new assets purchased by the assessee. The ld. DR also relied upon the judgment of Bombay HC in the case of Jagdish C. Dhabalia Vs. ITO (25(2)(1) Mumbai. In this case the court has held that the assessee could claim exemption only in relation to the investment made in the specified bond and not qua the entire capital gain computed as per section 50C and thus, on this aspect he said the Pr. CIT has rightly invoked the provision of section 263 of the Act as the order of the AO is erroneous, insofar it was prejudicial to the interest of the revenue, ‟ had rightly „set aside his assessment with a direction to re - adjudicate the issue therein involved. Our attention was also drawn by the ld. D.R to his written submissions and certain judicial pronouncements in support of his aforesaid contention. The same is reproduced for the sake of brevity:
“Please refer to the above mentioned subject.
21 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 It is seen that in the written submission, the Ld AR has raised several legal questions. In this regard, his submission of this office is as given below: One argument has been given by the appellant that once PCIT has given a concrete finding then the case need not be set aside and sent back to the AO for assessing income de-novo as AO is left with no option but to follow the directions of the PCIT. In this regard, the following judicial pronouncements are brought to the notice of the Hon'ble bench where similar action was taken by CIT/PCIT and the action has been confirmed.
i) Nahar Spinning Mills (P&H) 117 taxman.com 40 In this case, CIT was of the opinion that Assessing Officer erred in allowing deduction under section 80-I on duty draw back received on manufactured goods. The contention of the assessee that the said issue was subject- matter of appeal before the First Appellate Authority was rejected. The Commissioner set aside the assessment order directing the Assessing Officer to withdraw the relied allowed under section 80-I on duty draw back.
Thus, the CIT passed order u/s 263 wherein the assessment order was set aside directing the AO that to withdraw the relied allowed under section 80-I on duty draw back on goods manufactured and exported out of India. The appeal of the assessee against this order u/s 263 was dismissed.
ii) Saroj Prints Arts ITAT Mumbai 113 taxman.com 264
− Relevant year, Assessing officer completed assessment under section 144 wherein he allowed deduction towards interest and remuneration paid to partners- Commissioner opined that when Assessing Officer completed assessment under section 144 he was required to disallow interest and remuneration paid to partners as per section 184(5) — He thus passed a revisional order setting aside assessment − Principal Commission observed that when the Assessing Officer has completed the assessment under section 144 of the Act he was required to disallow the interest and remuneration paid to partner as per section 184(5) of the Act. The Assessing officer having failed to do
22 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 so, learned Principal Commission held the assessment order to be erroneous inasmuch as prejudicial to the interest of Revenue. Accordingly, he set aside the assessment order with a direction to the Assessing Officer to assessee the income of the assessee afresh.
Therefore, in this case also, specific finding and direction was given and the assessment order was set aside. The appeal of the assessee against this order u/s 263 was dismissed.
iii) Kerala State Electricity (ITAT Cochin) 111 taxman.com 353 CIT noted that duty on sale of energy should be borne by licensee and shall not be passed on to customer and Electricity Duty under section 3(1) KSED Act being and exclusive levy on assessee, which was a State Government undertaking was to be disallowed under section 40(a)(iib)-Accordingly he set aside assessment order being erroneous and prejudicial to interest of revenue.
Therefore in this case also, specific finding and direction was given and the assessment order was set aside. The appeal of the assessee against this order u/s 263 was dismissed.
Decision on merits need to be given by the CIT in order u/s 263:- Now another case law is relevant. In this case, specific finding on merits was not given by the CIT in the order 263 of the Act and it was held that the order u/s 263 is not proper and the order u/s 263 was quashed.
ITO Vs DG Housing projects Ltd. (Delhi) ITA No. 79/2011 dated 1- Mar-2012
In this case, CIT held, inter alia. as quoted below:
"Para 4
(i) ............................................................................................................. It is clear that the aspect of full value of consideration receivable has not been properly examined by the Assessing Officer and the assessment order is erroneous and prejudicial to the interest of the revenue.
23 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 ii) …………… However, reference need not be made to the Valuation officer when the value of the asset is determinable as per the formula laid down in Scheduled —Ill of the Wealth Tax Act. Only when it cannot make a reference by this method does the Assessing Officer make a reference to the Valuation Officer. CIT further held that in this case this formula is clearly applicable and the valuation can be worked out as per the method laid down in Schedule-Ili. Hence, the assessee's argument is not tenable. iii) ................ It is hence set aside to be made afresh by the Assessing Officer accordingly to law after giving opportunity to the assessee of being heard."
Hon'ble Tribunal set aside the order observing that the CIT had not held and come to the conclusion or given a finding that the actual receipt of consideration was more than what was declared in the return (i.e. CIT has not given a concrete finding or conclusion).
Hon'ble Delhi High Court observed that the CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits.
The Hon’ble Delhi then dismissed the appeal of Revenue.
From the above case laws, it is clear that CIT need to give a clear- cut finding on the merits of the case before setting aside the assessment to be done afresh. So, the argument of the appellant that “once CIT decides and give a clear cut finding then there is nothing left for the AO to do “is liable to be rejected.”
We have perused the case laws relied upon by the revenue. The decision relied upon are 1) Nahar Spinning Mills 117 Taxmann.com 40 where in the issue is related to deduction of 80 I
24 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 on duty draw back allowed by the AO and whereas this is chargeability of capital gain and consequent there upon allowability of investment made by the assessee. The Second decision relied upon by the revenue is decision in the case of Saroj Prints Arts ITAT Mumbai benches where in while passing the order u/s. 144 the AO has not considered amount disallowable in that case and where in this case the AO has already applied his mind and called for the details on the issue before him. The third decision relied upon is Kerala State Electricity 111 Taxman.com 353 related to disallowable amount of electric city duty u/s. 40(a)(iib) and the fact are thus different.
We have heard the ld. authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by each party. Our indulgence in the present appeal has been sought, as to whether or not the issues raised by the ld. Pr. CIT in the proceeding before him under section 263 suggests that the order of the assessing office is erroneous and prejudicial to the interest of revenue or not? In our considered view, the proceedings have been initiated after recording the reasons for specific issue. The assessee has filed the return of income and explained all the transaction related to his claim.
Now let us analysis whether the issue raised by the Pr. CIT are considered by the AO in the assessment proceedings or not?
25 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 Issues raised by the Pr. CIT in Reference to the assessee reply/ the proceeding u/s. 263 submission of the assessee before us (i) against the actual sales AO has raised the query and the consideration of Rs.50 lacs, the assessee filed the reply vide stamp authorities have point no. 6 letter dated evaluated the same at 19.11.2019. Rs.85,37,160/- (ii) deduction claimed u/s 54F is AO has raised the query and the on account of investment made assessee filed the reply vide in purchase of house property in point no. 5 & 6 of letter dated the name of wife Smt. 19.11.2019. Deepawali Agarwal and sister- in-law Smt. Santosh Agarwal which is not allowable (iii) investment is done after the The assessee clarified that the due date of furnishing the return property was purchase and but of income u/s 139 the registration was done later on reply dated 21.11.2019 (iv) documentary evidence in Collector of stamp order support of claim of stamp duty demanding the differential stamp of Rs.4,74,161/- is not furnished duty. (v) the penalty proceedings u/s Assessee relied upon the 271F has not been initiated jurisdictional HC decision in the case CIT Vs. Keshrimal Parasmal 157 ITR 484 (Raj)(HC) where in the Honourable
26 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 jurisdictional high court held that the CIT in revision is not entitled to set a side the assessment order on the ground of non- mention of initiation of penalty proceedings.
On detailed observations of the above analysis of the facts that the issue which the Pr. CIT has raised has been duly considered and replied by the assessee in the assessment proceeding based on the reply the ld. AO has taken a plausible view and as regards the non-mentioning for levy of penalty there is a judgment of the jurisdictional High Court that for levy of penalty the Pr. CIT cannot invoke the provision of section 263 of the Act.
In view of these set of facts in our considered view, as the A.O while framing the assessment had taken a plausible view, and treated visited all the aspects of the capital gain, 50C applicability and deduction out of the capital gain. Therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 of the Act for dislodging the view taken by the AO. Accordingly, we find no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 of the Act, had dislodged the view that was taken by the A.O considering the set of facts qua the issue and consequent there upon applied his mind all the aspects of the case. Thus, we set-aside the order of Pr. CIT dated 28.03.2022 and
27 ITA No. 133/JP/2022 Sh. Narendar Kumar Agarwal v. PCIT, Jaipur-1 restore the order passed by the A.O under Sec. 143(3), dated 25.11.2019.
The ground no. 2 & 3 are based on the merits of the case and since the appeal of the assessee is allowed on technical ground per ground no. 1 these two grounds become infructuous and ground no. 3 & 4 are general in nature which does not require adjudication.
In the result the appeal of the assessee is allowed.
Order pronounced in the open Court on 21/07/2022.
Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 21/07/2022 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Sh. Narendar Kumar Agarwal, Alwar 2. izR;FkhZ@ The Respondent- PCIT, Jaipur-1 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No.133/JP/2022} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत