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िनधा"रती की ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राज" की ओर से/ Revenue by : Smt. Kusum Bansal, CIT DR सुनवाई की तारीख/Date of Hearing : 06/06/2024 उदघोषणा की तारीख/Date of Pronouncement : 31/07/2024 आदेश/Order PER PARESH M. JOSHI, J.M. : Both the above appeals have been filed by the Assessee against the separate orders of Ld. PCIT, Rohtak each dt. 0/03/2022 under section 263 of the Income Tax Act, 1961 pertaining to Assessment Years 2012-13 & 2013-14 respectively.
2. Since the issues involved in both the above appeals are common and were heard together so they are being disposed off by this consolidated order for the sake of convenience.
3. With the consent of both the parties we shall take up the appeal in pertaining to Assessment Year 2012-13 as a lead case.
FACTUAL MATRIX
4. The assessment under section 143(3) r.w.s 147/148 for the A.Y. 2012-13 was accepted, as declared in the ITR at NIL by the Income Tax Officer, Ward-2, Kaithal, Haryana vide order No. ITBA/COM/F/17/2019-20/1023532842(1) dt. 31/12/2019. In the said assessment order it is observed and held as follows:
In this case, during the course of regular assessment proceedings for the A.Y. 2013-14, case of the assessee was referred to the District Valuation Officer (DVO) to determine the cost of construction of the property as declared in the ITR filed for the A.Y. 2013-14. The assessee claimed that the construction was made in two F.Ys. i.e 2011-12 and 2 2012-13. Accordingly the DVO vide his valuation report received on 14.10.2016 determined the cost of construction made by the assessee as under:- F.Y 2011-12 Rs. 127812900 2012-13 Rs. 53255800 Total Rs. 181068700 Thus the assessee had made investment of Rs. 127812900/- in the construction of property during the F.Y. 2011-12 related to A.Y. 2012-13. Since no ITR was filed by the assessee and investment of Rs. 127812900 was made in construction of the property, therefore after recording the satisfaction and belief by the A.O that income to the extent of Rs. 127812900/- has escaped assessment proceedings were initiated u/s 147 of the Income Tax Act, 1961 and notice u/s 148 of the Income Tax A ct, 1961 was issued on dated 28.03.2019 with the prior approval of the Principal Commissioner of Income Tax, Karnal which was accorded vide letter No 4868 dated 24.3.2019.
2. In response to the notice issued u/s 148 of the Income Tax Act, 1961, which was duly served upon the assessee, ITR was filed on 08.04.2019 vide acknowledgement No. 4 62106511080419 declaring Nil income. Statutory notices u/s 143(2) and 142(1) of the Income Tax Act 196, were issued to the assessee from time to time as per the order sheet maintained in the case of the assessee. Further assessee demanded the copies of reasons recorded to initiate the proceedings u/s 147 and to issue the notice u/s 148 of Income Tax Act, 1961 and the same were provided to the assessee on 23.7.2019 along with notice u/s 142(1) and copy of valuation report was also provided. After the receipt of the copies of the reasons recorded to initiate the proceedings u/s 147 and Valuation report of the DVO, the assessee raised its objections vide its letter received through dak on 10.12.2019. The same were dealt with in consideration to each and every issue raised by the assessee vide 11.12.2019. Further the assessee has declared cost of construction at Rs. 106603300/- in the ITR filed for the A.Y 2012-13 on 08.04.2019, whereas as per valuation report of the DVO dated 7.10.16 received on 14.10.16 has valued the cost of construction in the FY 11-12 at Rs. 127812900/-. Thus there is difference in cost of construction of 21209600/- in the FY 11-12 relevant to the assessment year 2012-13. Therefore show cause alongwith notice u/s 142(1) dated 22.11.2019 was issued to the assessee to explain as to why difference in the cost of construction at Rs. 21209900/- should not be treated as your unexplained investment and added to your income.
3. In response to the above said show cause notice, the assesee filed its submissions on 26.11.2019 and 18.12.2019 respectively and have relied upon the various judgments of different Hon'ble Courts of India in support of his contention and the same are detailed as under:
1. 1. ACIT Vs Dharia Construction Co (SC) 2. Sangam Cinema Vs Commissioner of Income tax 328 ITR Page 513(SC).
3. Commissioner of Income tax, Ajmer v/s Sunitamansingha (2017)393ITR 121.
4. Commissioner of Income tax vs. Dniesh Talwar (Raj HC) 5. Commissioner of Income tax vs. K.Jaya Kumar (Madras HC) 6. CIT Vs Chohan Resort (2013 P&H Court) 4. The reply of the assessee is duly analyzed and in light of various judicial pronouncements by Hon'ble Supreme Court of India, the contention of the assessee is accepted. Therefore income of the assessee as declared in the ITR at Nil income is accepted. Assessed. Issue requisite documents.
In brief the Ld. AO accepted the return income of assessee at NIL income.
3 The Chapter XX of the Income Tax Act, 1961 as amended from time to time 6. deals with “ Appeals & Revision”. Section 263 of the said Chapter at E-speaks of revision by the Pr. Commissioner or Commissioner. The heading deals with broad caption “ Revision of order and prejudicial to Revenue”. By virtue of Section 263 (1) the PCIT or Chief Commissioner or Pr. Commissioner or Commissioner may call for and examine the record of any proceedings under this Act and if he considers that any order passed therein by the AO (or Transfer Pricing Officer, as the case may be) is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assesse an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including- (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said action.
The Ld. PCIT in exercise of power conferred upon him by virtue of the above section 263 examined the aforesaid order dt. 31/12/2019 of Ld. AO and in the para 11 of the impugned order has held as under:
11. Keeping in view of the facts and circumstances of the case as discussed above, it is observed that the AO had passed the order dt. 31/12/2019 in a very casual manner without due diligence and without proper enquiry in the valuation of the cost of constructed property. Therefore, the assessment completed u/s 143(3) r.w.s. 147 of the Act is erroneous so far as it is prejudicial to the interest of the revenue in terms of provisions of section 263 of the Act, especially in view of Explanation 2 inserted by the Finance Act, 2015 w.e.f 01.06.2015. Accordingly, the assessment order passed by the AO on 31.12.2019 u/s 143(3) r.w.s 147 of the Act for the A.Y. 2012-13 is set aside with the direction to pass an order afresh, in accordance with law keeping in view the observations made above and after affording reasonable opportunity of being heard to the assessee.
8. The Ld. PCIT before holding as above by following the due process had called for and examined the record of AO proceedings. His observations are as under: “The assessee is an association of persons and deals in the business of wares housing i.e. storage of agriculture produces. The assessee had not filed his original income tax return for A.Y. 2012-13. During assessment proceedings u/s 143(3) of A.Y.2013-14, the AO had referred the case to Departmental Valuation officer, Chandigarh to determine the cost of investment made in construction of Building/structure vide letter dated 21.03.2016. In response, Departmental Valuation Officer (DVO) estimated the cost of investment in construction amounting to Rs. 12,78,12,900/- against the cost of investment of 4 Rs. 10,66,03,300/- for the year under consideration i.e. A.Y. 2012-13/F.Y.-2011- 12. Since, the assessee had not filed any return and had made investment of Rs. 2,12,09,600/-(Rs.12,78,12,900 - 10,66,03,300/-) from his undisclosed sources of income, the case of the assessee was reopened u/s 147 of the Act vide notice u/s 148 dated 28.03.2019. In response to the notice u/s 148, the assessee submitted his Income Tax Return dated 08-04-2019 showing 'NIL' income. Consequently, the assessment in this case was completed u/s 143 r.w.s 147 of the Income Tax Act, 1961 on 31.12.2019 at "NIL" income. However, the assessing officer decided the value of the investment in constructed property on the basis of report of registered valuer submitted by the assessee and failed to take cognizance of the DVO report on the same matter. The assessing officer failed to verify the correctness of the rates on which the registered valuer had prepared report. Since the report of the registered valuer had not been made as per PWD Haryana rates and moreover no comparison was made between the rates of CPWD and PWD rates, the assessing officer should have enquired the correctness of the rates on which registered valuer had made valuation. In absence of the same, the AO should have taken the valuation of the investment in constructed property on the basis of the report of the DVO made on the basis of CPWD.
2. On perusal of case records, it has been gathered that the Assessing Officer had completed the assessment without proper enquiry in respect of the valuation of the investment in constructed property. As per the provisions of section 263, if an order is passed without proper enquiry it will be held as erroneous. Relevant provisions of Section-263 of the act are reproduced as under for the sake of clarity:- "263(1) The Commissioner may call for and examine the record of may proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assesse an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." Explanation 2. - For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 'Chief Commissioner or Chief Commissioner of Principal] Commissioner or Commissioner;- a. the order is passed without making inquiries or verification which should have been made; b. the order is passed allowing any relief without inquiring into the claim; c. the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or d. 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.]
3. In view of the above provisions, any order passed by the AO, without proper enquiry is held to be erroneous. As, the order passed by the AO u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 dated 31.12.2019 was without proper enquiry, it appeared to be erroneous and prejudicial to the interests of revenue. Accordingly a notice u/s 263 was issued on 15.02.2022, mentioning instances of failure on the part of the A.O, in not making enquiry, as envisaged under the said provision and the assessee was requested to show- cause as to why the assessment made for A.Y. 2012-13 vide Order Dated 31.12.2019 u/s 143(3) r.w.s 147 should not be revised by invoking the Provisions 5 of Section-263 of the Act. For the sake of clarity, the said notice mentioning instances of failure on the part of Assessing Officer, is reproduced as under: Dated 15.02.2022 "Sub : Notice U/s 263(1) of the Income Tax Act, 1961 for the A. Y. 2012-13 Regarding- Return declaring Nil Income for the A.Y. 2012-13 was filed by you on 08.04.2019. Subsequently, the assessment for the year under consideration was completed u/s 143(3) of the Income Tax Act, 1961 at returned income by the Income tax officer Ward-2, Kaithal vide order dated 31.12.2019.
2. The assessment record for the period under consideration was called upon and examined. On such examination, it has been noticed that you have shown cost of construction at Rs. 10,66,03,300/- in your ITR. You have shown this cost of construction on the basis of valuation made by a registered valuer. During the assessment proceedings the matter was referred to district valuation officer who inter alia has estimated the cost of construction at Rs.12,78,12,900/-, thus there was a difference of Rs.21209600/-. However the assessing officer ignored this difference and accepted your returned income. The assessing officer was required to add back this differential sum to your income. Failure on the part of the AO to do so renders the assessment order erroneous in so far as it is prejudicial to the interest of revenue.
3. In view of the above, the assessment completed by the AO is, prima facie erroneous in so far as it is prejudicial to the interest of revenue. The same is, therefore, required to be suitably amended/modified u/s 263 of the Income Tax Act, 1961. You are, therefore, required to show cause as to why an appropriate order u/s 263(1) of the Act should not be passed. In this connection, you may send your written reply supporting documentary evidences on the email-id(rohtak.pcit@incometax.gov.in) or through e- proceedings by 23.02.2022. In case of no reply is received, it shall be assumed that you do not wish to say anything in the matter and the matter would be decided as per material on record without any further notice/intimation to you.."
In response to the show cause notice dated 15.02.2022, a reply has been filed by the assessee. The relevant submission filed in the written reply is re- produced as below for the sake of clarity: “ In the above case, respectfully we submit as under.
We enclose herewith an Annexure ‘A’ to this letter, wherein a summary of points submitted at the time of assessment before AO in the assessment proceedings u/s 148 are mentioned. AO had verified all these facts and had accepted our submissions. All these facts were in compliance of judgements of Punjab & Haryana High Court and Apex Court. From the close perusal of all these facts, you will also agree that there is nothing wrong in the assessment order and facts of the case are in our favour. All the facts are also supported by views upheld in jurisdictional and Apex Court. In view of all these facts, AO had passed order with NIL addition. There was nothing erroneous and prejudicial to the Interest of revenue, which calls for provisions of sec 263. We draw your attention towards Rampyari Devi Saraogi Vs. CIT [ 1968] 167 ITR 84(SC) and in Smt. Tara Devi Aggarwal Vs. CIT [1973] 88 ITR 323 (SC)” Wherein it was held that “ Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO 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 ITO is unsustainable in law.”
We also wish to bring to your kind attention that notice issued u/s 148 was not valid. At the time of hearing before AO, we had objected to it. We are also in appeal against the same. Form 35 filed with CIT appeal is enclosed herewith for our necessary perusal. Accordingly this was a case, wherein proceedings were void ab initio and Sec 263 is not applicable.
Referral to DVO was not valid At the time of original assessment in our case, we had provided copies of ledger and other supporting vouchers for verification. Copies of ledger account are also available on the files of department for verification. Our books of accounts had not been rejected nor any defect was pointed therein. In such an event, referral to DVO was not according to law. We draw your attention to the following cases decided by Hon’ble Supreme Court and Punjab & Haryana High Court on the same point. CIT Vs. Chohan Resorts (2013) 359 ITR 394 (P&H) Sangam Cinema Vs. CIT(2010) 328 ITR 513 (SC) In view of above decisions by Hon’ble Courts, reference to DVO was void ab initio and any inference drawn from the report also has no valid basis. In view of all the facts stated above, you will understand that there is nothing wrong and prejudicial to the interest of revenue. We request you to please drop the proceedings u/s 263. Thanks and regards For Shri Hari & Co-owners Auth. Sign.
5.0 I have carefully examined the facts of the case and the submissions of the assessee. From the perusal of assessment record, it appears that the unsubstantiated and unsupported replies filed by the assessee during the assessment proceedings, in support of the valuation of the property. During assessment proceedings, it has been noticed that the assessee had submitted a copy of valuation report of the investment in constructed property of the registered valuer estimating the cost of construction of Rs. 10,66,03,300/-. However, the report of the registered valuer was not made as per PWD Haryana rates or CPWD rates Thus, the correct valuation of the investment in property cannot be considered on the basis of the registered valuer report. The assessing officer had also received Departmental Valuation Report estimating the cost of construction of Rs. 12.78,12,900/-(F.Y. 2011-12) on the 7 basis of CPWD rates The Departmental Valuation officer also completely denied the report of registered valuer as no reference of item no. of PWD rates was made nor any supporting documents attached. During assessment proceedings, the assessee had also sought benefit of various judgements of High Court and Supreme Courts. However, the said cases were not relevant to the facts of the case as the DVO report had been made on the basis of CPWD rates and the report of the registered valuer was not made as per PWD rates. Since the report of the registered valuer had not been made as per PWD Haryana rates and moreover no comparison was made between the rates of CPWD and PWD rates, the assessing officer should have enquired the correctness of the rates on which registered valuer had made valuation. In absence of the same, the AO should have taken the valuation of the property on the basis of the report of the DVO made on the basis of CPWD and added back the difference of Rs. 2,12,09,600/- as investment from unexplained sources. However, the AO had failed to do so. 5.1 Accordingly, in the above mentioned case, a show cause notice was given to the assessee on a specific issue i.e. difference of valuation as per report of DVO and registered valuer. In response to the show-cause notice, the assessee submitted that the notice issued u/s 148 was not valid and proceedings were void ab initio. In his reply, the assessee also submitted that referral to DVO was not valid as books of accounts had not been rejected nor any defect was pointed out therein and also sought benefit of ratio of High Court and Supreme Court case laws. The objections raised by the assessee is not the reason for which show-cause notice has been issued to the assessee. The reopening of the assessee's case u/s 147 and reference to DVO is already a subject matter of appeal for which the assessee had already filed appeal before CIT(A). The reason for which the show-cause notice was given to the assessee was the valuation difference for which the AO failed to enquire the genuineness of the valuation report of the registered valuer and taking the cognizance of the DVO report for assessing the correction valuation of the cost of construction. However, the assessee failed to submit any objection on the above specific issue. Thus, the reply filed by the asssessee is not acceptable being devoid of merits. 5.2 In view of the facts discussed in foregoing paras, it is quite clear that the assessment order dated 31.12.2019 is erroneous and prejudicial to the interest of revenue, in as much as the A.O. should have enquired the correctness of the rates on which registered valuer had made valuation. In absence of the same, the AO should have taken the valuation of the property on the basis of the report of the DVO made on the basis of CPWD rates and added back the difference of Rs. 2,12,09,600/- as investment from unexplained sources.
9. The Ld. PCIT has placed Reliance on judgments of Higher Courts which are specified in impugned order from which he has cuddled out that in order to exercise power under section 263 the order of Ld. AO besides being erroneous should also be prejudicial to the interest of Revenue. The Ld. CIT has to be satisfied of twin conditions namely (i) the order of AO sought to be revised is erroneous and (ii) it is prejudicial to the interest of Revenue. If one of them is absent i.e; if the order of ITO is erroneous but is not prejudicial to interest of Revenue or if it is not erroneous but is prejudicial to the interest of Revenue, recourse cannot be taken under section 263 8 of the Act. An incorrect assumption of facts or incorrect application of law will satisfy the requirement of order being erroneous. In the same category falls orders passed without applying the principles of the natural justice or without application of mind. The words / phrase “Prejudicial to the Interest of 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 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 passed by the Ld AO , the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of Revenue. The phrase ”Prejudicial to the Interest of Revenue” has to be read with in conjuction with erroneous order passed by the Ld. AO. Every order where there is loss of Revenue cannot be treated as Prejudicial to the interest of Revenue. Twin test is key.
In Form No. 36 the assessee has raised the following grounds of appeal:
1. That on the facts and circumstances of the case and in law, the order passed by the PCIT, Rohtak u/s 263 of the Income Tax Act, 1961 ('the Act') setting aside the assessment framed u/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.
2. That on the facts and circumstances of the case and in law, the PCIT erred in holding that the assessment order is erroneous and prejudicial to interest of revenue on the issue of valuation of property 3. That on the facts and circumstances of the case and in law, the PCIT erred in exercising jurisdiction u/s 263 by setting aside the aforesaid issue even though the same had been discussed and scrutinized by the Assessing Officer in detail while framing the assessment u/s 147 of the Act. 4. That the appellant seeks to leave to add, amend, alter, abandon or substitute any of the above grounds during the hearing of the appeal
Paper Book is filed before this Hon’ble Tribunal in total three volumes alongwith compilation of judgments. Brief synopsis, short notes on facts of case reply to the objections raised by the PCIT Rohtak, Notice for hearings before PCIT cum show cause Notice/s are all placed on record. We have perused all these papers and documents minutely. Record of Hearing 12. The Ld. AR of the assessee was heard on merits of the case elaborately and so also Ld. DR. We have given patient hearing to both the parties and have treated 9 them equally. The core discussion in the hearing was whether order of PCIT is legal and proper or not within the meaning of Section 263 of the Income Tax Act, 1961. The Ld. AR contended that it ought to be set aside as it does not meet the twin requirement of law under section 263. It is neither erroneous nor prejudicial to the interest of Revenue. Per contra DR contents otherwise that it is erroneous and so also prejudicial to the interest of Revenue. The Ld. AR has contended that value of godowns constructed by the assessee is bone of contention. What should be correct value of it. According to him the correct value should be as per valuation report of their own valuer who has followed a PWD rate pattern of Haryana whereas the Ld. AO has gone by the said report and has ignored the report of DVO who has followed CPWD rates. The Ld. AR has contended that generally CPWD rates are higher by 25% whereas PWD rates are lesser. The Ld. AO has gone by Private Valuer’s report (PWD Haryana) which is just and fair. Reliance is placed on the judgment of this Tribunal in case of Khanna Infra Build P. Ltd. Vs. Dy. CIT reported in (2024) 110 ITR (Tri) 161 (Chandigarh) and in particular part 7.7 of the order. The Ld. DR has then contended that facts of the case are different and no reliance can be placed on it. He stated that order of Ld. PCIT is valid in law and that same should be sustained as two key requirement of section 263 are fully satisfied. There is no imposition of any view and same is also not urged by the Ld. AR. The Ld. DR further contended that in reply to the show cause notice issued by PCIT under section 263 proceedings the assessee has failed to submit any effective objection to the specific issue raised by the PCIT which was failure to enquire into rates and genuineness of report of Private Registered Valuer. Hence, assessee reply is rightly rejected by PCIT as devoid of merits on issue in question.
Findings & Conclusions 13. In view of the forgoing, we now examine legality, validity and proprietary of the impugned order. We have to examine the sole issue whether the power exercised by Ld. PCIT under section 263 is correct in law or not. We also have to examine that while exercising the power under section 263 whether PCIT has acted in arbitrary and caparacious manner or not. We observe and notice that entire records of the case were before the Ld. PCIT before he ventured to pass the order under section 263 of the Act. The Ld. PCIT has also given full and complete opportunity to the assessee before he passed the impugned order. Assessee has not raised any contentions with regard to non availability of records of the case before 10 Ld. PCIT. The assessee has made no grievance that they were not afforded any opportunity by Ld. PCIT. The assessee has contended that due consideration has been given to both reports i.e; Private Recognized Registered valuer who has followed PWD rates as well as report of DVO who has followed CPWD rates. However in the assessment order nothing is noticeable. It is silent. The sole issue before Ld. AO under section 148 was cost of construction of building. Be that as it may the Ld. AO has gone by report of Private Registered Valuer while making assessment and has completely ignored the DVO report therefore the Ld. PCIT has rightly held that the assessment order of Ld. AO is erroneous and so also prejudicial to the interest of revenue in as much as the AO should have / ought to have inquired into the correctness of the rates on which registered valuer had made valuation. As a consequence of absence of any inquiry by Ld. AO on rates given by Private Registered Valuer the AO should have taken into consideration valuation of the property on the basis of report of the DVO made on the basis of CPWD rates and added back the difference of Rs. 2,12,09,600/- as investment from unexplained sources. The Ld. PCIT therefore has established both erroneous nature of impugned order of Ld. AO and so also that it is prejudicial to the interest of revenue in our considered view.
13.1 We hold that Ld. PCIT in the impugned order is not interfering with the discretion of Ld. AO in making the assessment order. He is terming the order of Ld.AO as erroneous because Ld. AO has failed to inquiry into the rates based on which Ld. AO has prepared his assessment order which becomes bad in law in as much as there is complete failure on part of Ld. AO in making necessary inquiry on rates as given in the report of registered private valuer consequently the order of Ld. AO becomes erroneous and prejudicial to the interest of Revenue.
13.2 There is no dictum by Ld. PCIT in his impugned order that Ld. AO should have followed the report of DVO and based on CPWD rates the assessment ought to have been done. He has questioned the correctness of rates applied by Private Registered Valuer which ought to have been inquired into, verified and cross checked before passing the assessment order. Consequently what has happened is that Private Registered Valuation report of a valuer has gone unverified during the course of the assessment proceedings causing serious prejudice to the Revenue. Since there was a clear failure or inaction on part of the Ld. AO then only recourse 11 available with the Ld. AO is to go by the valuation report of DVO; the same too having not been taken into consideration is resulting into prejudice to the Revenue.
In brief Ld. PCIT has exercised his power under section 263 legitimately by noticing failure and inaction on part of AO in conducting necessary and requisite inquiry and verification on rates given by Registered Private Valuer in his report. The Ld. PCIT has correctly held that failure and inaction has resulted into both erroneous exercising of power and prejudice to the Revenue interest. We therefore sustain PCIT impugned order.
We hold that Ld. AO exercises quasi judicial power while drawing up an assessment order. It is expected on part of Ld. AO who is acting in quasi judicial capacity to legitimately see the interest of both the parties equally by treating them equally. As a quasi judicial authority it is expected on part of the Ld. AO to weigh the material evidences i.e; both the reports of DVO as well as registered valuer equally, apply his mind to other material available on record and to give well reasoned order which has attributes that the due process of law is followed while doing adjudgment and adjudication in a manner known to law. Exercise of such power requires proper application of mind particularly so when more than one valuation report is on record. Ld. AO is at full liberty to follow either of the report alongwith other material available on record and so also contentions of the assessee since he exercises quasi judicial powers. Nobody can sit in judgment over his order save and except according to law. But while doing so if an exercise is done so in complete isolation then certainly PCIT can interfere with such an order under section 263, this precisely has happened in this case.
We also hold with regard to the issue as discussed above (supra) that the PCIT has rightly observed that the order of the AO is erroneous as the AO did not enquire/ verify about the rates which formed the basis of Registered Valuer’s Valuation Report. And also held correctly that his order is also prejudicial to the interest of the Revenue.
The Ld. PCIT has further rightly observed that the Ld. AO has passed the order dt. 31/12/2019 in a casual manner without due diligence and without proper inquiry in to the valuation of the cost of constructed property. Therefore the assessment completed under section 143(3) r.w.s 147 of the Income Tax Act is erroneous and 12 that the same is prejudicial to the interest of Revenue too. Reliance is rightly placed on explanation 2 to Section 263 (1) of the Income Tax Act, 1961 according to which an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue for various reasons and including the fact that if in the opinion of PCIT or CIT, the order is passed without making any enquiry or verification which should have been done and also includes the order which is passed allowing any relief without enquired into the claim, made on valuation of the cost of constructed property. It is a case of no inquiry on rates basis which the valuation report of Registered Private Valuer was prepared and submitted to Ld. AO by the assessee. It is not a case of inadequate inquiry or in sufficient inquiry but it is a case where no inquiry whatsoever was done on rates basis which the Registered Private Valuer had given his Valuation Report. The Ld. PCIT in such a situation has rightly held that it was incumbent upon the Ld. AO to have verified the rates and since this exercise was not done then as a natural corollary he ought to have gone by the Valuation Report given by DVO which was based on CPWD Rates.
We hold that it is incumbent upon the Ld. AO while carrying out the assessment / reassessment to have dealt with such a broad issue supra elaborately particularly so when case was under section 147/148. Hence Ld. PCIT is right in holding that Ld. AO ought to have made the necessary inquiries on rates as provided for in Registered valuer’s report and in event of non exercise of such power by him ought to have at least accepted the DVO report; non consideration of DVO report due to failure in examining the rates given by Registered Valuer has caused erroneousness in order of Ld. AO as it depicts non application of mind, arbitrary exercise of power rendering such AO order prejudicial to the interest of Revenue.
We hold that Delhi High Court judgment in case reported in Gee Vee Enterprises Vs. Add. CIT and Ors reported in (1975) 99 ITR 375 (Del) is squarely applicable to the present case, wherein the word erroneous in section included cases where there has been a failure to make necessary inquiries. We also hold that madras High Court Judgment in case of K.A. Ramaswamy Chettiar another reported in (1996) 220 ITR 657 (Mad) wherein it has been held that when the Income Tax Officer is expected to make an inquiry of a particular item of income and if he does not make an enquiry as expected that would be a ground for the Commissioner of Income Tax to interfere under section 263 of the Income Tax Act, 1961, with the order 13 passed by the Income Tax Officer. Since such an order passed by the Income Tax Officer is erroneous and prejudicial to the interest of Revenue. In this case reliance was placed by the Hon’ble High Court of Madras in case of Gee Vee Enterprises Vs. Addl. CIT (supra). The judgments relied upon by the Assessee in the compilation were perused by us and with respect we follow the judgments as aforesaid where it is expressly and clearly held that AO is expected to make an inquiry and if he has not as is the case here admittedly then such an order of AO is erroneous and prejudicial to the interest of Revenue. We make it clear and hold that mere act of submissions of papers including valuation reports , documents, accounts, books of accounts etc. ipso facto during the course of the assessment proceedings (and so also in proceedings under section 263) does not mean that the Assessing Officer should not hold inquiry or verify such papers, documents including Valuation Report on record, books of account etc. particularly so when assessment was under section 147/148and omission thereof would certainly amount to erroneous, exercise of power, prejudicial to the interest of the Revenue.
19.1 In the revisionary jurisdiction under section 263 what is tested by the superior officers of Revenue is whether the exercise of power by AO in carrying out the assessment is righteous or erroneous and further whether it is prejudicial to the interest of Revenue or not.
19.2 Upon failure to do so as narrated by us in the preceding paragraphs the PCIT is right in exercising his powers under section 263 as such order of AO in law becomes erroneous coupled with the fact that it is prejudicial to the interest of the Revenue. We also hold that there is no material infirmities while exercising powers in terms of procedures under section 263 by the PCIT. We also hold that no decision on merits of the case has been given nor any opinion or manner in which assessment is to be done in next round of assessment is expressed while exercising the power under section 263 of the Act by Ld. PCIT. The PCIT has held AO’s order as erroneous and prejudicial by applying his mind to the factual aspect of the case before him and was not guided by any extraneous consideration whatsoever save and except the records of the case. Simultaneously he while passing the order under section 263 has not taken into consideration any material not forming the part of the records of the case. Further none is as such brought to our notice. Further it is not expressly contended before us that in depth analysis of books of accounts respective appropriation etc. was done. It is not contended that the matter was inquired into 14 deeply and extensive verification and / or cross verification were done by the Ld. AO at the material time and place with regard to core issue of valuation of cost of constructed property. What is contended before us is that all queries, replies, submission etc. were duly complied both before Ld. AO and Ld. PCIT with which we feel ipso facto cannot be a substitute for inquiry and verification by AO and therefore Ld. PCIT is right in holding that extensive and deep inquiry is required to be conducted and further such omission makes AO’s order erroneous and prejudicial to the interest of Revenue. We hold that there is a mark distinction between submission of papers etc. and inquiry / verification of same is altogether a different exercise which was not done so in the assessment proceedings. Needless to state that the documents without conducting inquiry and verification cannot be taken on face value or perse. The explanations if offered is too required to be checked and cross checked before the assessment order is passed. The claims needs to be inquired into deeply and verified in a manner known to law which did not happen consequently AO’s order is rightly held to be erroneous and prejudicial.
19.3 We observe that the order of AO passed under section 147/148 on return of income of the assessee which was subject matter of the revision under section 263 by PCIT was a non speaking order and not a reasoned order. In the said assessment order of AO neither the Valuation Report of Private Registered Valuer on cost of construction nor DVO’s Valuation Report is even discussed. We are of the considered view that even if the return of income is accepted under section 147/148 proceeding by the Ld. AO the assessment order should be a speaking order and a reasoned order taking into consideration over all facts and circumstances of the case including valuation reports which are more than one on record. Our concern is towards transparency too. In speaking orders income computation and disclosure standard according to law gets disclosed too. Needless to state books of account and other papers / practices recognized by law would prevail over if true and correct facts are stated but subject to enquiry and verification. The Ld. PCIT has ascertained the facts of the case from the records which were obtained both from AO as well as the assessee but atleast order of assessment under section 147/148 should be a speaking and reasoned order so that reasons which are centre heart of the assessment order are known to all stakeholders in the system. In a situation like the present case the reasons are cuddled out from the facts of the case and its records. The word “record” includes and shall always deemed to have included all records relating to any proceedings under the Act which is available at the time of 15 examination by PCIT. The Ld. AO without inquiry on the material placed before him i.e; Report of Registered Private Valuer which gave valuation of the cost of constructed property had summarily accepted the claim of the assesse perse and subjectively that too under section 147/148 proceedigs. Therefore it is crystal clear that the assessment order was passed without making any inquiry which should have been made and / or ought to have been made but not made on rates basis which Private Registered Valuer had prepared its Valuation Report on cost of construction. Hence as per explanation 2(a) to Section 263 of the Act the PCIT has rightly reviewed the order under section 263 as erroneous and prejudicial.
19.4 We thus, in terms of our observation as aforesaid finds no reason to dislodge the well reasoned order of PCIT who specifically referring to explanation 2 to Section 263 of the Act has held that the order passed by AO under section 143(3) r.w.s 147/148 dt. 31/12/2019 to be erroneous in so far as it was prejudicial to the interest of Revenue. The PCIT held a conviction that as AO had failed to apply his mind to the aforesaid issues which was or could be reason for proceedings u/s147 / 148 therefore the same had rendered the assessment order passed by Ld. AO as erroneous in so far as it was prejudicial to the interest of the Revenue. The assessee’s explanation coupled with documents i.e; Valuation Report of both Valuer’s especially on rates basis which report is prepared including books of accounts requires inquiry and verification. Mere filing of papers giving explanation in assessment proceedings and in reply to proceedings under section 263 perse is not sufficient so as to not to exercise powers under section 263. It is not a case of lack of inquiry or inadequate inquiry but is a case of no inquiry / verification on issue identified by PCIT.
To conclude, the Ld. PCIT has judiciously held that inquiry and verification of the correctness of valuation report “on rates”, on which registered valuer had made valuation (and in the absence thereof take DVO Report into consideration) has not happened. Since there is a complete failure / inaction in conducting the necessary and requisite enquiry on “rates” on the basis of which registered valuer has made valuation report hence the total absence on this count leading to erroneousness in the Ld. AO order (which has further led to non consideration of DVO report) Consequentially prejudice is caused to Revenue are all correct and sustainable in law under section 263 of the Act.
16 21. The Ld. PCIT has correctly held that a show cause notice was given to assessee on a specific issue i.e difference of valuation as per report of DVO & Registered Valuer. In response to the show cause notice a different answer is furnished which is not the reason for which show cause notice was issued. The issue of reopening of assessment under section 147 and reference to DVO is already a subject matter of appeal for which assessee is before CIT(A). The reason for which the show cause notice was given to the Assessee was the valuation difference for which the AO failed to enquire the genuineness of the valuation report of the registered valuer. However, the assessee failed to submit any objection on the specific issue. Thus reply was not accepted. We find no infirmities on this count and agree with the observation of PCIT that reply is devoid of merits.
We are in agreement with the following view of the PCIT which are as under: 6. The Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd V/s CIT in 243 ITR 83(SC) has held that a bare reading of section 263 of the Act, makes it clear that the pre-requisite to exercise of jurisdiction by the CIT suo-moto under it is that the order of the ITO is erroneous in so far as it is prejudicial to the interest of revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of AO sought to be revised is erroneous and (ii) it is prejudicial to the interest of revenue. If one of them is absent i.e. if the order of the ITO is erroneous but is not prejudicial to the interest of the revenue or if it is not erroneous but is prejudicial to the interest of revenue, recourse cannot be taken u/s 263 of the Act. It has also held that there can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous that the section shall 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 falls orders passed without applying the principles of natural justice or without application of mind. It has also held that the phrase "prejudicial to the interest of 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 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 ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. 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 the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopts one of the course permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO 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 ITO is unsustainable in law. It has been held by the Supreme 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 interest of the revenue.
17 7. In Bismillah Trading Co. V. Intelligence Officer (2001) 248 ITR 292 (Ker), it has been held that the word 'prejudice to the Revenue' has been the subject matter of a judicial debate. One view was that prejudicial to the interest of the Revenue does not necessarily mean loss of revenue. The expression is not to be construed in a pettifogging manner, but must be given a dignified construction. The interests of the Revenue are not to be equated to rupees and paise merely. There must be grievous error in the order passed by the ITO, which might set a bad trend or pattern for similar assessment which, on a 'broad reckoning, the Commissioner might think to be prejudicial to the revenue administration. The prejudice must be prejudice to the Revenue administration.
Further, it has been held in the case of Venkatakrishna Rice Co. V. CIT (1987) 163 ITR 129 (Mad) it has been held by the Hon'ble Court that the expression prejudicial to the interest of the revenue must be regarded as involving a conception of facts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the ITO which might set a bad trend or pattern for similar assessment which on a broad reckoning the Commissioner might think to be prejudicial to the interest of revenue administration. The scope of the interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money into the treasury. Nor is the section meant to get at sheer escapement of revenue. The prejudice must be prejudice to the revenue administration.
Also in CIT v. Pushpa Devi (1987) 164 ITR 639 (Part), it has been held that enquiry into the source of the initial capital is crucial for the ITO, if that is not done, the assessment is bound to be erroneous and hence prejudicial to the revenue than some other procedure, the order passed by the ITO would obviously be prejudicial to the revenue and would give jurisdiction to the Commissioner under section 263"
We hold that question of referring the matter to the DVO is prerogative of Ld. AO and so also rejection of books of accounts (by due process). This exercise is done while doing assessment. This is a case of revisionary power under section 263 of the Income Tax Act. These are not assessment proceedings. These objections including the one u/s 147 which deals with assessment / reassessment are all irrelevant and we uphold the findings of PCIT on this score as well.
We have also perused the order reported in (2024) 110 ITR (Trib) 161 (Chandigarh) in case of Khanna Infrabuild Private Ltd. Vs. Dy. CIT. The facts of this case are not parimateria with facts of this case. It was a case of search and seizure assessment / unexplained investment and not one under section 263 of the Act. Section 263 is all together a different section which deals with revisionary powers of senior officers of Income Tax over powers of assessment exercisable by the officers subordinate to them. It is supervisory jurisdiction over power exercised by Assessing Officers. The other contentions on cost of material etc made have no role as these issues can be taken up again on the fresh assessment is done in pursuance to order under section 263. It is thus in consequential at this stage.
18 Order 25. Accordingly, finding no merits in the appeal filed by the assesse, we uphold the impugned order and dismiss the appeal.
Now coming to the appeal in pertaining to Assessment Year 2013-14. Since the facts are identical to the appeal in ITA No. 402/Chd/2022 for A.Y. 2012-13 save and except the amounts involved in the present appeal. Therefore our findings and conclusions given in ITA No. 402/Chd/2022 for A.Y. 2012-13 shall apply mutatis mutandis to this appeal also.
In the result, both the above appeals of the Assessee are dismissed.