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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 10/10/2024 Date of Order –
O R D E R PER K.M. ROY, A.M.
These appeals have been filed by the assessee challenging the impugned orders of even date 29/03/2024, passed under section 263 of the Income Tax Act, 1961 ("the Act") by the learned Principal Commissioner of Income Tax, Nagpur–1, Nagpur, [“learned PCIT”], for the assessment years 2016–17 and 2017–18.
Since both these appeals pertain to the same assessee involving identical grounds of appeal
emanating from similar set of facts and circumstances, therefore, as a matter of convenience, these appeals were 2. Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18 heard together and are being disposed of by way of this consolidated order. However, in order to understand the implication, it would be necessary to take note of the facts of one appeal. We are, accordingly, narrating the facts, as they appear in the appeal in ITA no.349/Nag./2024, for assessment year 2016–17, the decision of which will apply mutatis mutandis to the appeal for the assessment year 2017–18 as well subject to modification in factual matrix giving rise to the periphery of dispute.
./2024 Assessment Year – 2016–17
3. The assessee has raised following grounds:
–
1. Whether on the facts and circumstances, the learned Pr.CIT has erred in concluding that assessment order passed by learned AO u/s 147 r.w.s 144B dated 29.03.2022 is erroneous and prejudicial to the interests of the revenue and in setting aside the assessment order with a direction to the learned AO to conduct enquiry and examination.
2. Whether on the facts and circumstances, the learned Pr.CIT erred in assuming jurisdiction under section 263 of the Act on issues which were never the subject-matter of the assessment in a proceeding initiated under section 147 of the Act.
3. Whether where jurisdiction under section 263 was sought to be exercised with reference to issues which were not subject of reopening of assessment, period of limitation provided in section 263(2) would commence from date of order of assessment u/s 143(1) and not from date on which order of reassessment u/s 147 had been passed.
4. Whether on the facts and circumstances, the learned CIT erred in neither making any enquiry on his own nor considering merits of case but simply directed the learned AO to make proper enquiry and further verification thereby, rendering the order passed u/s 263 bad in law which deserves to be set aside.
5. Whether on the facts and circumstances, the learned CIT erred in not appreciating that, Explanation 2 to section 263 cannot be said to have overridden the law as interpreted by the Hon'ble Courts, according to which the Pr.CIT has to conduct an enquiry and verification to establish and show that the assessment order is wholly unsustainable in law.
3 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18
6. 6. The appellant craves leave to alter, amend, modify or substitute any ground/grounds and to add any new ground or grounds on or before the appeal is disposed off.”
Facts in Brief:– In the present case, the assessee is a Firm. For the year under consideration, filed its return of income on 31/03/2018, declaring total income of ` zero. The return of income was processed under section 143(1) of the Income Tax Act, 1961 ("the Act") by the Central Processing Centre [CPC] on 07/06/2018. Thereafter, the case was re-opened under section 147 of the Act by issuing notice under section 148 of the Act. The assessment proceedings were concluded by accepting the return income filed by the assessee. An assessment order under section 143(3) r/w section 147 was passed on 29/03/2022, accepting the returned income. Subsequently, a notice dated 29/12/2023, under section 263 of the Act was placed by learned Commissioner of Income-tax. Consequently, an order dated 29/03/2024, under section 263 of the Act was passed thereby subjecting the concluded assessment to revision on the ground that the order passed was erroneous inasmuch as it was prejudicial to the interests of Revenue.
The learned Counsel, Shri Abhay Agrawal, Advocate, appearing for the assessee, advanced multiple contentions and made arguments as well. The learned Counsel for the assessee submitted that the issues on which the case was reopened under section 147 of the Act and the issues forming subject matter of revision under section 263 of the Act are different. The learned Counsel submitted that the Assessing Officer had examined the issues in line with the reasons recorded and thereafter accepted the return of income filed by the assessee. Subsequently, the learned Commissioner exercising his
4 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18 powers conferred under section 263 of the Act revised the assessment on some other issues, which were not part of the reasons recorded. The learned Counsel further submitted that once the Assessing Officer post re–opening the assessment did not make any addition in respect of issues as per reasons recorded then he is precluded from making additions in respect of any other issues. In support of the arguments advanced by the learned Counsel, reliance was placed on the judgment of the Hon’ble Bombay High Court in CIT v/s Jet Airways Ltd. [2010] 195 Taxmann 177 (Bom.). It was contended by the learned Counsel that the learned Commissioner also cannot revise the assessment on other issues and cannot do something which the Assessing Officer cannot do so. The learned Counsel for the assessee further contented that the time limit for initiating show cause notice under section 263 of the Act would run from the date of intimation order dated 07/06/2018, which was passed under section 143(1) of the Act and not from the date of re– assessment order passed under section 143(3) r/w section 147 of the Act. This is for the reason that, by issuing notice under section 263, the issues which were not subject matter of re-assessment proceedings, were sought to be revised and hence, the limitation period would run from intimation order passed under section 143(1) of the Act. The learned Counsel, in support of these arguments, placed reliance on the following judicial presidency. i) CIT v/s Alagendran Finance Ltd. [2007] 162 Taxmann.com 465 (SC); ii) CIT v/s Industrial Development Bank of India Ltd. [2023] 152 Taxmann.com 591 (SC); and iii) CIT v/s Lark Chemicals Ltd. [2015] Taxmann.com 446 (Bom.).
5 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18
On merits, the learned counsel for the assessee further submitted that the learned Commissioner had factually erred in observing that the cost of free construction valuing to ` 2,81,33,000, was allegedly included in the land cost and was included in work-in-progress amounting to ` 15,64,07,053. The learned Counsel referred to the copy of development agreement, a copy of which were exhibited at Pages–8 to 22 of the Paper Book. It was submitted that the total payments made for purchase of land as per payment schedule was ` 12,52,00,000. The stamp duty valuation of the property was arrived at ` 15,33,33,000, i.e., after adding the valuation of cost free construction of ` 2,81,33,000. Thus, the learned Counsel submitted that this valuation was including cost free construction only for the purpose of paying stamp duty. However, the cost of free construction of ` 2,81,33,000, was not incurred as on the 31/03/2016 in the Balance Sheet and hence, was not included in work- in-progress. The same represented a notional value/cost, which was to be incurred in future. The learned Counsel referred to the contents of the impugned order passed under section 263 vide Para–5, wherein break–up of purchase cost was provided by the assessee before the learned Commissioner supported by necessary documentary evidences. He submitted that it was evident that the cost of free construction was not included in work-in- progress as on 31/03/2016. Therefore, it was contented that the order passed is neither erroneous nor prejudicial to the interests of Revenue and hence, the order passed under section 263 of the Act deserves to be quashed. The assessee has also filed a gist of submissions which are reproduced below:–
“1. Enquiry made by the learned AO
6 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18 1.1 During assessment proceedings pursuant to reopening of assessment u/s 148/147, the learned AO had issued show cause notice u/s 142(1) dated 10/12/2021 alongwith questionnaire (Copy of notice is enclosed at Pages 68- 71 of Factual Paperbook (Additional). 1.2 The assesse had filed its written submission on 01/03/2022 alongwith necessary documentary evidences (Refer Pages 1-67 of Factual Paperbook (Additional). 1.3 Therefore, the assessee submits that, enquiry was made in line with reasons recorded and the learned AO had taken a possible view on the issues involved. Thus, learned AO being satisfied with the written submission and documents filed, finalised the assessment by accepting the returned income. Hence, the order cannot be termed as erroneous and prejudicial to the interests of revenue, for lack of enquiry.
2. No minimal enquiry carried out by learned CIT before forming a view that the impugned order was erroneous and prejudicial to the interests of the Revenue. 2.1 The assessee submits that, it had filed detailed written submissions before learned CIT from time to time (Refer Pages 6-28 of Factual Paperbook). The assessee had demonstrated before learned CIT that, alleged issues do not give rise to any prejudice or loss of Revenue to the Department. The assessee had made submission on merits of the case and submitted that, that the order passed by the learned AO cannot be termed as erroneous and prejudicial to the interests of the Revenue. 2.2 The assessee submits that, it was incumbent on the learned CIT to undertake minimal enquiry to come to a conclusion that, the order was erroneous and prejudicial to the interests of the Revenue. Failure to make such enquiry by learned CIT will render the revision order u/s 263 bad-in-law. Reliance is placed on following judicial precedents: PCIT v/s Mohak Real Estate Pvt Ltd (ITA No.730/2023) (Del.); PCIT v/s Earth Minerals Co. Ltd., 162 taxmann.com 273 (SC); PCIT v/s Earth Minerals Co. Ltd., 162 taxmann.com 272 (Orissa); and M/s. Earth Minerals Co. Ltd. v/s ACIT, (ITA no.223/Ctk./2019 (Cuttack Trib.) 3. Submission on merits of the case Issue: Disallowance u/s 40(a) (ia) of the Act for non-deduction of TDS 3.1 The assessee is a partnership firm engaged in the business of builders and developers i.e civil construction of shopping and residential complex. During AY 2016-17, the firm had purchased land for construction purposes which was included in work-in-progress amounting to Rs.15,64,07,053. The purchase of land has been duly shown in the 7 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18
books of accounts of the assessee. As the assessee is engaged in business of Builders and Developers, the said land is part of purchases and closing work-in-progress. 3.2 The assessee had entered into a development agreement with Sumatibai Pandurang Deo Memorial Charitable Trust (land owner) on 31.08.2015. The learned CIT has observed that, valuation of cost of free construction to the land owner as per ready reckoner as mentioned in the agreement of Rs. 2,81,33,000/- has been allegedly included in the land cost and shown as work-in-progress in the profit and loss account totalling to Rs.15,64,07,053/- The learned CIT further observed that, this cost of free construction to the owner valued at Rs.2,81,33,000/- is required to be disallowed and reduced from the work-in-progress. In this regard, the assessee submits that, work-in- progress amounting to Rs. 15,64,07,053 consist of following amount:
Sr. Particulars Amount (`) Documentary Evidences no.
Purchase cost of land 12,52,00,000 Copy of Development agreement executed on 31/08/2015, is Stamp Duty & enclosed as Factual Paper Book 2. 76,97,777 registration charges pages 8–22 Copy of Invoice is enclosed as 3. Advocate Fees 15,000 Factual Paper Book Page–23 NMC building Copy of bank statement extract 4. construction 2,29,04,812 is enclosed as Factual Paper development fees Book Page–28 Maharashtra State Copy of receipt is enclosed as 5. 5,89,464 Welfare Board Factual Paper Book Page–24 6. Total 15,64,07,053
3.3 In view of above, it is evident that, valuation of cost of free construction to the owner as per ready reckoner as mentioned in the agreement of Rs.2,81,33,000/- is not included in work-in-progress amounting to Rs. 15,64,07,053. Therefore, said expenditure has not been included in WIP of project and as such WIP to extent of Rs. 2,81,33,000/- is not required to be reduced. Issue: Disallowance u/s 40(a)(ia) of the Act for non-deduction of TDS 3.4 The assessee submits that, it had deducted TDS at the rate of one percent amounting to Rs. 12,52,000/- on sale consideration of Rs. 12,52,00,000/-. The assessee has duly paid the TDS amount of Rs. 12,52,000. The assessee had duly issued TDS certificate in Form 16B to the deductee party (Copy is enclosed as Factual paper book page 26). Copy of Form 168 consist details of challan paid. The fact about TDS deposited is also reflected in Form 26AS of the assessee. Thus, the assessee submits that, TDS of Rs.12,52,000 has been duly deposited with government and hence, disallowance under section 40a(ia) is not warranted.
8 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18 3.5 Therefore, the issues sought to be revised by the learned CIT does not result into any prejudice to the Revenue. Therefore, the twin condition of order being erroneous and prejudicial to the interests of revenue is not satisfied. Reliance is placed on the decision of Hon'ble SC in the case of Malabar Industrial Co. Ltd v. CIT (243 ITR 83) (SC). 3.6 The assessee had filed its written submission before the learned CIT from time to time. The learned CIT has acknowledged the submissions filed, but simply observed that, since the issues were not verified by the learned AO during assessment proceedings, hence revision was justified. The assessee submits that, the prerequisite for invoking revision proceedings is satisfaction of condition that order is "erroneous and prejudicial" to the interests of the revenue. Therefore, the learned CIT has to fulfil both the conditions which are cumulative in nature.
4. Ground of Appeal
No.2 Whether on the facts and circumstances, the learned Pr.CIT erred in assuming jurisdiction under section 263 of the Act on issues which were never the subject-matter of the assessment in a proceeding initiated under section 147 of the Act. 4.1 The assessee submits that; reassessment proceedings were initiated based on specified issues identified as per reasons recorded. The proceedings were concluded and returned income was accepted vide assessment order passed u/s 147 dated 29/03/2022. Therefore, once the learned AO did not make any additions on issues identified as per reasons recorded, then he is precluded from making any additions in respect of any other issues if identified during the assessment proceedings, except following procedure as per law. Reliance is placed on following judicial precedents: CIT v. Jet Airways Ltd. [2010] 195 Taxmann 177 (Bombay) High Court of Bombay (Refer Pages 14 to 28 of legal paperbook) CIT v. Usha Maritn Ventures Ltd. [2023] 150 Taxmann.com 491(Calcutta) High Court of Calcutta (Refer Pages 39 to 40 of legal paperbook) Aishwarya Rai Bachchan v. PCIT [2022] 135 taxmann.com 335 (Mumbai Trib.) (Refer Pages 78 to 83 of legal paperbook) 4.2 Thus, once the learned AO cannot reassess any other issue without recording corresponding reasons & issuing separate 148 notice, the learned CIT also cannot revise the assessment on other issues. The learned CIT cannot do something which the learned AO cannot do.
5. Ground of Appeal No.3 Whether where jurisdiction under section 263 was sought to be exercised with reference to issues which were not subject of reopening of assessment, period of limitation provided in section 263(2) would commence from date of order of assessment u/s 143(1) and not from date on which order of reassessment u/s 147 had been passed.
9 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18
5.1 Chronology of events
Sr. Particulars Amount (`) no. 1. Order passed u/s 143(1) 07/06/2018 2. Order passed u/s 147 29/03/2022 3. Order passed u/s 263 29/03/2024
5.2 Issues as per reasons recorded (Refer Pages 1 to 3 of factual paperbook) [Relevant Extract]: "REASONS FOR REOPENING OF ASSESSMENT IN THE CASE OF M/s Latitude Infraventures (AAEFL9303P) FOR THE A.Y. 2016-17 U/s 147 OF THE INCOME TAX ACT, 1961. The assessee has filed its return of income for A.Y. 2016-17 disclosing the total income at Rs. Nil/- In this case, as per the information received from ITO(Exemption)-1, Nagpur it was informed that the assessee has entered into development agreement with M/s Sou Sumatibai Pandurang Deo Memorial Charitable Trust and has made payment of Rs. 15,33,33,000/-, the source of payment is not explained viz a viz income shown in the ITR for previous years. Therefore, income for A.Y. 2016-17 has escaped assessment. In the view of the above, I have reasons to believe that the income to the tune of Rs.15,33,33,000/- has escaped the assessment for A.Y. 2016-17." 5.3 Issues on which assessment order is sought to be revised as per order passed by learned CIT u/s 263 [Relevant Extract] (Refer Pages 6 to 11 of Appeal Memo) "7 Accordingly, I hereby set aside the assessment u/s 147 read with section 144 read with section 144B of the Income-tax Act, 1961 dated 29.03.2022 passed by the National Faceless Assessment Centre, to the AO, with a direction to the AO to make the assessment, by conducting inquiries and verification of the claim of the assessee after giving an opportunity of being heard, on the limited issue of: (1) examination of the cost of free construction of Rs. 2,81,33,000/- included in the Work-in-progress of Rs. 15,64,07,053/- shown in the P&L account. (i) verification of disallowance u/s 40a(ia) of the Act." 5.4 In view of above, it is evident that, revision u/s 263 is sought on issues other than issues which was subject matter of reassessment u/s 147. Therefore, due date for revision proceedings u/s 263 will be reckoned from date of intimation order passed u/s 143(1) and not from date of order passed u/s 147. Accordingly, following will be due date to pass order u/s 263:
10 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18
Due Date for passing order Sr. u/s 263 (Two years from end Particulars no. of financial year in which order was passed) Intimation order u/s 143(1) dated 1. – – 07/06/2018 2. Due date for passing order u/s 263 31/03/2021 29/03/2024 (beyond 3. Date of passing order u/s 263 limitation period
Reliance is placed on following judicial precedents: CIT v. Lark Chemicals Ltd. [2015] Taxmann.com 446 (Bombay) High Court of Bombay (Refer Pages 1 to 6 of legal paperbook) CIT v. ICICI Bank Ltd. [2012] 19 Taxmann.com 142 (Bombay) High Court of Bombay (Refer Pages 7 to 13 of legal paperbook) M/s Jainsons Agrochem Industries v. PCIT Writ petition no. 2136/2024 High Court of Rajasthan at Jodhpur (Refer Pages 29 to 38 of legal paperbook) Indira Industries v. PCIT [2018] 95 Taxmann.com 103 (Madras) High Court of Madras. (Refer Pages 41 to 46 of legal paperbook) Indira Industries v. PCIT [2018] 95 Taxmann.com 292 (Madras) High Court of Madras. (Refer Pages 47 to 51 of legal paperbook) CIT v. Bharti Airtel Ltd. [2013] 37 Taxmann.com 218 (Delhi) High Court of Delhi (Refer Pages 52 to 53 of legal paperbook) CIT v. Industrial Development Bank of India Ltd. [2023] 152 Taxmann.com 591 (SC) Supreme Court of India (Refer Pages 54 to 55 of legal paperbook) CIT v. Alagendran Finance Ltd. [2007] 162 Taxmann.com 465 (SC) (Refer Pages 56 to 67 of legal paperbook) Zulu Merchandise Pvt. Ltd. Vs. PCIT-2 [2023] (9) TMI 27-ITAT Kolkata (Refer Pages 68 to 77 of legal paperbook) M/s Seyad Shairat Finance Ltd. vs. PCIT [2021] (9) TMI 920-ITA Chennai (Refer Pages 84 to 91 of legal paperbook)."
The learned Departmental Representative supported the impugned order passed under section 263 of the Act by the learned Commissioner. On legal grounds, he submitted that the order of the Hon’ble Jurisdictional High Court in Jet Airways Ltd. (supra) has been challenged before the Hon’ble Supreme Court along with connected matters and the same is pending for disposal. On merits of case, the learned D.R. could not point out any mistake
11 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18 and relied on the impugned order passed by the learned Commissioner. The learned D.R. submitted that once the case is re–opened under section 147, it is open for the Assessing Officer to make additions in respect of all the issues and not restricted to the issues on which case was re–opened. He relied upon Explanation 3 to section 147 of the Act prior to amendment w.e.f. 01/04/2021, which read as under:–
“Explanation 3 For the purpose of assessment or reassessment†† under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to h his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.”
We have considered facts of the case arguments canvassed by both the sides and the legal position on this issue at length. We find that the ground of appeal no.2, raised by the assessee needs to be decided first since the same goes to the root of the issue and attacks at the basic foundational aspect. Hence, ground of appeal no.2, is reproduced as under:–
"2. Whether on the facts and circumstances, the learned Pr.CIT erred in assuming jurisdiction under section 263 of the Act on issues which were never the subject- matter of the assessment in a proceeding initiated under section 147 of the Act."
The copy of reasons recorded is exhibited at Page–1 to 3 of the Paper Book and the relevant extract is reproduced:–
"REASONS FOR REOPENING OF ASSESSMENT IN THE CASE OF M/s Latitude Infraventures (AAEFL9303P) FOR THE A.Y. 2016-17 U/s 147 OF THE INCOME TAX ACT, 1961. The assessee has filed its return of income for the A.Y. 2016-17 disclosing the total income at Rs.Nil/–. In this case, as per the 12 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18 information received from ITO (Exemption)-1, Nagpur, it was informed that the assessee has entered into development agreement with M/s. Sou Sumatibai Pandurang Deo Memorial Charitable Trust and has made payment of Rs.15,33,33,000/-, the source of payment is not explained viz a viz income shown in the ITR for previous years. Therefore, income for A.Y. 2016-17 has escaped assessment. In the view of the above, I have reasons to believe that the income to the tune of Rs.15,33,33,000/- has escaped the assessment for A.Y. 2016-17."
Further, the issues on which the order was revised by the learned Commissioner as per the impugned order passed under section 263 is reproduced as under:–
"7 Accordingly, I hereby set aside the assessment u/s 147 read with section 144 read with section 144B of the Income-tax Act, 1961 dated 29.03.2022 passed by the National Faceless Assessment Centre, to the AO, with a direction to the AO to make the assessment, by conducting inquiries and verification of the claim of the assessee after giving an opportunity of being heard, on the limited issue of: (i) examination of the cost of free construction of Rs. 2,81,33,000/- included in the Work-in-progress of Rs. 15,64,07,053/- shown in the P&L account. (iv) verification of disallowance u/s 40a(ia) of the Act."
We find that the issues on which re–assessment order was passed under section 143(3) r/w section 147 of the Act and the issues on which revision order passed under section 263 of the Act are entirely different. The assessee had filed Paper Books containing documents filed during re– assessment proceedings under section 147 and revision proceedings under section 263. We also find that during the re–assessment proceedings, a notice dated 10/12/2021 under section 142(1) was issued along with a questionnaire. The assessee furnished reply along adducing documentary evidences exhibited therewith which are placed at Page–1 to 67 of the Paper
13 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18 Book – additional. Thus, we find merit in the submission of the learned Counsel for the assessee that the Assessing Officer had made the enquiry during re-assessment proceedings in line with the reasons recorded and after verification had accepted the returned income of the assessee. Thus, no additions were made based on the reasons recorded. Therefore, as per binding judicial precedents of Hon'ble High Courts, the Assessing Officer was prohibited from making additions in respect of other issues which were not part of reasons recorded. We find that the learned Counsel for the assessee has placed reliance on judicial pronouncements aptly which are listed below:–
CIT v. Jet Airways Ltd. [2010] 195 Taxmann 177 (Bom.) ; Section 147 of the Income-tax Act, 1961 Income escaping assessment - Non- disclosure of primary facts - Assessment years 1994-95 and 1995-96 Whether an Explanation to a statutory provision is intended to explain its content and cannot be construed to override it or to render substance and core nugatory - Held, yes Whether after insertion of Explanation 3 to section 147 by Finance (No. 2) Act, 2009, with effect from 1-4-1989, section 147 has an effect that Assessing Officer has to assess or reassess income ('such income') which escaped assessment and which was basis of formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during course of proceedings Held, yes Whether, however, if after issuing a notice under section 148, he accepts contention of assessee and holds that income, for which he had initially formed a reason to believe that it had escaped assessment, has, as a matter of fact, not escaped assessment, it is not open to him to independently assess some other income; if he intends to do so, a fresh notice under section 148 would be necessary, legality of which would be tested in event of a challenge by assessee - Held, yes CIT v. Usha Maritn Ventures Ltd. [2023] 150 Taxmann.com 491(Calcutta) High Court of Calcutta, wherein it has been held s under: "4. The short issue involved in the instant case is whether the Commissioner of Income-tax (Appeals) [CIT(A)] could have assumed jurisdiction under section 263 of the Act on an issue which was never the subject-matter of the assessment in a proceeding initiated under section 147 of the Act. On facts, the learned Tribunal found that the issue of loss/expenditure incurred in respect of newly undertaken software product development project as capital loss/expenditure was not touched by the assessing officer in the reassessment proceedings under section 147 of the Act. Therefore, the learned Tribunal found that the CIT(A) was not justified in invoking the provisions of section 263 of the Act on an issue which was not the subject-matter of the reassessment of the proceedings. The decision rendered by the Tribunal takes note of the correct legal position and, therefore, does not call for any interference.”
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The key takeaway is when no addition is made on account of grounds of re–opening. There is no scope to make any other addition. Section 263 does not empower indirectly to circumvent the provision by directing to make an enquiry on some other independent issue. The learned D.R. is incorrect to invoke Explanation 3 to section 149 of the Act. In view of the aforesaid discussions, we are of the considered opinion that the impugned order passed by the learned Commissioner is bad–in–law and is hereby quashed. Therefore, ground of appeal no.2, stands allowed.
Since we have already decided ground of appeal no.2, on merit in favour of the assessee and against the Revenue, hence, all other contentions rendered academic in nature and not delved upon. Thus it is conclusively established that the order passed under section 263 of the Act is unsustainable on jurisdictional issue.
In the result, appeal filed by the assessee stands allowed. ITA no.350/Nag./2024 Assessment Year – 2017–18
The assessee has raised following grounds:
–
1. Whether on the facts and circumstances, the learned Pr.CIT has erred in concluding that assessment order passed by learned AO u/s 147 r.w.s 144B dated 29.03.2022 is erroneous and prejudicial to the interests of the revenue and in setting aside the assessment order with a direction to the learned AO to conduct enquiry and examination.
2. Whether on the facts and circumstances, the learned Pr.CIT erred in assuming jurisdiction under section 263 of the Act on issues which were never the subject-matter of the assessment in a proceeding initiated under section 147 of the Act.
15 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18
Whether where jurisdiction under section 263 was sought to be exercised with reference to issues which were not subject of reopening of assessment, period of limitation provided in section 263(2) would commence from date of order of assessment u/s 143(1) and not from date on which order of reassessment u/s 147 had been passed.
4. Whether on the facts and circumstances, the learned CIT erred in neither making any enquiry on his own nor considering merits of case but simply directed the learned AO to make proper enquiry and further verification thereby, rendering the order passed u/s 263 bad in law which deserves to be set aside.
5. Whether on the facts and circumstances, the learned CIT erred in not appreciating that, Explanation 2 to section 263 cannot be said to have overridden the law as interpreted by the Hon'ble Courts, according to which the Pr.CIT has to conduct an enquiry and verification to establish and show that the assessment order is wholly unsustainable in law. 6. The appellant craves leave to alter, amend, modify or substitute any ground/grounds and to add any new ground or grounds on or before the appeal is disposed off.”
After haring both the parties and on a perusal of the material available on record, we find that similar issues have been raised by the assessee in its appeal being ITA no.349/Nag./2024, for the assessment year 2016–17, wherein, vide ground no.2, we have decided this issue on merit in favour of the assessee and against the Revenue vide Para–8 to 12, of this order. Since the issues rose in ground no.2, for our adjudication being identical, except variation in figures and differing reasons for re–opening vis–a–vis grounds for revision, consistent with the view taken therein in assessee’s own case cited supra and respectfully following the findings given therein, we set aside the impugned order passed by the learned Principal Commissioner and allow the ground no.2, raised by the assessee. Thus, the order under section 263 of the Act has got no legal legs to stand upon and hence quashed.
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Since we have already decided ground of appeal no.2, on merit in favour of the assessee and against the Revenue, hence, all other contentions rendered academic in nature and not delved upon in details. Accordingly, submissions and arguments advanced about other aspects of section 263, is not reproduced for the sake of brevity. The reasons for re–opening as manifested is extracted below:–
“The assessee has filed its return of income for A.Y.2017-18 disclosing the total income at Rs. Nil/-. In this case, as per information received from ITO(Exemption)-1, Nagpur it was informed that assesse has entered into agreement to sale agreement with two parties for Rs.1.5 crore and 2.6 Crore but on perusal of the ITR for A.Y.2017-18 it is found that above transaction has escaped assessment for Α.Υ.2017-18. In view of the above, I have reason to believe that the income to the tune of Rs.4.10 Crores (Approx) has escaped assessment for A.Y.2017- 18.”
Vis–a–vis the grounds for revision is also adumbrated below:–
“Accordingly, I hereby set aside the assessment u/s 147 read with section 144B of the Income-tax Act, 1961 dated 29.03.2022 passed by the National Faceless Assessment Centre, to the AO, with a direction to the AO to make the assessment, by conducting inquiries and verification of the claim of the assessee after giving an opportunity of being heard, on the limited issues of: (i) examination of accounts, i.e. whether the method of booking of receipts and booking of expenditure as well as booking of profits is as per the appropriate provisions of Sec 145 of the Act and the relevant Accounting Standards prescribed for accounting of the business of construction carried out by the assessee. (ii) whether payment of Rs. 25,00,000/- to Shriniwas Buildicon Pvt. Ltd is a deductible business expenditure as per the provisions of the Income- tax Act, 1961. (iii) verification regarding disallowance u/s 40a(ia) of the Act, as discussed above.”
17 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18
The issues sought to be revised under section 263, are different than issues on which assessment proceedings under section 147, were re–opened. We find that the very premise assumed by learned PCIT does not hold good and thus, when the foundation itself collapses the super-structure falls. We find that in the present facts and circumstances, the legal maxim 'sublatofundamentocaditopus' is applicable, meaning thereby – 'a foundation being removed, the superstructure falls'. Once the basis of a proceeding is gone, the action taken thereon would fall to the ground. If initial action is not in consonance with law, all subsequent proceedings would fail as illegality strikes at the root. ReferKalabharati Advertising v/s Hemant Vimalnath Narichania & Ors [2010] (9) SCC 437. Thus, in the absence of valid foundation, exercise of a suo motu power is impermissible. It should not be presumed that initiation of power under suo motu revision is merely an administrative act. It is an act of a quasi judicial authority and based on formation of an opinion with regard to existence of adequate material to satisfy that the decision taken by the Assessing Officer is erroneous as well as prejudicial to the interests of the revenue. Considering the facts on record and the material corroborating the submissions made, we unhesitatingly hold that the impugned order is not sustainable as the initiation of revision proceedings itself is bad-in-law and subsequent proceedings would thereby fail. Therefore, revision of order passed by learned Assessing Officer under section 147 r/w section 143(3) by the learned Commissioner under section 263 being not as per mandate of law could not be sustained and is liable to be struck down.
18 Latitude Infraventures & 350/Nag./2024 A.Y. 2016–17 & 2017–18
The reasons and grounds are self–explanatory and clearly demonstrate that they are poles apart and different.
In the result, appeal filed by the assessee for assessment year 2017–18 is allowed.
To sum up, assessee’s appeals for A.Y. 2016–17 and 2017–18 are allowed. Order pronounced in the open Court on 22/10/2024