Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
This appeal by the assessee is directed against the revision order dated 18.02.2022 of Pr. Commissioner of Income Tax (in short Pr. CIT) Indore passed u/s 263 of the Income Tax Act for Assessment Year 2012- 13.
There is a delay of 199 days in filing the present appeal. The assesse filed an application for condonation of delay which is supported by the affidavit of the assessee. The Ld. AR of the assesse has submitted that the impugned order was passed on 18.02.2022 but the assesse did not receive the order as it was sent to the e-mail ID. He has further submitted that Bhawani Shankar Page 2 of 21 the assesse is a farmer and does not use the e-mail ID and therefore, the assesse was not aware about the impugned order passed by the Pr. CIT. He has referred to para 3 of the impugned order and submitted that the Pr. CIT has issued show cause notice dated 24.01.2022 fixing the date of hearing on 03.02.2022 since the notice was sent to the e-mail ID and assesse did not come to know about the said show cause notice of the Pr. CIT and consequently the impugned order was also passed ex-parte.
Thus, he has submitted that delay is covered by the judgment of Hon’ble Supreme Court in case Suo-moto Cognizance of extending the Limitation reported in 441 ITR 722 (SC). Since the assessee was not aware about show cause notice as well as the impugned order passed by the Pr. CIT prior to the occasion when the counsel of the assessee noticed from the e-filing portal of the Income Tax department about the proceedings u/s 263 of the Act and the impugned order passed u/s 263 of the Act. He has thus, submitted that the delay in filing the present appeal is neither intentional nor deliberate but due to the reasons as explained, therefore, the delay in filing the appeal may be condoned and the appeal of the assessee be decided on merits.
On the other hand Ld. DR has submitted that the reasons explained by the assessee for delay in filing the appeal have not shown a sufficient cause for the delay. The assessee cannot take an excuse of not using the e-mail ID when it is mandatory for filing proceedings as well as notices only in digital form. He has objected to the contention of delay.
We have considered the rival submissions and relevant material on record. The assessee has explained the cause of delay the applicationas under:
“1.2] The appellant is a farmer and does not use his E-Mail ID since the appellant is not tech-savvy. However, show cause notices and order passed by the Ld Principal Commissioner of Income Tax-1, Indore under section 263 of the Income-Tax Act, 1961 were served only on the E-Mail ID of the appellant and were never served physically at the registered address of the appellant. As stated above, the appellant complied with all the notices issued time-to-time Page 2 of 21 Bhawani Shankar Page 3 of 21 during the course of reassessment proceedings since those notices were in their knowledge as they were served physically. However, show cause notices and order passed by the Ld Principal Commissioner of Income Tax-1, Indore was never served physically to the appellant as a result of which the appellant was totally unaware of the fact that show cause notices had been issued and order had been passed in the case of the appellant under section 263 of the Income-Tax Act, 1961 on 18-02-2022. 1.3 It was only in the month of November end, 2022 that the counsel of the appellant on going through the E-Proceeding tab on the E-Filing Portal of the Income-Tax Department came across that fact that revisionary proceedings under section 263 of the Income-Tax Act, 1961 had been initiated in the case of the appellant and that order under section 263 of the Income-Tax Act, 1961 had been passed way back in February, 2022. 1.4] It was for the aforesaid reason that the present appeal was filed before the Hon'ble Bench with a delay of 220 days.
Similar averments have been made by the assessee in para 2 to 4 of the affidavit. The assessee has also relied upon the judgment of Hon’ble Supreme Court of India in the case of Collector Land Acquisition, Anantnag & Anr. Vs. Mst. Katiji & Ors. As reported in (1987) 62 CTR (SC) 23: (1987) 13 AIR 306(SC) wherein it has held that:
"The legislature has conferred the power to condone delay by enacting s. 5 of the Limitation Act of 1963 in order to enable the Courts to do substantial justice to parties by disposing of matters on 'merits'. The expression 'sufficient cause' employed by the legislature is adequately elastic to enable the Courts to apply the law in a meaningful manner which subserves the ends of justice- that being the life-purpose of the existence of the institution of Courts. It is common knowledge that this Court has been making a justifiably liberal approach in matters instituted in this Court. But the message does not appear to have percolated down to all the other Courts in the hierarchy." [Emphasis Supplied]
7. The Hon'ble Supreme Court in the case of N. Balakrishnan vs. M. Krishnamurthy as reported in (1998) 7 SCC 123 has categorically held that: Page 3 of 21
Bhawani Shankar Page 4 of 21 "The reason for such a different stance is thus: The primary function of a court is to adjudicate the dispute between the parties and to advance substantial justice. Time limit fixed for approaching the court in different situations in not because on the expiry of such time a bad cause would transform into a good cause. Rule of limitation are not meant to destroy the right of parties, They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly, the object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finis litium (it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time. A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words "sufficient cause" under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi Jain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 7491. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor.”
8. Thus the assessee has explained the cause of delay as he was not aware about proceeding initiated u/s 263 of the Act because the show cause notice issued by the Pr. CIT was not received by the assessee physically and similarly the impugned order passed u/s 263 was also not received by the assessee in physical form but it was later on found when the counsel of the assessee has checked the E-proceeding tab on the portal of the Income Tax Department. We find that the Pr. CIT issued
Bhawani Shankar Page 5 of 21 show cause notice dated 24.01.2022 which was also sent only to the registered e-mail ID as available with the department and the assessee did not respond to the said show cause notice which shows that the assessee might not be aware about the show cause notice issued by the Pr. CIT. The delay up to 30th May 2022 is covered by the Judgment of Hon’ble Supreme Court in case of Suo-moto Cognizance of extending the Limitation(supra) wherein the Hon’ble Supreme Court has finally issued the direction in Para 5 as under:
5. Taking into consideration the arguments advanced by learned counsel and the impact of the surge of the virus on public health and adversities faced by litigants in the prevailing conditions, we deem it appropriate to dispose of the M.A. No. 21 of 2022 with the following directions: (i) The order dated 23-3-2020 is restored and in continuation of the subsequent orders dated 8-3-2021, 27-4-2021 and 23-9- 2021, it is directed that the period from 15-3-2020 till 28-2- 2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasi-judicial proceedings. (ii) Consequently, the balance period of limitation remaining as on 3-10-2021, if any, shall become available with effect from 1- 3-2022. iii. In cases where the limitation would have expired during the period between 15-3-2020 till 28-2- 2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 1-3-2022. In the event the actual balance period of limitation remaining, with effect from 1-3-2022 is greater than 90 days, that longer period shall apply. IV. It is further clarified that the period from 15-3-2020 till 28- 2-2022 shall also stand excluded in computing the periods prescribed under sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.
Rest of the delay in filing the appeal is explained by the assessee as discussed above and we are satisfied that the assessee was having Page 5 of 21
Bhawani Shankar Page 6 of 21 reasonable cause for not filing the present appeal within the period of limitation. Accordingly, in the facts and circumstances of the case and in the interest of justice we condoned the delay in filing the present appeal. The assessee has raised following grounds:
“1. That on the facts and in the circumstances of the case and in law, the Ld Pr. CIT erred in setting-aside the order as passed by the Assessing Officer under section 143(3) r.w.s. 147 of the Income-Tax Act, 1961 by invoking the provisions of section 263 of the Income-tax Act, 1961 merely to give effect to the order passed by the Departmental Valuation Officer ('DVO') under section 55A of the Income-Tax Act, 1961 even when the assessment order as passed by the Assessing Officer was neither erroneous nor prejudicial to the interests of the revenue.
2. That on the facts and in the circumstances of the case and in law, the Ld Pr. CIT erred in setting-aside the order as passed by the Assessing Officer by invoking the provisions of section 263 of the Income-Tax Act, 1961 even when the assessment order was passed by the Assessing Officer under section 143(3) r.w.s. 147 of the Income-Tax Act, 1961 after conducting necessary enquiries. and after due application of mind.
3. That on the facts and in the circumstances of the case and in law, the Ld Pr. CIT erred in setting-aside the order as passed by the Assessing Officer by invoking the provisions of section 263 of the Income-Tax Act, 1961 and directing the Assessing Officer to frame the assessment de novo after considering Fair Market Value of the property as on 01- 04-1981 to be Rs. 3,39,339/- as per the report of the DVO thereby resulting in indexed cost of acquisition to be Rs. 26,63,811/- and taxable long-term capital gain to be Rs. 8,49,77,273/- as against the amount of taxable long-term capital gain of Rs. 90,34,341/- determined by the Assessing Officer in the assessment order even when the said amount of capital gain was duly examined by the Assessing Officer at the time of original assessment proceedings.
4. The appellant reserves the right to add, alter and modify the grounds of appeal as taken by him. ”
The assessment u/s 143(3) r.w.s. 147 of the Act was completed on 31.12.2019 at total income of Rs.91,54,071/- against the return income of Rs.1,19,730/-. Subsequently on examination of the assessment record the Pr. CIT noticed certain discrepancies which are enumerated in the show Page 6 of 21
Bhawani Shankar Page 7 of 21 cause notice dated 06.01.2022. The only issue taken up by the Pr. CIT while issuing show cause notice u/s 263 is regarding fair market value of the land sold by the assessee as on 01.04.1981 to be determined on the basis of the valuation report of the DVO received after assessment order.
11. Ld. AR of the assessee has submitted that the assessment was reopened only on the issue of assessment of long term capital gain arising from sale of agricultural land. The AO conducted due inquiry and considered the valuation report of a registered valuer filed by the assessee determining the Fair Market Value as on 01.04.1981. Though, the AO made a reference to the DVO for determination of fair market value as on 01.04.1981. However, the said reference was bad in law in absence of jurisdiction and enabling provisions prior to the amendment in section 55A of the Act which is not applicable for the year under consideration. Ld. AR has referred to show cause notice issued u/s 142(1) and annexure thereto and submitted that the AO asked the assessee to furnish all the details of cost of acquisition etc. of the land in question which was duly replied by the assessee at page no.18 of the paper book along with valuation report at page 23 to 28 of the paper book. Further the assessee requested the AO to adopt the fair market value as on 01.04.1981 by adopting reverse indexation method which is one of the acceptable method of valuation. He has referred to the letter of the assessee dated 24.12.2019 filed in response to notice u/s 142(1) dated 03.12.2019 placed at page no.29 to 38 of the paper book and submitted that in para 1.8 to 1.8.3. the assessee has given computation of fair market value as on 01.04.1981 as well as capital gain. The assessee given the calculation of fair market value based on the reverse indexation method. The assessing Officer after considering relevant facts and evidence produced by the assessee as well as the reply framed the assessment independently and made an addition of Rs.90,34,341/- to the total income of the assessee. The AO determined the fair market value as on 01.04.1981 by taking reverse indexation method. The assessee challenged the order of the AO before the Ld. CIT(A) and particularly the addition made by the AO on account of long term
Bhawani Shankar Page 8 of 21 capital gain. He as referred to form 35 paced at page no.320 to 322 of the paper book and submitted that the assessee raised grounds regarding adopting of fair market value as on 01.04.1981. Therefore, the issue of determination of fair market value as on 01.04.1981 was involved in the appeal filed by the assessee before the Ld. CIT(A) and hence the commissioner cannot invoke the provisions of section 263 on the issue which is subject matter of the appeal before the Ld. CITA). He has contended that jurisdiction of the Pr. CIT to invoke the provisions of section 263 on the issue which is pending in the appeal before the Ld. CIT(A) is barred as per the provision of section 263.
The second leg of argument of the Ld. AR is that the AO has taken a possible view in adopting the fair market value of the land as on 01.04.1981 then the Pr. CIT cannot be permitted to invoke the provision of section 263 of the Act merely because he does not agree with the view of the AO. He has relied upon the judgment of Hon’ble Calcutta High Court in the case of Reliance Jute and Industries Ltd. vs. ITO 150 ITR 643 , the judgment of Hon’ble Rajasthan High Court in case of Pr. CIT vs. Om Rudra Priya Holiday Resort Pvt. Ltd. 109 taxmann.com 63 and submitted that the Hon’ble High Court has held that when the Assessing Officer has conducted a detailed inquiry on the issue and called for all relevant records for the purpose of examining the cost of construction then it cannot be a case of inadequate inquiry so far as not referring the valuation to DVO is concerned. Once the AO was satisfied with the cost of construction then it is not mandatory for the AO to refer the valuation to the DVO. The AO after considering valuation report has determined the fair market value which is one of the possible views then the Pr. CIT cannot be permitted to invoke the provisions of section 263 of the Act. The Hon’ble Calcutta High Court in the case of Reliance Jute and Industries Ltd. vs. ITO (supra) has held that valuation report after completion of the assessment will not render the assessment order as erroneous for want of inquiry or due to non-application of mind. He has also relied upon the Bhawani Shankar Page 9 of 21 various decision of the Tribunal on this point that AO is not expected to consider valuation report of the DVO after completion of the assessment.
13. He has relied upon the judgment of Hon’ble Supreme Court in case of Malabar Industries Co. vs. CIT 243 ITR 83 wherein the Hon’ble Supreme Court has held that the provisions of section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer. It is only when an order is erroneous because of incorrect assumption of facts or an incorrect application of law. It will fall in the category of erroneous or so far as prejudicial to the interest of revenue. If the AO has adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law.
Ld. AR has relied upon the judgement of Hon’ble Supreme Court in case of CIT vs. Max India Ltd. 166 taxmann.com 188 and submitted that the Hon’ble Supreme Court has reiterated its view that where the assessing officer has adopted one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and the Income Tax Officer has taken one view which the Commissioner does not agree, it cannot be treated as an erroneous order. Thus, the Ld. AR has submitted that the impugned order passed by the Pr. CIT is not sustainable in law and liable to be set aside.
On the other hand, ld. DR has submitted that the AO has under assessed the amount of capital gain on sale of land if fair market value determined by the DVO is taken into consideration. The said report was received subsequent to completion of the assessment order and therefore, it is a material which has come on record though subsequent to making assessment which can be a basis of invoking the provision of section 263 of the Act. He has submitted that the Pr. CIT has relied upon the Bhawani Shankar Page 10 of 21 judgment of Hon’ble Supreme Court in case of CIT v. Shree Manjunathesware Packing Products & Camphor Works 231 ITR 53 (SC) and therefore the impugned order is proper invalid. He has relied upon the impugned order of the Pr. CIT.
We have considered the rival submission as well as relevant material on record. The assessee filed his return of income on 31.03.2013 declaring total income of Rs.1,19,730/- and agricultural income of Rs.6,81,730/-. On the basis of the information received from ADIT (investigation) –II Indore regarding sale of immovable property by the assessee for a consideration of Rs.10,48,09,000/- during the year under consideration the assessment was reopened by the AO by issuing a notice u/s 148 on 31.03.2019. In compliance to the notice u/s 148 the assessee filed the return of income on 25.04.2019 declaring total income as it was declared in the original return of income. Thus, it is clear that the assessment was reopened only on the issue of assessment of capital gain on sale of agricultural land, the details of which are given by the AO as under:
“4.1. In the instant case during the course of assessment proceedings it is found that during FY 2011-12 relevant to A.Y 2012-13 assessee has sold his immovable property situated at Survey No.310/1 and 311, Gram Lasudia Mon admeasuring 0.609 hectares and 5.293 hectares thereby totaling to 5.902 hectares to M/s Shiv Vatika Real Estate Private Ltd for a consideration of Rs. 10,48,09,000/-. Further, in this regard, the assessee submitted that he has realized the consideration during FY.2011-12 to 2015-16 Further, the assessee submitted that during the FY 2011-12 relevant to A.Y.2012-13 the assessee has realized only Rs.2,00,00,000/- against the sale of land and accordingly filed return of income. 4.2 Further, the assessee contended that he has invested the amount as soon as the same was actually received by him and therefore, he was eligible to claim deduction u/s 54B and 54F of the Income Tax Act, 1961. In this context the assessee has furnished year wise details of land purchased by him. I have gone through the submissions furnished by the assessee the same is not acceptable. As in the present case it is found that during the course of assessment proceedings it is noticed that the assessee has received Rs 2,00,00,000/- during the year(same is tabulated as under) and investment made by him till the date of filing return of income for the Page 10 of 21
Bhawani Shankar Page 11 of 21 year under consideration is tabulated as under. Further, on perusal of sale deed it is quite evident that the assessee has given the possession of the said land to the purchaser on the execution of deed le 31.03.2012. Further, as per provisions of section 2(47)(v) of the Income Tax Act, 1961 which is reproduced as under: (47) Transfer in relation to a capital asset includes Any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882); or”
The AO issued a notice u/s 142(1) dated 03.12.2019 with Annexure which reads as under:
ANNEXURE Assessment Proceedings in your case is pending for AY 2012-13. In this regard, you are requested to comply to the following points: Please furnish complete computation of Long Term Capital Gain claimed alongwith documentary evidence to substantiate your claim.
PUJA JAIN WARD 3(4) INDORE (in case the document is digitally wred please refer Digital Signature at the bottoms of the page)
The AO asked the assessee to furnish complete computation of long term capital gain along with documentary evidence to substantiate the claim. In response to notice u/s 142(1) assessee filed reply dated 11.12.2019 giving the details of the amount of sale consideration of agricultural land in question received by the assessee during the span of five years and the investment made by the assessee in purchase of agricultural land as well as residential house during those five years. Thus, the assessee explained that from financial years 2011-12 to 2015- 16 the assessee received total consideration of Rs.10,48,09,000/- against which total investment in the agricultural land and residential house was made to the tune of Rs.8,10,71,289/- in the year under consideration the Page 11 of 21
Bhawani Shankar Page 12 of 21 assessee has shown the consideration of Rs.2 crore and claimed that the same was invested in agricultural land which is more than the capital gain arising from the said consideration. The Assessing officer has recalculated capital gain after discussing the relevant facts as under :
“4.5 Further, with regards to the cost of acquisition of the said property the assessee in his reply dated 11.12.2019 furnished valuation report given by registered valuer who has determined the cost of the said agriculture land 20 lakhs per hectare in his report dated 06.12.2019. Further, in his reply the assessee submitted that While preparing return of total income not claimed the cost/fair market value of land, since the assessee had invested entire amount towards purchase of land. The assessee has considered the amount as received as its sale consideration and after deducting the investment as made towards purchase of new agricultural land, balance amount was considered as cost." 4.6 The assessee has also relied upon some judicial pronouncements for calculation of Fair Market Value of asset as on 01.04.1981. Further, in his reply the assessee submitted that the fair market value of the land as on 01.04.1981 would be between 25 lacs per Hectare to 30 lacs per hectare. In this regard the contention of the assessee is not acceptable. Hence, this office has referred the matter to the Valuation Officer. However, till date the report of the Valuation Officer is not received and matter is getting barred by limitation on 31.12.2019. Hence, there is no option left to complete the assessment on the basis of facts and material available with undersigned. Here it is pertinent to mention that this order is subject to the report of Valuation Officer. As the assessee has taken sale consideration at only Rs.2,00,00,000/- which is received during FY.2011-12. The contention of the assessee is not acceptable as discussed in foregoing Paras. Hence, the Long term Capital gain in case of assessee is re- computed as under on the basis of information and decision given by Hon'ble ITAT'S
Sale consideration Rs. 10,48,09,000/- Less: 25% which is deducted while Rs.2,62,02,250/- preparing Notified cost inflation index Amount equivalent 582 of cost index Rs.7,86,06,750/- If 785 of Cil is Rs.7,86,06,750/- Then for 100 it will be Rs.7,86,06,750x100 785 Rs. 1,00,13,598/- Fair market value of the asset as on 01.04.1981 by calculating on this method will be Rs. 1,00,13,598/- Page 12 of 21
Bhawani Shankar Page 13 of 21 Indexed cost of acquisition of the said asset would be Rs.1,00,13,598 785/100 =Rs.7,86,06,7441-1- Hence, long term capital gain derived by the assessee Sale consideration Rs.10,48,09,000/- Indexed cost of acquisition Rs.7,86,06,744/- Long term Capital Gain Rs.2,62,02,256 Eligible investment as tabulated in Table no.3 Rs.90,34,341/-
Thus as manifest from the assessment order that the AO did not accept the claim of the assessee regarding fair market value of the land as on 01.04.1981 and referred the matter to the DVO, however, the report of the DVO was not received till the limitation of framing assessment, therefore, the AO himself has recomputed the capital gain as well as determined the fair market value of the asset as on 01.04.1981 by adopting the reverse indexation method. Therefore, it is not the case that the AO has accepted the claim of fair market value of the assessee as on 01.04.1981 but the AO himself has determined fair market value of the agricultural land in question as on 01.04.1981 on the basis of reverse indexation method. The department has not disputed that the reverse indexation method is one of the acceptable method of valuation where there is no sale instance of the similar situated land is available as on 01.04.1981. Thus, it is evident that this is not a case of lack of inquiry on the part of the AO while passing the assessment order and rather this is also not the case of the Pr. CIT that the order of the Assessing Officer is erroneous due to lack of inquiry but the provision of section 263 were invoked by the Pr. CIT only on the basis of the report of the DVO received after completion of the assessment. It is pertinent to note that the report by the DVO is only an opinion on determination of the fair market value of the land which would assist and guide the AO for adopting the fair market value of the land as on 01.04.1981 for the purpose of computing the capital gain. In the case in hand the AO has not accepted the claim of assessee but he himself has determined the fair market value by adopting reverse indexation method which is a one of the acceptable method of determination of fair market value. Hence the Assessing Officer has taken a possible view on the point of determination of fair market value of the Page 13 of 21
Bhawani Shankar Page 14 of 21 land in question as on 01.04.1981. It is settled proposition of law that if the AO has adopted one of the two courses permissible in law and taken one of the possible views then the commissioner is not permitted to invoke the provision of section 263, merely because he does not agree with the view taken by the AO. The Hon’ble Supreme Court in case Malabar Industries Co. vs. CIT (supra) has held as under:
“6. A bare reading of this provision makes it clear that the prerequisite to exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely,
(i). the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent -- if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue-- recourse cannot be had to Section 263(1) of the Act.
There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.
The phrase prejudicial to the interests of the revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in Dawjee Dadabhoy & Co. Vs. S.P. Jain and Another [31 ITR 872], the High Court of Karnataka in Commissioner of Income- tax, Mysore Vs. T. Narayana Pai [98 ITR 422], the High Court of Bombay in Commissioner of Income-tax Vs. Gabriel India Ltd. [203 ITR 108] and the High Court of Gujarat in Commissioner of Income-tax Vs. Smt. Minalben S. Parikh [215 ITR 81] treated loss of tax as prejudicial to the interests of the revenue. Mr. Abaraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Company Vs. Commissioner of Income-tax [163 ITR 129] interpreting prejudicial to the interests of the revenue. The High Court held, In this context, it must be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the Page 14 of 21
Bhawani Shankar Page 15 of 21 Order passed by the Income-tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration. In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue.
9.The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue. Rampyari Devi Saraogi Vs. Commissioner of Income-tax [67 ITR 84] and in Smt. Tara Devi Aggarwal Vs. Commissioner of Income-tax, West Bengal [88 ITR 323].”
Thus, in case the AO has adopted one of the courses permissible in law would not render the order of the AO erroneous. Similarly after the AO has taken a possible view then the order of the AO would not be regarding as erroneous merely because the commissioner does not agree with the view of the AO. Therefore, in case in hand when the AO has adopted one of the possible method of determination of fair market value which is more than the value as determined by the registered valuer then a different value determined by the DVO in the report which is received after the completion of the assessment would not render the order of the AO being erroneous and prejudicial to the interest of the Revenue.
The decision as relied upon by the Pr. CIT in case of CIT v. Shree Manjunathesware Packing Products & Camphor Works (supra) would not applicable in the case in hand when the Assessing Officer himself has Bhawani Shankar Page 16 of 21 determined the fair market value as on 01.04.1981 by adopting one of the permissible method.
The another point raised by the assessee is regarding the issue of determination of the fair market value as on 01.04.1981 was subject matter of the appeal before the Ld. CIT(A) and therefore, the jurisdiction of the Commissioner is barred to invoke the provision of section 263 of the Act. The assessee has challenged the order of the AO and raised the following grounds before the Ld. CIT(A):
“1.That on the facts and in the circumstances of the case and in law, the Ld Assessing Officer erred in reopening the case of the appellant in the absence of any tangible material and live link o f concealment of income that could lead to a formation of belief that income chargeable to tax has escaped from assessment 2.That on the facts and in the circumstances of the case and in law, the Ld Assessing Officer erred in reopening the case of the appellant merely on the basis of NMS information and without independent application of mind which is neither legal nor proper. 3.That on the facts and in the circumstances of the case and in law, the Ld Assessing officer erred in re-opened the case by issuing notice under section 148 of the Act even when information. was received during the course of search and notice ought to be issued under section 153C of the Income Tax Act. 4.That on the facts and in the circumstances of the case and in law, the Ld Assessing officer erred in calculating the amount of long-term capital gain on transfer of Agricultural land even. when the land in question was not a capital ass et as per provision of section 2(14) of the Inco me Tax Act 5. That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in considering the entire sale consideration for calculating the long-term capital gain in one year only more so when the amount was actually received by the appellant in five years.
6. That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in not allowing proper deduction under section 548 and 54F of the Act on the basis of investment as made by the appellant.
7. That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in not allowing proper deduction under section 54B and 54F of the Act even when investment was made by Page 16 of 21
Bhawani Shankar Page 17 of 21 the appellant within two year from the date of receipt of the amount from the company 8.That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in referring the matter to the DVO under sect ion 55A of the Act. 9.That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in referring the matter to the DVO under sect ion 55A of the Act more so when the fair mark et value as estimated by the Registered approved valuer was not less than the actual fair mark et value in her opinion: 10. That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in estimating the fair market value of the 1 and as on 01-04-1981 was at Rs 1,00,13,598/- only in place of fair market value as per reverse indexation as calculated comes to Rs 1,25,1 6,998/- 11. That on the facts and in the circumstances of the case and in law the Ld Assessing officer erred in charging interest under section 234A, 234 B and 234C of the Act. The amount of interest as charged under these sections are excessive the same now requires to be charged as per law. 12.The appellant craves leave to add, alter or modify any ground of appeal as taken by it.”
23. Thus, the assesse has raised specific issues before ld. CIT(A) regarding the validity of reference made by the AO to DVO for want of any enabling provisions u/s 55A prior to amendment as well as determination of fair market value as on 01.04.1981 by the AO. It is evident from the record that the issue of determination of fair market value as on 01.04.1981 was very much subject matter of the appeal before the Ld. CIT(A) and therefore, powers of the Pr. CIT u/s 263(1) as per clause(c) of explanation (1) are extended only to such matter which has not been considered and decided in the appeal. In other words the matter which is subject matter of the appeal before the appellate authority is beyond the powers of the Pr. CIT while invoking the provision of section 263 of the Act. It is relevant to refer the judgment of Hon’ble Bombay High Court in CIT(Exemption) vs. Slum Rehabilitation Authority 412 ITR 521 as under:
Bhawani Shankar Page 18 of 21 “9. This Court in case of Narendrakumari (supra) considered the principle of merger of the order of assessment into that of the order of the Appellate Commissioner. It was held that when the order of assessment merges with the order of the Appellate Commissioner in its entirety, the Commissioner would have no jurisdiction to revise such order of assessment. It was held that the order of Assessing Officer was no longer revisable.
10. In case of Nirma Chemicals Works P Ltd (supra), the Division Bench of Gujarat High Court dealt at some length on the principle of merger. It was a case in which the assessee had claimed deduction under Section 80I of the Act which the Assessing Officer allowed partially. The assessee filed an appeal against the disallowance. The Commissioner (Appeals) allowed the appeal. Subsequently, the Commissioner in exercise of powers under Section 263 of the Act, disallowed the claim under Section 80I of the Act on the ground that the assets used by the assessee in new industrial undertaking had formed part of old plant and machinery and the new industrial undertaking was formed by reconstruction or restructuring or splitting up of the old business. In such background, the Court held that the requirement of fulfillment of the conditions stipulated under sub- section (2) of Section 80I of the Act were very much subject matter of the appeal in relation to the income which was disallowed by the Assessing Officer. On the ground of merger, the Court held that the Commissioner could not have exercised the revisional powers.
The Gujarat High Court in case of Haryana Paper Distributors P Ltd (supra) was concerned with a notice issued by the Commissioner for exercising revisional powers under Section 263 of the Act. It was a case in which the Assessing Officer had doubted the genuineness of the purchases shown by the assessee. The assessee contended that the purchases were genuine and in any case if such purchases are not believed to be genuine, the profit from such dealing should be calculated at the rate of 4% of the turnover. The Assessing Officer accepted the assessee's later contention, made additions at 4% of the GP on the purchases and granted adjustment of the already offered GP @ 1.79% and made limited additions. The assessee had carried the matter in appeal before the Commissioner (Appeals) and argued that the entire addition should be deleted. When such appeal was pending, the Commissioner issued a notice for revision of the order of assessment on the ground that the Assessing Officer having held that the entire purchases were bogus, he erred in limiting the addition only to a small portion of the same on gross profit rate. When this show cause notice was pending, the Appellate Commissioner decided the assessee's appeal against the order of assessment and held that the Assessing Officer could not have made the addition of Rs. 9.57 lacs on GP basis. In such background, the assessee had challenged the notice of revision issued by the Commissioner of Income Tax. The Court while quashing the notice observed as under:- Page 18 of 21 Bhawani Shankar Page 19 of 21 "12. Equally importantly, the issue itself had travelled before the Appellate Commissioner at the hands of the assessee. To the extent, the Assessing Officer rejected the assessee's request for making no additions, the assessee carried the matter in appeal. Appellate Commissioner deleted even the limited additions made by the Assessing Officer. The limited additions made by the Assessing Officer and the larger additions proposed by the Commissioner in the impugned notice are inextricably inter linked. The Commissioner argues that the entire purchases were bogus. The Assessing Officer accepted the purchases as genuine but added certain amount on the premise that the assesse's profit from such dealings would have been higher than disclosed. The entire issue was at large before the Appellate Commissioner. It is well known that the Commissioner (Appeals) while hearing the assessee's appeal has powers to even enhance the assessment. If he was of the opinion that not only limited additions made by the Assessing Officer but much larger additions were justified, he could have certainly exercised such powers, of course after putting the assessee to notice. In this context, we may refer to clause (c) of Explanation 1 to sub-section (1) of section 263 of the Act. As is well known sub-section (1) of section 263 of the Act empowers the Principal Commissioner or the Commissioner to call for and examine the record of any proceeding and revise the same if he considers that the order passed therein by the Assessing Officer was erroneous insofar as it is prejudicial to the interest of the Revenue. Clause (c) of Explanation 1 of sub- section (1) provides that for removal of doubts it is hereby declared that, for the purpose of the said sub-section,- "(c) where any order referred to in this sub-section and passed by the Assessing Officer 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 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.]"
Clause (c) of Explanation 1 may be worded in a manner as suggesting the extent of the powers of the Commissioner for taking an order in revision, its effect is of circumscribing such powers in cases where the order passed by the Assessing Officer has been subject matter of any appeal and such subject matter has been considered and decided in such appeal. This provisions thus statutorily recognizes the principle of merger and avoids any conflict of opinion between two quasi judicial authorities of the same rank. This issue has been considered at length by Division Bench of this Court in case of CIT V. Nirma Chemicals Works (P) Ltd. [2009] 182 taxmann.com 183/309 ITR 67 (Guj). It was held as under: "20. The stand of the revenue that the assessment order was silent as regards eligibility or otherwise of section 80-I of the Act cannot thus be accepted. As noted hereinbefore the entire section lays down Page 19 of 21 Bhawani Shankar Page 20 of 21 a complete codified scheme in itself for deciding not only the eligibility but also for the computation of the relief to which the assessee is entitled. When the section talks of profits and gains derived from an industrial undertaking the requirement is in relation to the industrial undertaking to which the section applies and which fulfills all the conditions laid down in sub-section (2) of section 80-I of the Act. It is not possible to read the provisions in any other manner whatsoever. Hence, the contention that the eligibility or otherwise u/s.80-I of the Act was never the subject matter of Appeal requires to be rejected. The Tribunal thus committed an error in law in coming to the conclusion that the prohibition imposed by Explanation (c) to section 263 of the Act would not be applicable."
12. Under these circumstances, we do not find that the Tribunal has committed any error. In view of this conclusion, it is not necessary to examine the correctness of the remaining submissions of the learned counsel of the assessee. No question of law arises. The Income Tax Appeal is dismissed.”
Therefore, when the issue of determination of fair market value of the land in question as on 01.04.1981 was subject matter of the appeal before the Ld. CIT(A) then the Pr. CIT would have no jurisdiction to revise the order of the AO on the same issue.
Accordingly, in the facts and circumstances of the case and in view of the above discussion the order passed by the Pr. CIT u/s 263 is not sustainable in law and liable to be set aside. We order accordingly.
In the result, appeal of assessee is allowed.
Order pronounced in the open court on 21.06.2023.