MAHENDRA KUMAR SHARMA,CHURU vs. PCIT (CENTRAL), JAIPUR

“….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 principle of natural justice or without application of mind.”

Thus, she hold that she has examined the facts available on record and have observed the position of law, the error caused by the Assessing Officer resulting in prejudice to Revenue as has been detailed in the Show Cause Notice issued to the assessee. On examination of order of the Assessing Officer makes it clear to her that ld. AO did not take a conscious decision regarding special tax u/s 115BBE on undisclosed money u/s 69A of Rs. 40,00,000/-. As passing assessment order which clearly this error caused prejudice to Revenue. Being a search/seizure case, it was essential that clarification/explanation of the addition made on account of undisclosed money of Rs. 40,00,000/- u/s 69A of the Act, recorded on the impounded documents be ascertained and examined by the Assessing Officer. The tax implication of the same has also not been examined or considered while making the assessment by the AO.

Considering all the facts and circumstances of the case and for the reasons discussed above, the assessment order dated 21.09.2021 for A.Y. 2019-20 passed by the AO was held to be erroneous in so far as it is prejudicial to the interest of the revenue for the purpose of section 263 of the Act.

The AO has not verified the details which were required to be verified under the scope of scrutiny. The order of the AO is, therefore, liable to be revised under the explanation (2) clause (b) 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. She further made it clear that;

“I am not disturbing the assessment that has already been made. I am only passing an order for initiation/addition on undisclosed money u/s 69A of Rs. 40,00,000/- to be charged special tax u/s 115BBE as detailed above based upon independent satisfaction of the assessing officer, who will duly consider the replies of the taxpayer.”

“That there was the survey of premises of m/s laxminath infrastructure and subsequently survey was done in the house of assesse who is the director in the company m/s Laxminath Infrastructure pvt. Ltd., officers at that time persuaded appellant to surrender a sum of rs.40,00,000 in view of buying the piece and assured him that it will be treated income of the current year. So Assesse appellant surrendered 40 lacs as income of the current year and subsequently deposited advance tax. Learned ITO completed the scrutiny case and accepted Return Income after detailed inquiry and imposed normal tax slab on the income as per return. After audit objection revision proceedings u/s 263 of the IT Act, learned CIT Principal set aside the assessment order without disturbing the Mahendra Kumar Sharma vs. PCIT assessment and directed AO to change the special tax u/s 115 BBE of Income tax act. With the above brief facts, the grounds of appeal are discussed hereunder: GROUNDS OF APPEAL: Ground No. (1) In the facts and circumstances of the case and law, Ld. PCIT has erred in holding the order passed u/s 143(3) dated 21.09.2021 as erroneous and prejudicial to the interest of revenue. The order passed u/s 263 is bad in law and therefore the action of Ld. PCIT is illegal, unjustified, arbitrary, and against the facts of the case. Relief may please be granted by quashing the order passed u/s 263 and holding the order passed u/s 143(3)_ dated 21.09.2021 as not erroneous and prejudicial to the interst of revenue. Response to the notice of ld. CIT (Central) was submitted on 18.03.2024 in which categorically explained that in which circumstances assessee appellant surrendered the income and sec 69A of the income tax act is not at all applicable.(PB-1) 1. our preliminary objection is regarding initiation of proceedings u/s 263 of the IT act – That the revisionary proceedings against the assessee appellant for the assessment year 2019-20 was initiated by ld. PCIT on the basis of audit objection. The assessee appellant applied for the inspection of the record vide letter dt. 22.05.2024 (PB-2) and vide letter dt.27.05.2024 (PB-3) an application to provide certified copy was made and same was thereafter provided to the assessee appellant. So, it is very much clear that revision proceedings were initiated on the basis of audit objection. Certified copy of Letter of DCIT (PB-4). As per section 263 of the income tax act “. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify,” So, the purpose of this law is that the commissioner should call the record and should examine the record of the proceeding of the AO but here it has not been done and no independent decision was taken by ld. PCIT.

Mahendra Kumar Sharma vs. PCIT It has been decided by coordinate bench in the case of Pink city Jwell house pvt. v/s PCIT (ITAT Jaipur) in Appeal no. that on an examination of procedural aspects of the case, including the basis of the proceedings initiated under section 263. It can be noted that the action was primarily based on the revenue audit objections which raised question about the independence and validity of the PCIT’s decision. That in the matter of JAIN CARRYING CORPORATION VS PRINCIPAL COMMISSIONER OF INCOME TAX ITAT, JODHPUR BENCH (ITA No.134/Jd/2018; Asst. yr. 2013-14) dt. 18th March 2024 it is again decided by the coordinate bench that the reason for taking the proceedings u/s263 is not an independent view of Principal CIT but it is borrowed from the C&AG, Thus the action u/s 263 is based on the audit objection – Therefore, the revision order of the PCIT is quashed. That in the case of Ganga Acrowools Limited vs Pricipal commissioner of Income – Tax in ITA no. 196/CHD/2021 on 31.03.2022 held by THE INCOME-TAX APPELLATE TRIBUNAL CHANDIGARH "A" BENCH that The commissioner cannot exercise its power under section 263 only on the basis of audit objections and replies filed by the assessee for the audit objection are also a part of the assessment records. That in the case of Alfa Laval AB (India) Ltd. V. CIT (IT/TP), [ITA No. 1284/Pun/2017, dt.2-11-2021] held that The process of of revision initiates only when the commissioner calls for and examine the record of any proceedings under this Act and consider that any order passed by the AO is erroneous and prejudicial to the interest of revenue. The AO recommending a revision to the commissioner has no statutory sanction. Since in the instant case revisionary order suffered from jurisdictional defect, the revision order was quashed. That it is proved itself from the order of the Ld. PCIT(Central) that order of Ld. A.O. is not the erroneous and not prejudicial to the interests of the revenue only issue raised without disturbing the assessment order is regarding imposition of special tax rate which is not valid. That imposition of sec 115BBE is not applicable in our case because as per ; section 115BBE “Where the total income of an assessee, - Mahendra Kumar Sharma vs. PCIT (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under section 139; or (b) determined by the Assessing Officer includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, if such income is not covered under clause (a) ,the income-tax payable shall be the aggregate of – (i) the amount of income-tax calculated on the income referred to in clause (a) and clause (b), at the rate of sixty per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).]”

Whereas in our case neither the income includes the income referred to in section 68, 69, 69A, 69B, 69C and 69D reflected in the return furnished u/s 139 of the income tax act NOR AO determined includes any income referred in the above mentioned sections so our humble submission is that AO imposed normal tax slab because there is no ingredients of section 115BBE of the Income Tax Act. In our computation of total income Rs 40 lacs income showed as income declared in survey.(PB-5) During the course of Assessment proceedings, the Ld. AO was satisfied that looking into the facts and circumstances of the case and provision of the sec. 69A of the act are not applicable on the assessee therefore she did not apply the same. The satisfaction of the learned AO cannot be substituted with the view point of any other authority. The surrender was made on account of money given to different parties, out of accumulated savings of the assessee over the years but since the assessee was not able to substantiate his claim and also on the advice of survey team to buy the peace and avoid litigation, the same was admitted income of the year under consideration. Thus the money so given does not pertaining to the income of assessee but for the reasons mentioned above the same was admitted as the income of the year under consideration. If ld. PCIT is treating this as a special tax rate case which can be said as difference of opinion and difference of opinion cannot be the basis of revisionary power.

Mahendra Kumar Sharma vs. PCIT That in our case there was no suggestion by the survey team income surrendered by the assessee is unexplained investment or unexplained expenditure as well as learned AO accepted the return income. It is held in the case of Arun Enterprises v. Pr. CIT (2024) 193 TR (A) 573 (Del.Trib) : 2023 Tax Pub (DT) 1835 (Del-Trib) held that Amount was surrendered by assessee in order to buy peace of mind in case any discrepancy was found in the books of account but the fact of the matter is that neither AO nor Pr. CIT brought anything on record to show that there was unexplained investment or unexplained expenditure was found during the course of survey proceedings. With these facts, it could be safely concluded that surrender could be said to have been offered to cover up the discrepancies in respect of likely disallowances of claims/bogus expenses/cash payments bogus purchases relating to business income. Further, there was nothing stated in the pre amended or post amended provisions of section 115BBE that where assessee surrenders undisclosed income during search action for the relevant year, the tax rate has to be charged as per provision of section 115BBE. Therefore, applicability of the amended provisions of section prompted Pr. CIT to assume jurisdiction under section 263 was Pr. CIT highly debatable issue, and therefore, Pr. CIT wrongly assumed jurisdiction. Therefore, order passed under section 263 was set aside. It is requested to set aside the order of Ld. PCIT passed u/s 263 of the income tax act and hold the order passed u/s 143 (3) of income tax act as not erroneous and prejudicial interest of revenue.”

S. No. Particulars Page No. 1) Written submission 1-5 2) PB-1 Response to PCIT(Central) 6-11 3) PB-2 Inspection of the record vide letter dt. 12 22.05.2024 PB-3 Copy of Letter to take certified copy dt. 4) 13 27.05.2024 5) PB-4 Certified copy of letter of DCIT 14-16 6) PB-5 Computation of Income 17-18 Mahendra Kumar Sharma vs. PCIT 7) PB-6 Pink City Jwell house Pvt. Vs. PCIT 19-66 (ITAT Jaipur) PB-7 Jain Carrying Corporation vs. Principal 8) 67-79 Commissioner of Income Tax ITAT, Jodhpur Bench

8. The ld. AR of the assessee in addition to the above written submission so filed vehemently argued that the assessment has been completed by the Assessing Officer. He also submitted that the proceedings u/s 263 of the Act has been initiated merely based on internal audit objections issued (APB-14, 15 & 15).

Based on audit objections the provisions of section 263 have been initiated. Since there is no independent application of mind by ld. PCIT the proceedings initiated is bad in law. To drive home to this contention he relied upon the decision of Jodhpur Bench in the case of Jain Carrying Corporation v. PCIT in ITA No.

134/Jodh/2018. As the fact of that case and that of the assessee having similar the proceedings initiated by the ld. PCIT is required to be quashed. The ld. AR of the assessee also submitted that when the assessee has disclosed the income as his income for the year under consideration as promised before the survey team and if the assessee co-operate, he will be free from any further litigation and it will provide a mental peace to the assessee. Accordingly, the buy the mental peace to avoid litigation and the amount the income declared during the survey proceedings was also not found fault while filling the return of income by the assessee. Thus, the Assessing Officer after scrutinizing the return submission so called for assessed the income was considered as regular and current year income of the assessee. Thus, when the Assessing Officer has applied his mind and assessed the income by taking plausible view of the matter, ld. PCIT cannot change the view taken by the ld. AO and that too to resolve the internal audit objection.

9. Per contra, the ld. DR relied upon the order of ld. PCIT which is passed after considering the submission of the assessee. The order of the PCIT is based on the detailed finding recorded in the order of ld. PCIT. The ld. DR also argued that the assessee admitted the income which is additional income and separately offered in addition to the regular income offered by the assessee.

Therefore ld. DR heavily relied upon the order of ld. PCIT. placed on record and gone through the judicial precedent cited by the parties to drive home this contention so raised. The bench noted that in this case survey action u/s 133A of the Act was carried out on 06.02.2019 at the business premises of M/s Laxminath Infrastructure Pvt. Ltd., Churu. In that proceedings, the assessee disclosed a sum of Rs. 40,00,000/- to buy the mental peace and has duly offered that income while filing the return of income. Subsequent to filing the return of income, the case of the assessee was selected for scrutiny wherein the ld. Assessing Officer after raising the queries assessed return of income.

In the meantime, as is evident from the record that the internal audit party raised and audit objections to the levy of the tax in the case of the assessee. Therefore, ld. Assessing Officer made a proposal before ld. PCIT to initiate the provisions of section 263 of the Act vide his letter dated 30.10.2023 to charge that additional income as per provisions of section 155BBE of the Act. This shows that proposal has been sent by the ld. Assessing Officer to review of order passed by him, though a proposal sent by the Assessing Officer. The ld. PCIT has invoked the provisions of section 263 of as is evident that review of an order passed is not permitted and are bad in law. We get support of this view from the decision so cited by the assessee in the case of Jain Carrying Corporation v. wherein author of the bench are the same and in that case the bench has held as under:-

“7. We have heard the rival contentions, perused the material placed on record and gone through the judicial precedent cited by both the parties to drive home their respective contentions. The bench noted the ld. PCIT has raised four issues, on four issue the ld. AO has raised the issue, the assessee submitted the reply and the ld. AO has taken a plausible view on the matter. The ld. AO taken a view based on the submission made by the assessee which the ld. PCIT merely based on the audit objection and PCIT’s observation that the view taken by the ld. AO on which the ld. PCIT is not in agreement cannot hold the order liable to be sustained. On the first issue that has been flagged by the PCIT we note that the allegation made is to justify the audit objection raised even the ld PCIT stated that he has no hesitation in holding that the AO has not examined the issue in question properly but he failed point where the ld. AO has called for the details and based on the details called for he has taken a view based on the record produced before him which merely there is audit objection the order passed after examination of the issue cannot be taken again. To drive home to this contention we take support on a decision of apex court in the case of Parashuram Pottery Works Co. Ltd Vs ITO [ 1977] 106 ITR 1 “At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity”. On the second issue we note that the ld. PCIT is trying to justify the claim of the assessee with the net profit rate and the expenses incurred by the assessee and merely based on the contention that the ld. PCIT is not in agreement with the view taken by the AO the assessment cannot be hold liable to be sustained u/s. 263 of the Act. As regards the opening and closing stock we note that the ld.AO has called for the details and has examined the issue. Merely in the audit report the auditor has stated that increase / decrease has not been certified by them the order which is passed after examination of the issue cannot be a base to Mahendra Kumar Sharma vs. PCIT again given the second inning to the ld. AO and review of the order passed after the examination of the issue is not permitted under the law. As regards the fourth issue there is no observation recorded by the ld. PCIT has simply stated that the issue does not require separate discussion. Thus, we note that on all the four issue the ld. AO has called for the details, examined the issue and the plausible view on the matter is taken. Merely there is an audit objection, adverse remark of the auditor and the ld. PCIT is not in agreement with the view of the AO the order cannot be sustained as liable to quash as the twin condition provided u/s. 263 of the Act that the order should be erroneous and prejudicial to the interest of the revenue fails and therefore, we do not agree with the finding of the ld. PCITwherein he could not point out any mistake / error in order which is prejudicial to the interest of the revenue. The AO while framing the assessment had taken a possible view, and revenue did not demonstrate the error remain on the part of the ld. AO. In fact, when the ld. AO has conducted the required enquiry and not violated any of the conditions mentioned for revision of order as required by Explanation 2 of Section 263 of the Act, the order passed by the Assessing Officer could not be deemed to be erroneous so as to be prejudicial to the interests of the revenue and to support the view we take support on the jurisdictional Hon’ble Rajasthan High Court decision in PCIT v. Manna Trust (2022) 1 TMI 693 [Compilation 42-44] wherein it has been held that “We are broadly in agreement with the view of the Tribunal. It is well settled through a series of judgments that power under Section 263 of the Act can be exercised only when twin conditions of the order of assessing officer being erroneous and prejudicial to the interest of revenue are satisfied. The Jurisdiction of the Commissioner under Section 263 of the Act is restricted and cannot be equated with the appellate jurisdiction. The Commissioner does not sit in appeal.”

On being consistent with the findings so recorded in the order referred to herein above, we quash the order passed by ld. PCIT u/s 263 of the Act.

In terms of these observations, the appeal of the assessee is allowed.

Order pronounced in the open court on 29/08/2024.

Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 29/08/2024 *Ganesh Kumar, Sr. PS आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Mahendra Kumar Sharma, Jaipur 1. izR;FkhZ@ The Respondent- PCIT (Central), Jaipur 2.