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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI MAKARAND V. MAHADEOKAR
(Assessment Year: 2015-16) Hirenkumar Lavjibhai Kanani, Vs. Principal Commissioner of 401, AMI Mangal-2, Nr. Gram Income Tax, Panchayat Office, Bodakdev, Ahmedabad Gujarat-380054 [PAN No.AFKPK6831N] (Appellant) .. (Respondent) Appellant by : Shri Sagar Shah, A.R. Respondent by: Shri H. Phani Raju, CIT DR Date of Hearing 13.08.2024 Date of Pronouncement 27.08.2024 O R D E R
PER MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER:
1. This appeal by the assessee is directed against the order of the Principal Commissioner of Income Tax, Ahmedabad – 3 (hereinafter referred to as “PCIT”), passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") dated 23.01.2024.
Facts of the case 2. The assessee filed his return of income for the assessment year 2015-16 declaring total income of Rs. 4,79,940/-. The return was subsequently subject to reassessment proceedings under section 147 of the Act, which were initiated based on the information that the assessee had received unsecured loans/advances from M/s. Yash EPC Projects Pvt. Ltd., where the assessee held a significant shareholding.
3. The reassessment proceedings were initiated for the limited scrutiny purpose of verifying the applicability of the provisions of Section 2(22)(e) of the Act, which deals with "Deemed Dividend". The Assessing Officer (AO), after considering the submissions and explanations provided by the assessee, made an addition of Rs. 3,50,000/- to the income of the assessee, treating it as deemed dividend under section 2(22)(e) of the Act.
4. Subsequently, the Ld. PCIT initiated revisionary proceedings under section 263 of the Act, alleging that the AO had not properly examined two issues:
1. Cash deposits amounting to Rs. 6.12 lakhs in the assessee's bank account, and 2. The purchase of two immovable properties valued at Rs. 40 lakhs and Rs. 26.92 lakhs.
5. Ld. PCIT, passed order u/s 263 and set aside the order of AO passed on 27-03-2022 u/s 147 r.w.s. 144 read with section 144B of the Act.
Aggrieved by the order of PCIT, the assessee is before us with following grounds of appeal:
The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section 263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts and is required to be quashed as the same is passed without satisfying the basic twin conditions as prescribed under the law for any order to be passed u/s 263 of the Act. Nor the order passed is prejudicial to the interest of the revenue and neither assessment order passed is proved to be erroneous. These conditions are conjunctive. An order of assessment passed by the Assessing officer should not be interfered with only because another view is possible.
The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section 263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the Ld. PCIT have initiated the re-assessment proceedings u/s 263 for the year under consideration for the following two issues as under: i. Cash Deposits amounting to Rs. 6.12 lakhs in the Bank Account. ii. Purchase of two immovable properties, one amounting to Rs. 40 lakhs and another amounting to Rs. 26.92 Lakhs.
The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section 263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the Ld. PCIT cannot hold the Assessment Order passed dated 23.12.2021 to be erroneous and prejudicial to the interest of the revenue. The re-assessment proceedings for the year under consideration were initiated for the limited scrutiny purpose i.e. merely for the purposes of verification for provisions of Section 2(22)(e) of the Act and same was finalized by making an addition of Rs. 3,50,000/- as evident from the reasons recorded.
The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section 263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the assessment order passed in respect of the issues which were not a reason for selection of the case for limited scrutiny and which were outside the powers vested upon the Ld. AO to inquire cannot be termed as erroneous. Therefore, the Ld. PCIT is not justified in holding that the assessment order is erroneous insofar as it is prejudicial to the interest of the Revenue for the A.O not considering the aspects which are beyond the purview of limited scrutiny.
The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section 263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the ld. PCIT has not considered fact that when the very basis of scrutiny of the case was on account of limited issues, then it is not justified to hold that the AO has failed to make the inquiry, where the scope of inquiry is limited only to the extent of that issues. The CBDT instructions clearly establish that it is not open for the Assessing Officer to travel beyond the reasons for selection of the matter for limited scrutiny and on this aspect the assessment order in this case is in accordance with the instructions governing the field.
6. The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section 263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the Ld. PCIT has nowhere vide the Order mentioned how the order is erroneous and pre-judicial to the revenue. It was incumbent upon the Pr. CIT to have shown as to how the order was prejudicial to the interest of the Revenue, without which the whole revisionary proceedings are not sustainable in the law.
7. The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the Ld. PCIT has erred in considering that the provisions of section 263 nowhere allow to challenge the judicial wisdom of Id. AO or to replace his wisdom in the guise of revision. Reliance is placed on the decision of the Hon'ble High Court in the case of CIT vs. Ganpat Ram Bishnoi, 296ITR 292 (Raj.) wherein at para 11 of the Hon'ble Court held as under: "Jurisdiction under section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something."
8. The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the whole revisionary proceedings initiated are based on the documents which was not part of the assessment records, and hence, the Ld. PCIT is precluded to initiate the proceedings under Section 263 of the Act. Revisional jurisdiction u/s 263 of the Act cannot be exercised for broadening the scope of jurisdiction that was vested with the Ld. A.O while framing the assessment. The Ld. AO is not justified in initiating the proceedings u/s 263 of the Act for which the provisions of re-assessment i.e. Section 148 are applicable.
9. The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the Ld. PCIT cannot merely convert the limited scrutiny assessment into a complete scrutiny assessment and enlarge its scope of proceedings by taking the shelter of the provisions of section 263 of the Act. The Ld. Pr. CIT in garb of his revisional jurisdiction u/s 263 cannot be permitted to traverse beyond jurisdiction that was vested with A.O while framing assessment.
10. The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the Ld. PCIT has erred in considering the judicial pronouncements in the matter where the Honourable ITAT, Ahmedabad has quashed the revisionary proceedings in the case of M/s. Visu Casement Pvt. Ltd. v/s The Principal Commissioner of Income Tax -2, Vodadara by stating that “Accordingly, based on the documents which was not part of the assessment records, the learned PCIT is precluded to initiate the proceedings under section 263 of the Act. In holding so, we draw support and guidance from the judgement of Hon'ble Calcutta High Court in the case of Reliance Jute and Industries Ltd. In view of the above, we hold that the basis to initiate the proceedings under section 263 of the Act by the learned PCIT is misplaced as it was based on the document which was not forming part of any proceedings. Therefore, we hold that the order passed by the learned PCIT is not sustainable. Accordingly, we quash the same. Hence, the ground of appeal of the assessee is hereby allowed.”
11. The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the revisionary order passed is without following the judicial consistency in the order passed by the following authorities in the cases mentioned below: i. Jaipur Bench of the Tribunal in the case of Mahendra Singh Dhankhar HUF vs. ACIT dated June 30, 2021 (2021) 62 CCH 0271 (Jaipur Trib) ii. Honorable ITAT Surat in the case of Preetiben Chhatrasingh Chauhan Vs PCIT bearingITA No. 238/SRT/2023 iii. Honorable ITAT Pune in the case of Deccan Paper Mills Co. Ltd. Vs CIT-IV bearing ITANo. 1013 & 1635/PUN/2014 iv. Honorable ITAT Mumbai in the case of R. & H. Property Developer Pvt. Ltd. Vs PCIT bearing v. Honorable ITAT Mumbai in the case of Sonali Hemant Bhavsar Vs PCIT bearing ITA No.742/M/2019. vi. Chandigarh Bench of the Tribunal in the case of Paul Bharwaj vs. Pr.CIT in May 13, 2021 (2021) 62 CCH 0120 (Chd Trib) All the revisionary proceedings directing that the Ld. PCIT cannot pass revisionary order u/s.263 of the Income Tax Act on other aspects outside the scope of limited scrutiny. Thus, there visionary proceeding itself is not sustainable in the eyes of the law as it is violating the basic provisions of the law and is void-ab-initio requiring it to quash all the proceedings.
12. The revisionary Order passed u/s 263 of the Act is without fulfilling the basic and the twin conditions prescribed in the Act and hence initiation of the proceedings is void– ab-initio. Based on the facts and circumstances of the case, Ld. PCIT has erred in law as well as on facts to invoke the explanation 2 of section 263 of the Act but in fact that provision also does not absolve the Ld. PCIT to prove that on what reason the order is prejudicial and erroneous. Thus, the law empowers the Ld. PCIT to prove this twin condition and in the order passed by the Ld. PCIT none of these conditions is established by him.
i. Based on the facts and circumstances of the case, Ld. PCIT has erred in law as well as on facts as the first condition u/s 263(2) of the Act i.e. The order is passed without making inquiries or verification which should have been made is not fulfilled as the Appellant would like to draw attention to the notices issued u/s142(1) of the Act wherein the details with regards to matter of 2(22)(e ) is duly asked by the Ld. AO. The appellant has discharged his onus liability by submitting the required evidence. It was never the matter for the Ld. AO to verify the two matters which are raised by the Ld. PCIT as it was a limited scrutiny re-assessment and beyond the powers vested to him. The condition clearly stated the words “should have been made” but it was beyond his powers vested upon to verify the said matters and there was no compulsion upon him to verify the same. Thus, the allegation is made without considering the above facts and provisions of the law. ii. Based on the facts and circumstances of the case, Ld. PCIT has erred in law as well as on facts as the second condition u/s 263(2) i.e. The order is passed allowing any relief without inquiring into the claim is vague and baseless. The Assessment Order passed is thereby making an addition of Rs. 3,50,000/- as deemed dividend as per Section 2(22)(e). It was beyond his powers vested as well as not binded to verify the genuineness of the cash deposits and the purchase of the immovable property. Novague or abrupt decisions have been passed by the Ld. AO and hence the revisionary proceedings can’t be merely allowed as this information was never known to the Ld.AO at the time of assessment. iii. Based on the facts and circumstances of the case, Ld. PCIT has erred in law as well as on facts as the third condition u/s 263(2) of the Act i.e. The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119 is not fulfilled- The appellant would like to state that when the order passed u/s 147 r.w.s 144B of the Act have been verified, checked, generated and passed by all the levels of higher authorities then on what basis the same can be said to be passed not within the direction or instruction issued by the Board under section 119? On what basis is the Ld. PCIT challenging the order passed by the authorities of the Government is also not conveyed by the Ld. PCIT vide the order passed. Thus, by merely stating and not proving the conditions does not make the order erroneous and prejudicial to the revenue. iv. Based on the facts and circumstances of the case, Ld. PCIT has erred in law as well as on facts as the fourth condition u/s 263(2) of the Act i.e. 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 is not proved to be not fulfilled. The order passed by the Ld. FAO follows the exact provisions of the law and after considering the documentary evidence placed on records. The Ld. AO has passed the order in accordance with the various judgements placed on records during the proceedings. It is the Ld. PCIT who has not considered the provisions of the law and converted a limited scrutiny assessment into complete scrutiny thereby taking the shelter of provisions of Section 263 where, re-assessment provisions of Section 148 are applicable and hence they are required to be quashed.
13. The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the Ld. PCIT has failed to consider the technical and provisional aspects but has also failed to consider the facts/documentary evidences/proofs submitted in the response dated 08.01.2024 and15.01.2024 to the SCN issued for the revisionary proceeding’s u/s 263.
The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts for initiating the revisionary proceedings as the Ld. PCIT has not considered the explanations along with supporting documentary evidences placed on records such as copies of 7/12 and 8Aevidencing the agricultural land holdings, comparative return of income evidencing the agricultural income in previous and subsequent years to substantiate the claim of agriculture income and the subsequent cash deposits made in the Bank of Baroda Account for the year under consideration merely because the invoices for the agriculture income were not made available, the revisionary proceedings were initiated which is bad in law.
15. The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the Ld. PCIT has not properly verified the explanations along with supporting documentary evidences placed on records such as copies of purchase deeds, home loan documents and sanction letter, Bank Statements evidencing payment, etc. to substantiate the claim of purchase of the two immovable properties amounting to Rs. 40lacs and 26.92lacs during the year under consideration.
The order passed by the Ld. Principal Commissioner of Income Tax, Ahmedabad under section263 of the Income Tax Act dated 23.01.2024 is bad in law as well as on facts as the Ld. PCIT has not taken any pain to verify the documents placed on records which ultimately substantiate both the matters for which the revisionary proceedings were proposed to be initiated. Thus, the revisionary order passed u/s 263 of the Act is bad in law and is therefore required to be quashed. The appellant craves to leave, to add, amend, alter, or delete any of the grounds of appeal at the time of personal hearing in the interest of natural justice.
On the grounds of appeal
The Authorised Representative (AR) of the assessee contended that the revisionary jurisdiction under Section 263 has been wrongly invoked as the issues raised by PCIT relating to cash deposits and purchase of immovable properties were outside the scope of the limited scrutiny originally set by the AO. The AR further contended that the reassessment was limited to verifying the applicability of Section 2(22)(e) and the AO had duly made inquiries and completed the assessment on that limited issue. The AR took us through the reasons recorded for re-opening the assessment. The AR also stated that the PCIT has not considered the detailed explanations and documentary evidence provided by the assessee, including agricultural income proofs and property purchase documents, before passing the order under Section 263. The AR placed reliance on some judicial precedents as per the grounds of appeal.
The Departmental Representative (DR) argued that under Explanation 3 to Section 147 of the Act, the AO is empowered to assess or reassess any income in respect of any issue that comes to his notice during the reassessment proceedings, even if that issue was not included in the reasons recorded under Section 148(2).
We have carefully considered the submissions of both parties and perused the relevant material on record. We note that the reassessment proceedings were initiated with the sole purpose of verifying the applicability of Section 2(22)(e) of the Act, which pertains to deemed dividend. We verified it from the reasons recorded by the AO for reopening the assessment. The AO, after due consideration of the submissions made by the assessee, made an addition of Rs. 3,50,000/- under this section, which indicates that the AO duly exercised his jurisdiction within the scope of the limited scrutiny.
We acknowledge the DR’s argument concerning Explanation 3 to Section 147, which allows the AO to assess or reassess income on issues that come to his notice during reassessment, even if they were not originally included in the reasons for reopening. However, this power must be exercised within the framework of the law and cannot be used as a carte blanche to reopen or expand the scope of scrutiny beyond the original purpose for which the assessment was reopened. In the present case, the reassessment was initiated specifically to examine the applicability of Section 2(22)(e) regarding deemed dividend. The AO appropriately limited his investigation to this issue and made an addition based on the findings. In our opinion while Explanation 3 permits the AO to assess new issues that come to light during reassessment, but the scope of such reopening of assessment cannot be expanded by the Ld. PCIT to review issues beyond what was originally contemplated during the reassessment, especially when such issues were not part of the reasons for the selection of the case for limited scrutiny.
The jurisdiction under section 263 can only be invoked if the order passed by the AO is erroneous and prejudicial to the interests of the revenue. However, for an order to be erroneous, there must be a clear demonstration of error in the assessment process related to the issues for which the assessment was originally reopened. In the present case, the Ld. PCIT has attempted to revise the assessment order by bringing in issues related to cash deposits and the purchase of immovable properties, which were outside the purview of the notice for reassessment. The revisionary jurisdiction under section 263 cannot be exercised to widen the scope of the original assessment beyond the specific reasons recorded for reopening the assessment. Moreover, the assessee had provided sufficient explanations and evidence during the reassessment proceedings regarding the unsecured loans received from M/s. Yash EPC Projects Pvt. Ltd., and the AO had duly considered these submissions before making the addition under section 2(22)(e). Thus, the assessment order cannot be termed as erroneous or prejudicial to the interests of the revenue merely because the Ld. PCIT holds a different view on unrelated issues.
We have noted the judicial precedents relied on by the assessee which primarily deals with the issue of Limited Scrutiny. However, the courts have ruled that invoking Section 263 based on documents that were not part of the original assessment record is legally impermissible. In the case of Reliance Jute and Industries Ltd.(reported in 150 ITR 643), Hon’ble Calcutta High Court clearly stated that revisional powers should be exercised only on the basis of the records that were available during the assessment proceedings. The Co-ordinate Bench in case of M/s. Visu Casement Pvt. Ltd. (ITA No. 306/Ahd/2020) echoed this view, confirming that extraneous materials cannot justify revision under Section 263.
In view of the above findings and judicial precedents, we hold that the invocation of jurisdiction under section 263 by the Ld. PCIT was not justified, as the order of the AO was neither erroneous nor prejudicial to the interests of the revenue on the issues for which the reassessment was originally initiated.
14. Accordingly, we set aside the order passed by the Ld. PCIT under section 263 of the Act and allow the appeal filed by the assessee.
In the result, the appeal filed by the assessee is allowed. This Order pronounced in Open Court on 27/08/2024