VIJAYALAKSHMI ENTERPRISES,HYDERABAD vs. ITO WARD 15(1), HYDERABAD

Both these appeals filed by the assessee are directed against the separate orders dated 30/03/2021 of the learned Pr.CIT-4, Hyderabad, relating to A.Ys. 2015-16 & 2016-17. Since common issues are involved in these two appeals, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order.

Although a number of grounds have been raised by the assessee in these two appeals, however, the grounds of the assessee are in two folds i.e. one relates to the action of the learned Pr.CIT in assuming the jurisdiction u/s 263 of the Act holding that the assessment order passed by the Assessing Officer u/s 143(3) was erroneous in so far as it is prejudicial to the interest of the Revenue and the other relates to the direction issued by the learned Pr.CIT for adoption of SRO value of the land instead of the value recorded by the assessee in its books of accounts.

Facts of the case, in brief, are that the assessee firm filed its return of income for the A.Y. 2015-16 on 6.7.2016 declaring total income at Rs.Nil. The case of the assessee was selected for limited scrutiny for examination of “Whether -the share capital is genuine and from disclosed sources “. After considering the submission of the assessee, the Assessing Officer completed the assessment u/s 143(3) of the Act on 29.12.2017 by accepting the income returned.

Subsequently the learned Pr.CIT by invoking the powers vested u/s 263 of the Act called for the assessment record, examined the return of income for the A.Y 2015-16 and set aside the order of the Assessing Officer with a direction to redo the assessment. The relevant part of the order of the learned Pr.CIT is reproduced as under :

Aggrieved with such order of the learned Pr.CIT the assessee is in appeal before the Tribunal. The ld. AR of the assessee filed the detailed written submission as under: -

The learned DR, on the other hand, heavily relied on the order of the learned Pr.CIT and submitted that learned Pr.CIT was justified in invoking section 263 of the Act.

We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides.

With regards to the ground of the assessee that “the action of the learned Pr.CIT in assuming the jurisdiction u/s 263 of the Act holding that the assessment order passed by the Assessing Officer u/s 143(3) was erroneous in so far as it is prejudicial to the interest of the Revenue”, it is an admitted fact that the case of the assessee was selected for limited scrutiny for examination of “Whether the share capital is genuine and from disclosed sources“. We find the Assessing Officer during the assessement proceedings issued query letters (PB page no.13 to 19) reproduced as under:

Under these circumstances it has to be seen as to whether the order of the Assessing Officer is erroneous so far as it is prejudicial to the interest of the Revenue.

It is well settled law that the prerequisites to exercise of jurisdiction by the Ld. Pr.CIT under section 263 of the Act that to establish order of the AO is to be erroneous insofar as it is prejudicial to the interest of the Revenue is concerned, the Ld. Pr.CIT has to satisfy of twin conditions simultaneously, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent, s. 263 cannot be invoked. This provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to Revenue's interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase 'prejudicial to the interest of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. However, every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. We draw strength from case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) and also from the case of CIT vs. Max India Ltd. (2007) 295 ITR 282 (SC). In the light of judicial precedents, we are of the considered view that the necessary enquiries and examination as reasonably expected have been carried out by the AO in discharge of his quasi-judicial function and he has taken a prudent, judicious and reasonable view in accepting the explanation of the assessee in support of the cash deposits after considering the entire material available on record and the order so passed under s. 143(3) of the Act cannot be held as erroneous insofar as prejudicial to the interest of Revenue. The impugned order passed by the learned Pr.CIT under section 263 is accordingly set aside and the order of the AO is sustained.

With regards to the ground of the assessee “that the direction issued by the learned Pr.CIT for adoption of SRO value of the land instead of the value recorded by the assessee in its books of accounts”, we needs to reproduce the relevant portion of section 45(3) as under: Section 45(3): The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co- operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.

In the result, this appeal of the assessee is allowed.

Since identical grounds are raised by the assessee in the second appeal i.e. for the A.Y 2016-17, following similar reasonings, the appeal of the assessee for the A.Y 2016-17 is also allowed.

To sum up, both the appeals filed by the assessee are allowed.