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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU RL REDDY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
अपीलधथी की ओर से/ Appellant by : Shri Md.Afzal,AR प्रत्यधथी की ओर से / Respondent by : Dr.Satyasai Rath, CIT(DR) सुनवधई की तधरीख / Date of Hearing : 08.02.2024 घोर्णध की तधरीख/Date of Pronouncement : 20.02.2024 आदेश /O R D E R
Per Shri Duvvuru RL Reddy, Judicial Member :
1. This appeal is filed by the assessee against the order of Principal Commissioner of Income Tax (PCIT), Rajahmundry in F.No. 30/263/Pr.CIT,RJY/2018-19 dated 31.03.2019, arising out of order passed u/s 143(3) of the Income Tax Act, 1961 (in short ‘Act’) dated 29.06.2016 for the Assessment Year (A.Y.) 2014-15. Kotari Srinivasa Rao, Velivennu
Brief facts of the case are that the assessee, an individual, engaged in trading of chemical products with the name and style of M/s Seven Hills, filed his return of income for the A.Y.2014-15, declaring total income of Rs.6,39,630/-. Subsequently, the case was selected for scrutiny under CASS to verify (i) substantial increase in capital in a year (ii) mismatch in sales turnover reported in audit report and ITR. The assessment was completed and the Assessing Officer(AO) passed assessment order u/s 143(3) of the Act on 29.06.2016 on a total income of Rs.14,39,630/- after making additions of Rs.3,00,000/- on account of unexplained loan and Rs.5,00,000/- representing round sum disallowance on account of unverifiable expenditure under the heads “freight”, “oil & petrol” “salaries & wages” etc.
Under the powers vested with the PCIT u/s 263 of the Act, the assessment records were called for and after careful examination of the assessment records, the Ld.Pr.CIT held that the assessment order dated 29.06.2016 passed is not only erroneous but also prejudicial to the interests of the revenue and the twin conditions as contemplated u/s 263 of the Act are satisfied in the case of the assessee. Consequently, the Ld.PCIT set aside the assessment to the file of the AO with a direction to redo the assessment after making thorough enquiries and obtaining Kotari Srinivasa Rao, Velivennu relevant information to ascertain the genuineness and existence of AOP, purpose of creation of AOP, identity of members of AOP, their creditworthiness to make contribution to AOP after giving reasonable opportunity of being heard to the assessee.
3. On being aggrieved, the assessee preferred an appeal before the Tribunal by raising the following grounds of appeal :
1. The order passed u/s 263 is barred by limitation.
2. The Pr.CIT has passed the order u/s 263 though the AO has passed the order u/s 143(3) properly which is not prejudicial or erroneous to the interests of the department and hence unjustified. 3. The Pr.CIT has passed the order u/s 263 on surmises and gestures and without any basis and hence unjustified. 4. The Pr.CIT, Rajahmundry ought to have considered the explanation submitted by the assessee. 5. The learned Pr.CIT, Rajahmundry is not justified in denying the transaction between the AOP and the assessee. 6. The learned Pr.CIT, Rajahmundry is not justified in initiating the proceedings u/s 263 without considering the facts and circumstances of the case. 7. For the above and other grounds that may be urged at the time of hearing the present appeal is preferred.
Kotari Srinivasa Rao, Velivennu
Further, the assessee also filed a petition for admission of following additional ground and pleaded to admit the additional ground and pass appropriate order in the interest of rendering substantial justice:
The Ld.Pr.CIT, Rajahmundry is not justified in initiating the proceedings u/s 263, without application of mind and basing on the recommendations of the successive Assessing Officer which is a mere change of opinion. 5. We have heard the Ld.AR and gone through the petition filed for admission of additional ground. The additional ground being a technical and legal in nature, we are inclined to admit the additional ground in the interest of justice.
6. At the outset, the Ld.AR has submitted that the assessee raised additional ground saying that issuance of order u/s 263 of the Act was only on the recommendation of the Ld.AO which is not permissible under law and he has also relied on the decision of Hon’ble High Court of Calcutta in the case of Hindustan Lever Ltd. Vs. CIT-Kol-II and the decision of the Hon’ble ITAT, Visakhapatnam in the case of M/s Sai Bhagya Lakshmi Estates Vs. ITO in I.T.A.No.135/Viz/2019 dated 27.07.2022. He pleaded that the orders passed u/s 263 by the Ld.PCIT be quashed.
Kotari Srinivasa Rao, Velivennu
Per contra, the Ld.DR has submitted that this is general and administrative procedure. The Ld.AO has recommended initiation of 263 proceedings and based on the information, the Ld.PCIT opined that the assessment is erroneous and prejudicial to the interest of the revenue and initiated 263 proceedings, therefore, he pleaded that the orders passed u/s 263 be upheld.
We have heard both the parties and perused the material available on record. It is an admitted fact that the Ld.PCIT initiated proceedings u/s 263 based on the recommendations made by the AO. The Ld.AR relied on the decision of the Hon’ble High Court of Calcutta in the case of Hindustan Lever Ltd. Vs. CIT-Kol-II, wherein it was held that “We therefore, find that there was no justification of invoking Section 263 of the Income Tax Act for reopening of the assessment on the basis of a proposal given by the assessing officer himself after passing of the order of the assessment on the basis of the precedent of Gauhati High Court which has not been approved by a Division Bench of our High Court. We, therefore, set aside the order passed by the Commissioner of Income Tax under section 263 of the Act which has been affirmed by the Tribunal below and direct the assessing officer to act accordingly. The appeal is, thus, allowed.” Further this Bench has also taken a similar view in the case of Sai Bhagya Lakshmi Estates Vs ITO in I.T.A.No.135/Viz/2019 dated 19.10.2022, wherein, it was held as follows :
Kotari Srinivasa Rao, Velivennu “6. We have heard both the parties and perused the material placed on record. We find merit in the argument of the Ld.AR that the Ld.Pr.CIT has directed the AO to revise the assessment order passed on the proposal sent by the Ld.AO. In this connection, it is appropriate to quote section 263 of the Act which reads as follows : 263. (1) The 88[Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or 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 Assessing Officer 89[or the Transfer Pricing Officer, as the case may be,] 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, 90[including,— (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section]. Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a) an order passed on or before or after the 1st day of June, 1988] by the Assessing Officer 91[or the Transfer Pricing Officer, as the case may be,] shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer 92[or the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; 92[(iii) an order under section 92CA by the Transfer Pricing Officer;] (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal 93[Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer 92[or the Transfer Pricing Officer, as the case may be,] had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the* Principal Commissioner or Commissioner Kotari Srinivasa Rao, Velivennu under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 94[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 95[Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 96[Explanation 3.—For the purposes of this section, "Transfer Pricing Officer" shall have the same meaning as assigned to it in the Explanation to section 92CA.] On plain reading of the above section, it is clear that 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 Assessing Officer is erroneous, in so far as it is prejudicial to the interest of the revenue. In the instant case, the Commissioner reopened the case u/s 263 of the Act based on the proposal sent by the AO and not on his own volition. We are therefore, of the considered view that reopening is bad in law and hence, we quash the order of the Ld.Pr.CIT.”
In view of the foregoing facts and circumstances of the case, we hold that there should be independent application of mind by the Ld.PCIT for revision of the case u/s 263 of the Act, if he considers that the order passed by the Ld.AO is erroneous or prejudicial to the interest of the revenue. But, in this case on hand, revision u/s 263 was initiated solely on the recommendations of the AO. It is clear that if the 263 proceedings Kotari Srinivasa Rao, Velivennu are initiated based on the recommendations of the Ld.AO, which is not proper and valid under the eyes of law as per the ratio laid down by the Hon’ble High Court of Calcutta (supra). Respectfully following the ratio laid down by the Hon’ble High Court of Calcutta and the ratio laid down by this Tribunal in the case of Sai Bhagya Lakshmi Estates (supra), we are of the firm view that the order passed u/s 263 is liable to be quashed. In the result, additional ground raised is allowed.
7. Since the additional ground is adjudicated and allowed, other grounds raised by the assessee become infructuous, hence, not adjudicated.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 20th February,2024. (एस बालाकृष्णन) (दुव्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयक सदस्य/JUDICIAL MEMBER Dated : 20.02.2024 L.Rama, SPS