KAMAL KUMAR AGARWALLA,BHUBANESWAR vs. PRINCIPAL CIT-1, BHUBANESWAR

आयकर अपीऱीय अधिकरण, कटक न्यायपीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH, CUTTACK श्री चन्द्र मोहन गगग, न्द्याययक सदस्य एवं श्री अरुण खोड़पऩया, ऱेखा सदस्य के समऺ । BEFORE SHRI CHANDRA MOHAN GARG, JM & SHRI ARUN KHODPIA, AM आयकर अपीऱ सं./ITA No.58/CTK/2021 (नििाारण वषा / Assessment Year :2016-2017) Vs Pr.CIT, Bhubaneswar Kamal Kumar Agarwalla, 87, Kharavela Nagar, Unit-III, Bhubaneswar-751001 PAN No. : AAOPA 1367 L (अऩीऱाथी /Appellant) (प्रत्यथी / Respondent) .. यनधागररती की ओर से /Assessee by : Shri S.K.Agarwalla/B.L.Agarwal, ARs राजस्व की ओर से /Revenue by : Shri M.K.Gautam, CIT-DR सुनवाई की तारीख / Date of Hearing : 28/03/2022 घोषणा की तारीख/Date of Pronouncement : 04/04/2022 आदेश / O R D E R Per Arun Khodpia, AM: This appeal by the assessee made against the order dated 20.03.2021, passed by the Pr.CIT, Bhubaneswar for the assessment year 2016-2017, on the following grounds :- 1. That, the order passed u/s 263 by the Ld. Pr. Commissioner of Income Tax-I, Bhubaneswar for doing of de novo assessment is not sustainable in view of the fact that, the assessment order passed u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of revenue. 2. That, Ld. Pr. Commissioner of Income Tax-I, Bhubaneswar is wrong in directing the Ld. Assessing Officer to make the de novo assessment in view of the fact that the issued with regard to the capital gain was examined by the Ld. Assessing Officer during the course of assessment proceedings by issuing of notice u/s 142(1) dated 15.12.2018 and therefore the revisional order passed u/s 263 is illegal and liable to be quashed. 3. That, the Ld. Pr. Commissioner of Income Tax-I, Bhubaneswar is not justified in setting aside the assessment order passed u/s 143(3) for the purpose of verification of introduction of capital which had been verified by the Ld. Assessing Officer by issuing

2 ITA No.58/CTK/2021 of notice u/s 142(1) dated 22/06/2018, therefore the order passed u/s 263 is illegal and void ab-initio. 4. That, the Ld. Pr. Commissioner of Income Tax-I, Bhubaneswar has committed an error of law in passing revisional order passed u/s 263 without conducting any independent inquiry to the submission of the assessee as mandated u/s 263(1) of the Act and therefore the revisional order passed u/s 263 is liable to be quashed. 5. That, the appellant craves to alter, amend, modify or add any other ground that may be considered necessary in the course of appeal proceeding. 2. Facts of the case, as extracted from the order of AO, are that the assessee, during the year under-consideration, has derived income from whole sale and commission business, capital gains and other sources and filed the return of income for the A.Y.2016-17 on 29.09.2016 disclosing a total income of Rs.84,56,734/-, apart from capital gains. The case was selected for Limited scrutiny under CASS on the ground that there was substantial increase in capital (Rs.1,38,97,130) in a year with the objective to see whether the share capital is genuine and from disclosed source. The assessment proceeding was completed u/s.143(3) on 21.12.2018 accepting the income returned by the assessee. 3. Subsequently, the Pr.CIT invoking powers u/s.263 of the Act called for the assessment record and after examination of the same found that the assessment order passed by the is erroneous and prejudicial to the interest of revenue and set aside the assessment to be done de novo after examining the issues of capital gains. 4. Dissatisfied with the order of Pr.CIT, the assessee is in appeal before the Tribunal on the grounds as mentioned above.

3 ITA No.58/CTK/2021 5. Ld. AR before us submitted that the notice u/s 263 by the Ld PCIT was issued on 24.02.2021 (available on page 11-13 of the paper book) with certain queries which were duly responded by the assessee’s AR on 10.03.2021 (available on page 14-25 of the paper book). The main issue arises from the notice was regarding Capital Gain for which the Ld PCIT has observed as under: 3(1) As regards Capital Gain issue, the issue of cost of improvement has not been prima facie examined in its proper perspective. There is only a photo copy of handwritten document dt.09.08.2011 by one Ashok Kumar Das for Rs.8,90,995/- as against the following claim & your reply dt.20.12.2011. For A.Y. 2004-05 Improvement Upto 31.10.2003 Rs.8,84,000 Indexed Rs.20,63,940/- For A.Y.2012-13 Upto 18.09.2011 Rs.3,03,334/- Indexed Rs.4,17,712/- No bills/vouchers claimed to be attached are on record and it appeared there was none. (b) It was also not examined as to how such payment was made. (c) If this was examined at all under limited scrutiny, the AO should have under approval of higher authority, should have converted into complete scrutiny, where the above parts could have been examined in all their aspects. 4. As such, the order dt.21.12.2018 passed by the A.O. is erroneous in so far as it is prejudicial to the interest of revenue and I therefore, propose to revise the said assessment order as per the provisions of sec.263 of the Income Tax Act, 1961. 6. Ld. AR further brought to our attention that the scrutiny conducted by the AO was Complete Scrutiny, however the Ld PCIT had not appreciated this fact and observed that the scrutiny done was for limited purpose only. To substantiate contentions of the assessee, the Ld AR has

4 ITA No.58/CTK/2021 shown us the first notice issued by the AO u/s 143(2) of the Income Tax Act 1961 wherein the heading of the notice was “Complete Scrutiny (Computer Aided Scrutiny Selection)”. In continuation, Ld AR further took us to page 47-48 of the paper book where in notice dated 15.12.2018 issued by the AO has certain queries regarding Capital Gain which reads as under: In connection with the assessment for the assessment year 2'016- 17 you are required to: a) Furnish or cause to be furnished on or before 3,1/1.2/2018 at 11:'00 AM the accounts and documents specified overleaf. . . .. b) Furnish and verified in the prescribed manner under Rule 14 of IT. Rules 1962 the information called for as per annexure and on the points or matters specified therein on or-before 31/12/2018 at 11:00 AM. c) The above mentioned evidence/information is to be furnished online electronically in 'E-Proceeding' facility through your account in e-filing website of Income Tax Department. d) Para(s) (a) to (c) are applicable if you have an account in e-filing website of Income Tax Department. Till such an account is created by you, assessment proceedings shall be carried out either through your e-mail account or manually (if e-mail is not available). e) In cases where order has to be passed under section 153A/1563C of the Income Tax Act, 1961 read with section 143(3), assessment proceedings would be conducted manually. 7. This query was duly responded by the AR of the Assessee on 20.12.2018 paper book page number 49-56 and assessment order was passed by the Ld AO on 21.12.2018. 8. With above arguments, the AR pleaded that the Ld AO that the order passed u/s 263 by the Ld. Pr. Commissioner of Income Tax-I, Bhubaneswar for doing of de novo assessment is not sustainable in view

5 ITA No.58/CTK/2021 of the fact that, the assessment order passed u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of revenue. 9. Ld CITDR, on the other hand, has argued that the order passed by the PCIT u/s 263 of the Act is correct in all respect and needs to be upheld. To support the contentions Ld CITDR has further motioned that the AO had not made proper enquiry and investigation of the issue pertaining to Capital gain as the Cost of Improvement was not properly examined by him. Ld CITDR, has shown us an invoice of M/s Ashok Kumar Das regarding Boundary wall work, with a contention that the AO had believed on a hand written bill without further enquiring about its supporting bills/ vouchers, the PCIT has correctly observed that “No biils / vouchers claimed to be attached are on records and it appeared there was none.” Ld. CIT-DR placed reliance on the decision of the coordinate bench of the Tribunal in the case of Sri Sushanta Kumar Choudhury, ITA No.226/CTK/2019, order dated 05.10.2020, wherein it is held as under :- 15. From the provisions of Section 263 of the Act, it is clear that any order passed by the AO, the Pr.CIT/CIT can invoke his revisonary power, if he considers that the order passed by the AO is erroneous and prejudicial to the interest of Revenue within the Section 263 of the Income Tax Act, 1961. The CBDT has issued circular regarding limited scrutiny in which there is no any whisper regarding revisonary powers that the Pr.CIT/CIT cannot exercise within the statutory limit as prescribed by the Income Tax Act, 1961. If the Pr.CIT/CIT cannot interfere with the limited scrutiny done by the AO, then there must be any clarification in the CBDT Circular in this regard, which is not found in the Circular. Considering the above case laws and factual aspects, we are of the view that the ld. Pr.CIT has rightly exercised his powers and we do not find any reason to interfere with the same. Accordingly, we dismiss the appeal of the assessee. 10. Subsequently, Ld AR of the assessee, to counter the argument of the revenue has agitated that a glance of notices issued, queries raised

6 ITA No.58/CTK/2021 by the AO and compliances made by the assessee in present case, thereby the facts and circumstances of the case establishes that the AO had made order under Complete Scrutiny, with proper enqury. Mentioning in the order that the case was selected for limited scrutiny (CASS) is mere an error on the part of AO. In view of the fact that the issued with regard to the capital gain was examined by the Ld. Assessing Officer during the course of assessment proceedings by issuing of notice u/s 142(1) dated 15.12.2018 and therefore the revisional order passed u/s 263 is illegal and liable to be quashed. 11. In continuation, it is also argued that if the PCIT was not satisfied with enquiry made by the AO then he himself would have conducted the enquiry, instead of simply setting aside the order of AO by directing him to make assessment de novo. In this regard, ld. AR submitted following cases to be relied upon: i) DIT Vs. Jyoti Foundation, 357 ITR 388 (Del), wherein it is held as under :- 5. In the present case, inquiries were certainly conducted by the Assessing Officer. It is not a case of no inquiry. The order under Section 263 itself records that the Director felt that the inquiries were not sufficient and further inquiries or details should have been called. However, in such cases, as observed in the case of DG Housing Projects Limited (supra), the inquiry should have been conducted by the Commissioner or Director himself to record the finding that the assessment order was erroneous. He should not have set aside the order and directed the Assessing Officer to conduct the said inquiry. ii) Pr.CIT Vs. Delhi Airport Metro Express (P) Ltd. 398 ITR 8 (Del), wherein it is held as under :- 11. In the considered view of the court, this can hardly constitute the reasons required to be given by the Principal Commissioner of Income-tax to justify the exercise of jurisdiction under section 263 of the Act. In the context of the

7 ITA No.58/CTK/2021 present case if, as urged by the Revenue, the assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the Principal Commissioner of Income-tax to undertake an inquiry as regards which of the assets were purchased and installed by the assessee out of its own funds during the assessment year in question and, which were those assets that were handedover to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the Principal Commissioner of Income-tax. iii) ITO Vs. DG Housing Projects Ltd. 343 ITR 329 (Del), wherein it is held as under :- IT: Where Commissioner had doubts about valuation and sale consideration received in computation of capital loss but he had not examined said aspect himself, order of remit could not be passed by Commissioner asking Assessing Officer to decide whether order was erroneous iv) Sauria Agarwal Vs. Pr.CIT (2022) 215 TTJ (CTK) 523; and 17. In view of forgoing discussion respectfully following the decision referred above and our examination of facts and the detailed enquiry conducted by the ld. AO for the issues raised by the ld. Pr. CIT, we reach to the conclusion that the show cause notice u/s 263 of the Act and the impugned revisionary order u/s 263 of the Act are not sustainable and revisionary authority has no valid jurisdiction u/s 263 of the Act to revise the assessment order and the impugned order is hereby quashed and the assessment order u/s 143(3) of the Act dated 30.03.2017 is restored. Ground No.2,3 & 4 challenged the proceeding being barred by limitation are dismissed and the remaining grounds are allowed as per terms indicated hereinabove. v) Nanda Kishore Agarwalla Vs. Pr.CIT, ITA No.212/CTK/2017. 25. Respectfully following the decision in the case of Jyoti Foundation (supra), in our considered view, as enquiries were made by the Assessing Officer in the course of original assessment proceedings in respect of commission expenses, the Pr.CIT should have made further enquiries and was not justified in restoring the matter back to the file of the Assessing Officer for making further enquiries or verification. Therefore, the impugned order passed u/s.263 is unsustainable. We, therefore, set aside the order of the Pr.CIT u/s.263 and allow the appeal of the assessee.

8 ITA No.58/CTK/2021 12. After hearing the rival contentions, submissions and on careful perusal of the facts, to elucidate on the correctness of the facts, we have perused various notices issued by the AO during the scrutiny proceedings u/s 143(2) from the paper book submitted by the Ld AR. List of such notices is as under: Sr Page in the PB Date of Notice by AO No of Assessee Notice dated 03.03.2022 1 Page 7 -10 11.07.2017 Copy of Notice u/s 143(2) of the Income Tax Act 1961 for Complete Scrutiny (Computer Aided Scrutiny Selection) 2 Page 26-28 22.06.2018 Copy of Notice u/s 142(1) of the Income Tax Act 1961 3 Page 29-31 04.10.2018 Copy of Notice u/s 142(1) of the Income Tax Act 1961 4 Page 47-48 15.12.2018 Copy of Notice u/s 142(1) of the Income Tax Act 1961

While going through above notices and order of the AO, it is observed that: a. The first para of the AO’s order u/s.143(3) reads as under :- The assessee-individual is derives income from Business (Whole Sellers, General Commission Agent), Long Term Capital Gain and Income from other sources. The assessee filed Income Tax Return electronically for the A.Y.2016-17 on 29.09.2016 declaring total income of Rs.84,56,734/-. The case was selected for scrutiny under Limited Scrutiny (CASS) and the reason of selection is “Substantial increase in Capital in a year (Part-A-BS of ITR) and issue is “whether the share capital is genuine and from disclosed source”. b. The notice dated 11.07.2017 was for Complete Scrutiny ( Computer Aided Scrutiny Selection) whereas the same was mentioned by the AO in Assessment order as Limited Scrutiny (CASS). c. Further notices were issued u/s 143(1) on 22.06.2018, 04.10.2018, 15.12.2018. 13. It is observed that, the AO had made enquiry by issuing notice u/s 143(2) for Complete Scrutiny followed by 3 more notices u/s 142(1). From the notices, queries raised and response submitted during the

9 ITA No.58/CTK/2021 assessment proceedings, it is evident that the AO had made enquiry regarding the issue of Capital Gain, it is also undisputed that the AO went beyond the scope of reason for selection for Limited scrutiny that “Substantial increase in Capital in a year” and issues is “Whether the share Capital is genuine and from disclosed sources”. 14. We have therefore after examining the facts available on records we find it good to refer to the judgment of Hon’ble High Court of Delhi placed by the Ld AR in the case of DIT vs. Jyoti Foundation (Supra) wherein the Hon’ble High Court considered the decision in the case of D.G Housing Projects Limited (2012) 343 ITR 329, wherein in para 16 & 17, it has been observed as under :- 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.

10 ITA No.58/CTK/2021 17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, (1998) 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous." 15. We observe that, the judgment ITA 226/CTK/2019 on which Ld CITDR has relied was a case of limited scrutiny, has different facts and circumstances than the present case hence not tenable. 16. In the present case, it is beyond doubt that enquires were made by the AO, hence it cannot be said to be a case of no enquiry. However, enquiries conducted by the AO were considered as insufficient by the Ld PCIT and accordingly order of AO has been held as erroneous in so far as prejudicial to the interest of revenue and revisionary powers u/s 263 were assumed. 17. It is necessary for Ld PCIT to demonstrate that a patent error had been committed in assessment resulting in prejudice to revenue before

11 ITA No.58/CTK/2021 invoking revisionary power. If the inquiry of the AO is considered as no inquiry or insufficient, in such a situation, as settled in the case of DIT Vs. Jyoti Foundation (supra), the PCIT himself should have been conducted the inquiry to find out that whether the reason for which the provisions of section 263 are exercised are in existence in the present case and accordingly the order passed by the Ld AO is erroneous as well as prejudicial to the interest of revenue instead of setting aside the order of the AO merely on the basis of presumption / suspicion. In view of the aforesaid discussion, impugned order passed by Ld PCIT u/s 263 is unsustainable and is hereby quashed. 18. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 04/04/ 2022. Sd/- Sd/- (C.M.GARG) (ARUN KHODPIA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER कटक Cuttack; ददनाांक Dated 04/04/2022 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीऱाथी / The Appellant- 1.

प्रत्यथी / The Respondent- 2. आयकर आयुक्त(अऩीऱ) / The CIT(A), 3. आयकर आयुक्त / CIT 4. पवभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, कटक / DR, 5. ITAT, Cuttack गार्ग पाईऱ / Guard file. 6. सत्यापऩत प्रयत //True Copy// आदेशािुसार/ BY ORDER,

(Assistant Registrar) आयकर अपीऱीय अधिकरण, कटक/ITAT, Cuttack