SHRI VISHAL RAMESHCHANDRA MEHTA,RAJKOT vs. THE PR. CIT-1, RAJKOT, RAJKOT

आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-

Page No 2 Shri Vishal Rameshchandra Mehta vs. Pr. CIT

“The grounds of appeal mentioned herein below are without prejudice to each other:

1.0 That on the facts and circumstances of the case and in law, the order passed by the Principal Commissioner of Income-tax (PCIT) Rajkot-1, u/s 263 of the Income-tax Act, 1961 ('the Act') setting aside the assessment framed u/s 143(3) r.w.s 147 of the Act as erroneous and prejudicial to the interest of the revenue is without jurisdiction, bad in law and void ab-initio.

1.1 That on the facts and circumstances of the case and in law, the order passed u/s 263 of the Act by the Principal Commissioner of Income-tax (PCIT) Rajkot-1 is void ab-initio and without jurisdiction because the same issue as raised in assessment framed u/s 143(3) r.w.s 147 of the Act is pending with the CIT(Appeals).

2.0 That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax (PCIT) Rajkot-1 erred in exercising jurisdiction u/s 263 by setting aside the issue of transactions of Rs. 2,82,08,000/- with M/s National Shroff even though the same had been discussed and scrutinized by the Assessing Officer in detail while framing the assessment u/s 143(3) r.w.s. 147 of the Act.

2.1 That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax (PCIT) Rajkot-1 erred in setting aside the order by stating that the assessing officer has not conducted any inquiries or applied his mind correctly on finalizing the order by estimating the profit @8% on the total transactions of Rs. 2,82,08,000/- with M/s National Shroff.

2.2 That on the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax (PCIT) Rajkot-1 erred in holding that the assessment order is erroneous and prejudicial to Page No 3 Shri Vishal Rameshchandra Mehta vs. Pr. CIT interest of revenue on the issue of applicability of section 68 on total transactions amounting to Rs. 2,82,08,000/- with M/s National Shroff.

Your appellant craves leave to add, alter, modify, revise and delete all or any of the grounds of appeal on or before or at the time of final hearing of appeal.”

3. The brief facts of the case are that on examination of the records, the Principal CIT noticed that the assessee had entered into financial transaction amounting to Rs. 2,82,08,000/- with M/s. National Shroff, Rajkot during F Y 11-12. The Assessment had been finalized u/s. 143(3) r.w.s. 147 determining total assessed income at Rs. 24,41,870/-. In absence of proper explanation for financial transaction amounting to Rs. 2,82,08,000/- with M/s. National Shroff, AO treated the amount as unexplained income and added 8% of cash transactions of Rs. 2,82,08,000/- u/s. 68 of the Act, to the total income of the assessee. The Principal CIT observed that AO has not added total cash deposit to total income of assessee and reopened assessment was finalized us. 143(3) r.w.s. 147 vide order dated 21/11/2019 determining total income of Rs. 24,41,870/-. A show cause notice dated 11/01/2021 was issued proposing to subject the assessment order of the AO to revision us 263 of the Income Tax Act. In compliance of the same, assessee filed his submission in which it was contended that as per clause C of Explanation 1 to section 263, no revision of the assessment order could be made as the appeal is pending in this case before the CIT(A). In support the assessee submitted copy of form No. 35. The assessee further submitted that the AO has made already addition of Rs. 22,56,640/- being 8% on the total transaction of Rs. 2,82,08,000/-. The assessee submitted that since the issue Page No 4 Shri Vishal Rameshchandra Mehta vs. Pr. CIT under consideration is under appeal before CIT(A), therefore no revision could be made. In support, the assessee relied upon certain decision/ judgments. The Principal CIT was of the view that the interpretation of the nature of transaction and the non-application of provisions of sub section 44AD is a relevant factor and therefore it cannot be said that the issue has been re-agitated which is the subject matter of appeal before Ld. CIT(Appeals), in 263 proceedings. On the one hand the AO has made the addition of the GP rate / NP rate treating the transactions with Anagadiaas commodity transactions without any basis and on the other side no evidences from assessee or AO have brought on record to show the transactions with Angadiaas commodity transactions. Further, Principal CIT observed that the AO has made the addition @ 8% of the total financial transactions of Rs. 2,82,08,000/-. Since these transactions have been made with M/s. National Shroff who is an Angadia therefore there was no scope to treat the said transactions as trading turnover but were required to be treated as cash transactions only. So there was no question of applying any GP or NP rate on above financial transactions. Neither the assessee has proved that those were not the financial transactions but some commodity trade transactions nor AO has examined the nature of transaction and simply accepted the commodity trade turnover when there was nothing on record to assume so. Moreover, the assessment has been completed under the provisions of section 44AD of the IT Act by the AO but the said provisions are not applicable as the total quantum of transaction was exceeding Rs. 60 lacs in the year under consideration. So there was incorrect application of the provisions of law by the AO while completing the assessment. In absence of satisfactory explanation, the AO ought to have considered the total amount Page No 5 Shri Vishal Rameshchandra Mehta vs. Pr. CIT as unexplained cash transactions and could have been considered for addition apart from taxing the same u/s. 115BBE and initiation of penalty provisions relating to the same. The Principal CIT observed that that such cases where the assessment has been completed without conducting any inquiries tantamount to erroneous orders as also order prejudicial to the interest of Revenue. Accordingly, assessment order was directed to be set aside.

4. The assessee is in appeal before us against the aforesaid order passed by Principal CIT setting aside the assessment order as being erroneous and prejudicial to the interest of Revenue. The assessee took various arguments before us in support of the contention that the aforesaid 263 order passed is erroneous in the eyes of law. Firstly, it was contended that in the instant case Principal CIT erred in not invoking Explanation 2 of section 263(1) of the Act in the notice issued to the assessee and such Explanation was invoked only in the body of the final 263 order. Secondly, it was submitted that the assessee has already filed appeal against the aforesaid order passed by the assessing officer before Ld. CIT(Appeals) and the instant matter is pending adjudication. Accordingly, the counsel for the assessee placed reliance on several judicial precedents which have held that once the matter is pending before Ld. CIT(Appeals), then it is outside the purview of provisions of section 263 of the Act. Thirdly, it was contended that the issues on the basis of which proceedings under section 263 of the Act have been initiated against the assessee were already been examined by the assessing officer during the course of assessment proceedings. It was submitted that the assessing officer had made enquiries during the course of assessment Page No 6 Shri Vishal Rameshchandra Mehta vs. Pr. CIT proceedings and had already applied his mind to the issue which is the subject matter of 263 proceedings. Accordingly, looking into the instant facts, the assessment order was neither erroneous not prejudicial to the interests of Revenue. Finally, it was submitted that Principal CIT has erred in holding that the assessing officer erred in passing the order under the provisions of section 44AD of the Act, but the assessing officer had only made reference to the provisions of section 44AD of the Act for computing the taxable income of the assessee. Accordingly, in light of the above observations, it was submitted that the order passed under section 263 of the Act was neither erroneous nor prejudicial to the interest of Revenue.

6.1 Firstly, we shall deal with the contention that the assessee has filed appeal against the assessment order before Ld. CIT(Appeals), which is pending adjudication and therefore, the said assessment order cannot be subject matter of 263 proceedings. In the case of Amritlal Bhogilal & Co.34 ITR 130 (SC), the Hon'ble Supreme Court held that it would be open to the Commissioner to revise an assessment while an appeal against it is still pending before the CIT(A), because the AO's order must be regarded as subsisting and effective in law, despite the pendency of the appeal. In the case of EIMCO K.C.P. Ltd.242 ITR 659 (SC), the Hon'ble Supreme Court Page No 7 Shri Vishal Rameshchandra Mehta vs. Pr. CIT held that Commissioner could interfere, acting under section 263, with order of ITO on point which was directly in appeal before AAC. In the case of Ramlal Onkarmal44 ITR 578 (Assam), the High Court held that merely because an appeal is pending against order of ITO, that is no bar to exercise of power under section 33B of 1922 Act by Commissioner. In the case of Kelpunj Enterprises108 ITR 294 (Kerala), the High Court held that Commissioner can pass an order under section 263 setting aside ITO's order when an appeal has been filed by assessee against said order of ITO and it is pending before AAC for disposal. In view of the direct decisions on this issue by the Honourable Supreme Court of India, we are of the considered view that in respect of matters which are pending before Ld. CIT(Appeals) and on which no final order has been passed by Ld. CIT(Appeals), they can be revised by recourse to proceedings under 263 of the Act.

6.2 The second contention of the assessee before us is that in the instant case Principal CIT erred in not invoking Explanation 2 of section 263(1) of the Act in the notice issued to the assessee and such Explanation was invoked only in the body of the order. However, the issue for consideration in the case of Shreeji Prints supra was also whether by not invoking Explanation 2 of section 263(1) of the Act in the notice issued to the assessee, there was evident lack of opportunity given to the assessee to present it’s case. In the instant case, it is not the contention of the assessee that there was evident lack of opportunity having been provided to the assessee in the 263 proceedings. The assessee was given due opportunity of hearing and the reasons for initiating revisionary proceedings under 263 of the Act were made available to the assessee. The objections of the assessee Page No 8 Shri Vishal Rameshchandra Mehta vs. Pr. CIT were taken on record and after due consideration of the same, the Principal CIT passed order in accordance with law. Accordingly, in our considered view an order passed by Principal CIT under 263 of the Act cannot be set aside merely by taking recourse to decisions without analysing whether the facts in such decision are applicable to the assessee’s in set of facts. In the aforesaid decision rendered by the Honourable Supreme Court in the case of Shreeji Prints supra, it was held that order passed under 263 of the Act by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law. Therefore, in our considered view, the aforesaid decision cannot be applied in cases where due opportunity of being heard was granted to the assessee during the course of 263 proceedings. Accordingly, we are unable to agree with the contention/argument put forth by the assessee on this point.

6.3 The third argument by the assessee before us was that the issues on the basis of which proceedings under section 263 of the Act have been initiated against assessee had already been examined by the assessing officer during the course of assessment proceedings. However, what also has to be seen is whether after due enquiry, the conclusion drawn by the assessing officer is in accordance with law and would not cause any evident prejudice to the interests of the Revenue. If, on the basis of conclusions drawn by the assessing officer, it is seen that such conclusion would cause evident prejudice to the interests of the Revenue, in our considered view, the Department can take recourse to 263 proceedings to set aside such assessment order. In the instant facts, even though the relevant facts were Page No 9 Shri Vishal Rameshchandra Mehta vs. Pr. CIT examined by the assessing officer during the course of assessment proceedings, however, on perusal of the order passed by Principal CIT, it is seen that the conclusion/analysis of the assessing officer and the basis of arriving at the taxable income did in fact cause prejudice to the interests of the Revenue. Accordingly, we are unable to agree with the contention put forth by the assessee on this issue.

6.4 Lastly, it was submitted before us that the assessment order is not on the basis of provisions of section 44AD of the Act and only a reference has been made to the aforesaid provision to determine the taxable profits @8%. However, from a perusal of order passed by Principal CIT, it is evident that the aforesaid transactions have been made by the assessee with M/s. National Shroff who is an Angadia therefore there was no scope to treat the said transactions as trading turnover but to treat as cash transactions only and therefore, there was no question of applying any GP or NP rate on above financial transactions. Moreover, even if it were to be accepted that the assessment has been completed by mere reference to the provisions of section 44AD of the IT Act by the AO, even then, in our view Principal CIT was correct in observing that reference could not have been drawn to the said provisions as the total quantum of transaction was exceeding Rs. 60 lacs in the year under consideration. Therefore, there was incorrect application of the provisions of law by the AO while completing the assessment.

6.5 Accordingly, looking into the facts of the instant case, we find no infirmity in the order of Principal CIT so as to call for any interference.

Page No 10 Shri Vishal Rameshchandra Mehta vs. Pr. CIT

Order pronounced in the open court on 31-10-2023