M/S HARISH CHANDRA BALDEWA,HOWRAH vs. I.T.O.,WARD-46(2), KOLKATA

This appeal filed at the instance of the assessee pertaining to the Assessment Year (in short “AY”) 2015-16 is directed against the revisionary order passed u/s 263 of the Income Tax Act, 1961 in short the “Act”) by Ld. Pr. Commissioner of Income- tax-16, Kolkata [in short Ld. “CIT(A)”] dated 04.03.2020.

Grounds of appeal raised by the assessee read as under:

For that the order is bad in law since the Ld. CIT initiated the proceedings at the behest of the lower authorities without application of mind as required under the law.

For that the Ld. CIT erred in invoking the provisions of sec. 263 without appreciating the facts on record and the submission made by the assessee.

For that on the facts and in the circumstances of the case the Ld. CIT erred in setting aside the assessment when enquiries were made by the AO and in any case the CIT did not come to a finding that the order was erroneous and prejudicial to the interest of revenue nor did he himself made any enquiry.”

Registry has been informed that the appeal of the assessee is time barred by 32 days and the delay has occurred due to lock down during Covid-19 Pandemic period. Since Ld. DR fair enough in not raising any objection, we, therefore, condone the delay of 32 days in filing of the instant appeal and admit it for adjudication.

Though the assessee has raised various grounds of appeal but the sole grievance is against the assumption of jurisdiction u/s. 263 of the Act and the finding of the Ld. Pr. CIT holding the assessment order as erroneous and prejudicial to the interest of revenue.

Brief facts of the case are that assessee is an individual. Income of Rs.2,69,260/- declared in the return for AY 2015-16 furnished on 15.03.2016. Assessee’s case selected for limited scrutiny for three issues viz., (i) income from heads of income other than business/profession mismatch, (ii) derivative (future transaction) and (iii) security transaction. Assessment proceedings Page 2 of 13 were carried out u/s. 143(3) of the Act and order passed on 29.06.2017 accepting the returned income. Subsequently, Ld. Pr CIT called for the assessment records and issued a show cause notice u/s. 263 of the Act stating that Ld. AO has not examined the transaction of unsecured loans of Rs.1,27,73,471/-, speculation profit and violation of section 44AB of the Act. The assessee duly replied to the show cause notice stating that there was no jurisdiction with the AO to examine the unsecured loans since it was a limited scrutiny case that the transaction of derivatives have already been examined by the AO in the assessment proceedings and that the violation of section 44AB of the Act are separate proceedings being penal in nature. However, Ld. Pr. CIT was not satisfied and he set aside the assessment order dated 29.06.2017 directing the AO to carry out fresh assessment proceeding.

Aggrieved, assessee is now in appeal before this Tribunal.

Ld. Counsel for the assessee referred to the reply given to the show cause notice and also placed reliance on the recent decision of this Tribunal in case of Mind Sports League Pvt. Ltd. Vs. Pr. CIT, AY 2018-19 dated 30.11.2023 in support of the contention that Ld. Pr CIT can examine only those issues which were before the AO during the course of limited scrutiny assessment. 8. On the other hand, Ld. DR supported the orders of the Ld. Pr. CIT.

We have heard the rival contentions and perused the material placed before us. The assumption of jurisdiction u/s 263 of the Act holding the assessment order as erroneous and prejudicial to the interest of the revenue is in challenge before us. As Section 263 of the Act has a direct bearing on the controversy, therefore, it is pertinent to take note of this section. It reads as under:-

A bare perusal of sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may Page 5 of 13 enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the ld. Pr. CIT taken u/s 263.

Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC)has laid down following ratio with regard to provisions of section 263 of the Act: “There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. 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. The phrase 'prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer 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. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)”.[Emphasis Supplied] 12. In the light of the provisions of section 263 of the Act and a settled position of law, powers u/s 263 of the Act can be exercised by the Pr. Commissioner/Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and also prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and Page 6 of 13 the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry.

The ITAT in the case of Mrs. Khatiza S. Oomerbhoy vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon'ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263:

Apart from above stated broader principles, one more principle needs to be added in view of the judgment of Hon’ble Delhi High Court in the case of ITO vs. D.G. Housing Projects Ltd. [2012] 343 ITR 329 (Delhi) that the ld. CIT has to examine and verify the issue himself and give a finding on merits and form an opinion on merits that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue. Relevant extract is reproduced below:

Now, on examining the facts of the instant case in the light of the above decisions, we note that if the AO has examined the issue by carrying out adequate enquiry and adopting one of the course permissible under the law then on such issues, ld. Pr. CIT cannot direct the AO to again carry out the enquiry. In the Page 8 of 13 instance case, three types of issues are raised in the show cause notice. First is regarding unsecured loans of Rs.1,27,73,471/- which the assessee receives from 13 parties during the year. Ld. Pr. CIT has referred to the said issue in para 2 of the impugned order. Now, we find that the case of the assessee was selected for limited scrutiny and it did not contain any reason regarding examination of unsecured loans. Ld. AO was seized in the scrutiny proceeding only with regard to three issues namely, income from heads of income other than business/profession mismatch, derivative (future) transaction and security transaction. When the AO was not within his jurisdiction to examine the transaction of unsecured loan then the same cannot be the subject matter of revisionary proceeding. We find support from the recent decision of this tribunal in the case of Mind Sports League Pvt. Ltd. (supra) where the reference has been given to CBDT Instruction No. 20/2015 dated 29.12.2015 regdarding limited scrutiny case and that the questionnaire u/s. 142(1) shall be made confined only to the specific reasons/issues for which cases have been picked up for limited scrutiny. The finding given in para 6 of this order reads as under:

Now, from the perusal of the above decision, we find that the same is squarely applicable on the first issue for our Page 10 of 13 consideration regarding examination of unsecured loans and, therefore, the finding of Ld. Pr. CIT directing the AO to examine the unsecured loans is set aside and we hold that the assessment order in question cannot be termed as erroneous and so far as prejudicial to the interest of the revenue so far as this issue of examination of unsecured loans of Rs.1,27,73,431/- is concerned.

The Second issue referred to in the show cause notice is regarding speculation profit i.e. in reference to derivative (future) transaction carried out by the assessee. With regard to the derivative (future) transactions the Ld. AO asked for specific details which were submitted by assessee’s letter dated 26.05.2017. Therefore, the AO did apply his mind to the said issue. The AO also has observed the same in his assessment order that he checked and verified the P & L. Account and Balance Sheet along with relevant document including the profit in respect of the speculation business. It appears from the show cause notice issued by Ld. Pr. CIT that mismatch have been assumed with regard to the large value of sale of shares trading and sale of future. It is on record that the Ld. AO duly verified and examined all the details and relevant documents with reference to the profits in speculation declared by the assessee. The Ld. AO specifically called for details of the security transaction which were submitted by the assessee vide point no. 6 of the letter dated 15.03.2017. No specific defect or error have been noticed by your honour as is apparent from the show cause notice issued. Therefore, when the issue of the derivative (future)

Last issue raised in the show cause notice u/s. 263 of the Act by Ld. Pr. CIT regarding violation of provisions of section 44AB of the Act. Admittedly, this issue was not part of the limited scrutiny but Ld. Pr. CIT has held that provisions of section 44AB of the Act whether applicable or not have not been examined by the AO. Since for the violation of not getting books of account audited u/s. 44AB of the Act calls for the penal provision u/s. 271B of the Act which are independent proceeding and have no impact on the assessment proceeding. Still if the details of gross turnover were available before the AO and they exceeded the limit u/s. 44AB of the Act and the assessee is unable to get the books of account audited or is not able to furnish the tax audit report then Ld. AO is duty found to initiate penalty proceeding. Therefore, with regard to the issue no. (iii), regarding violation of provisions of section 44AB of the Act, we affirm the finding of Ld. Pr. CIT directing the AO to examine as to whether the assessee has violated section 44AB of the Act. To summarize, the finding of the Ld. Pr. CIT is reversed with regard to the issue of unsecured loan and speculation profit and is confirmed with regard to the violation of section 44AB of the Act.

In the result, appeal of the assessee is partly allowed as per terms indicated above. Order is pronounced in the open court on 9th September, 2024. Sd/- Sd/- (Sonjoy Sarma) (Dr. Manish Borad) Judicial Member Accountant Member Dated : 09.09.2024 J.D. Sr. PS. Copy of the order forwarded to: