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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D BATTULL
ORDER PER JAMLAPPA D BATTULL, AM; Against the revisionary order of Principal of Commissioner of Income Tax, Raipur-1 [for short “PCIT”] passed u/s 263 of the Income-tax Act, 1961 [for short “the Act”] vide order dt 26/03/2021, for the assessment year [for short “AY”] 2016-2017, the appellant assessee filed this appeal before Income Tax Appellate Tribunal [for short “the Tribunal”] u/s 253(1) of the Act. ITAT-Raipur Page 1 of 12
M/s Prachi Agriculture & Properties Private Limited
The grievance assailed under this appeal is twofold, firstly it challenges the violation of principle of natural justice and secondly it challenges validity of assumption of revisionary jurisdiction directing the assessing officer for fresh adjudication.
The legal as well meritare grounds raised
in the present appeal gyrate around jurisdictional issue, however before proceeding for adjudication, it necessitates to reproduce effective ground/grounds challenged by the appellant assessee, as under; “GROUND NO.I
1. That the ex-parte revision order passed by the Learned Pr. Commissioner of Income Tax-1, Raipur (“the Ld. PCIT”) under section 263 of the Income Tax Act, 1961 (“the Act”) is highly unjustified, bad in law, without providing reasonable opportunity of being heard since the mandatory show cause notice was not served on the appellant against the principles of natural justice and not in accordance with the provisions of law. It is prayed that Revision order passed under section 263 of the Act may please be cancelled/set-aside on this ground alone.”
“GROUND NO.II 2. That the revision order passed by the LD. PCIT under section 263 of the Act is highly unjustified, bad in law, without jurisdiction & void ab initio since, the LD. PCIT has grossly erred in concluding that the Learned Assessing Officer (“the Ld. AO”) has failed to carry out the necessary enquiries and investigation in relation to the issue which pertains to the material already on record. Hence, it is prayed that the order passed by the LD. PCIT under the ITAT-Raipur Page 2 of 12
M/s Prachi Agriculture & Properties Private Limited provisions of section 263 of the Act may please be cancelled & quashed in limine.”
“GROUND NO.III 3. On the facts and circumstances of the case as well as in law. The LD. PCIT has grossly erred in setting aside the assessment order passed by the Ld. AO under section 143(3) of the Act with direction to make fresh assessment on specified issue by holding that the said order is erroneous in so far as it is prejudicial to the interest of the revenue. The Ld. PCIT has failed to appreciate that the said assessment order has been passed by the Ld. AO after conducting necessary & diligent enquiries and conscious application of mind & deliberation to the material on record and hence, it is prayed that the order passed under section 263 of the Act being highly unjustified and not in accordance with the provisions of law, may please be cancelled.”
“GROUND NO.IV 4. On the facts and in circumstances of the case as well as in law. The Ld. PCIT has grossly erred in holding that the Ld. AO has not conducted proper enquiries in respect of unsecured loan creditor, particularly without himself rendering any prima-facie findings as to the non-satisfaction of necessary ingredients of section 68 of the Act and without discussing the contents of the adverse findings of any reports etc. And merely directing the Ld. AO to make adequate enquiries in respect of such loan creditor hence, the action of the LD. PCIT is highly unjustified, unwarranted and not in accordance with the provisions of law hence, on the issue, the original order passed is neither erroneous nor prejudicial to the interest of the revenue.”
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M/s Prachi Agriculture & Properties Private Limited NO.V 5. That the appellant craves leave to add, amend, alter or delete all or any of the grounds of Appeal at the time of hearing of the appeal.” (Emphasis Supplied)
4. Succinctly stated, the factual matrix of the case are; 4.1 The appellant assessee is a private company incorporated under the provisions of Companies Act, 1956 [for short “COA”] and engaged in the activity of investment and advancing loans thereby earning dividend income, income from partnership firm and interest on loans etc. Appellant company e-filed its return of income [for short “ITR”/”ROI”] for the AY 2016-2017 on 16/03/2017 with a returned income of ₹7,320/- and upon being selected for complete scrutiny under CASS, the assessment was completed u/s 143(3) of the Act on 21/12/2018 with an assessed total income of ₹43,60,750/- on account of dislodgment of interest expenditure u/s 57.
4.2 Post assessment, pursuant to audit objection, the assessment records were called and perused upon and after satisfying the veracity of the information passed on by the revenue audit team, Ld. PCIT by issue of show cause notice [for short “SCN”] invoked the revisionary powers vested in him by virtue of section 263(1) and in the absence of any submissions, figured out the assessment as erroneous and prejudicial to the interest of the revenue on the basis of available records, consequently by an order directed the Learned Assessing Officer [for short “AO”] to reframe the assessment after conducting ITAT-Raipur Page 4 of 12
M/s Prachi Agriculture & Properties Private Limited proper enquiry about the shell company, which has advanced an unsecured loan of ₹3,89,68,255/- to the appellant assessee.
4.3 Pending such direction before the Ld. AO, the appellant company objected the revisionary action undertaken by Ld. PCIT as perfunctory on two-fold counts on the grounds alleged at set in para 3 herein before.
After hearing to the rival contentions of both the parties; perused material placed on record and duly considered the facts of the case in the light of settled legal position and the case laws relied upon by the appellant assessee as well the respondent revenue.
Ground no 5 is general and residuary, whereas ground to 1 is legal ground and rest are meritorious, which we shall deal with chronologically in the succeeding paragraphs. As is evinced form the records that; 6.1 The appellant is a private limited company, for the AY 2016-2017 filed its ITR on 16/03/2017 declaring the total income ₹7,320/-, the return of income was selected for complete scrutiny by issue of notice u/s 143(2) of the Act dt. 18/09/2017 and by further issue of notice u/s 142(1) dt 09/07/2018 requisite information with supporting documents were called out, in compliance thereof, the appellant vide its first reply dt 24/07/2018 filed online written submission along-with documentary evidence in support of its claims. In furtherance thereof the assessee vide its second reply of even date e-filed balance submission with enclosure / attachment. Considering the evidential material placed in ITAT-Raipur Page 5 of 12
M/s Prachi Agriculture & Properties Private Limited 09/07/2018, the Ld. AO during the assessment proceedings observed that, on one hand the assessee company debited an interest on borrowed capital to the extent of ₹43,55,157/- as business expenditure, whereas on the other hand a sum of ₹1,08,00,000/- was advanced interest-free to one Shri Naveen Rathore in the AY 2011-2012 for procuring land for the assessee on commission basis. Not finding favour with the assessee’s submission on this issue, the Ld. AO dislodging the claim of interest expense on account diversion of borrowed funds camouflaging as interest free advance for investment, culminated the assessment proceedings with a solitary addition of ₹43,55,157/- and assessed the total income at ₹43,53,428/- The said addition, however not assailed by the appellant in order to buy peace of mind.
6.2 On the basis of revenue audit objection received the Ld. PCIT, Raipur-1 assuming the revisionary jurisdiction issued & served the show cause notice [for short “SCN”] vide notice dt. 11/03/2021 and without any independent findings, clinched that, the AO failed to conduct enquiries and verify the genuineness of unsecured loan accepted from M/s Pratibha Endeavor Pvt Ltd for sum of ₹3,89,68,255/-, which as per the list of published by SEBI on online platform, is a shell company. In response thereto, the appellant made no compliance, consequently based on the records available with, the revisionary Placing reliance on the judgement of Hon’ble Supreme Court of India in the case of “Malabar Industries Co Ltd Vs CIT 243 ITR 83 (SC)”, vide para 5 of the revisionary order held the order of assessment as erroneous so far as ITAT-Raipur Page 6 of 12
M/s Prachi Agriculture & Properties Private Limited prejudicial to the interest of revenue is concern, for the reason of absence of enquiries into the threefold attributes of section 68 of the Act.
During the course of hearing, in support of contention, the Ld. AR taken us through relevant pages of paper book to impress that, the action of revisionary action wasn’t warranted and placing reliance on judicial precedents supported the grounds raised, per contra, the Ld. departmental representative [for short “DR”] supported 263 revisionary order for failure to conduct enquiries in respect of creditor who declared as shell company and the information was well available in the public domain, which the Ld. AO failed to attend and consider while framing the assessment.
At this juncture, before going into the merits, we first deal with the legal ground raised by the appellant company and to hit the ball on the bails, it would be apt to reproduce the provision of section 263(1) in verbatim as it stood and applicable to the AY under consideration; 8.1 “263. Revision of orders prejudicial to revenue – (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee 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.”
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M/s Prachi Agriculture & Properties Private Limited (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (Emphasis Supplied)
8.2 An unadorned reading of this provision makes it clear that, the precondition to exercise the revisionary jurisdiction by the PCIT/CIT suo moto under it, is that the order of AO is erroneous insofar as it is prejudicial to the interests of the revenue is concern. Consequently, the provision mandates the satisfaction of existence of twofold conditions before invocation and these explicitly are; (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 any one of two is absent or unsatisfied, that is where the order of the assessing officer is erroneous but is not prejudicial to the revenue or where order is not erroneous but is prejudicial to the revenue, then the recourse to Section 263(1) of the Act fails. Albeit the foresaid twin satisfaction drawn may trigger the revisionary jurisdiction, yet such shall not automatically empower the revisionary tax authorities to conclude the revision proceedings without obeying additional dual riders such as; (i) making or causing to be made such inquiry as necessary and (ii) according an opportunity of being heard to the assessee following the principle of natural justice. In the light of aforesaid provisions of law, it is of paramount importance to note that, an incorrect assumption of facts or an incorrect application of law or passing an order without application of mind or without applying the principle of natural ITAT-Raipur Page 8 of 12
M/s Prachi Agriculture & Properties Private Limited justice, shall discretely be sufficient to hold the order being erroneous. Albeit the term prejudicial to the interests of the revenue is not at all defined in the Act, but is needs to be understood in its ordinary meaning and it is of wide import and is not confined to mere loss to an ex- chequer.
8.3 Having said so, where the revisionary proceedings are concluded entirely in concurrence of assessment proceedings and thereby betokening the mistake apparent on the face of the assessment order, where concluded finding of assessment remained untaxed, shall clearly validate the revisory action and jurisdiction u/s 263 for the protection loss of revenue to the ex-chequer, and not otherwise. On the other hand, assumption of revisionary jurisdiction in the absence of tangible material or at the bequest or dictate of any authority or party shall be extra-territorial and bad in law.
In the instant case, during the course of complete scrutiny assessment proceedings, as can be evinced from annexure to notice dt. 09/07/2018 issued u/s 142(1) of the Act, an explicit queries with respect to unsecured loan exceeding the ceiling of ₹2.00Lakhs were raised, thereby calling upon the assessee to explain the genuineness of the loan accepted / taken by filing tangible documentary evidences in the form of copies of income tax returns, capital accounts, financial statements, bank account statement/passbook of the creditors and in reply thereto vide letter dt. 04/10/2018 an unreserved submission were matured before the Ld. AO in the form of annexure-5 to online reply, consequent to which inquiries ITAT-Raipur Page 9 of 12
M/s Prachi Agriculture & Properties Private Limited into very existence vis-à-vis identification of creditor company, genuineness and creditworthiness were conducted on the basis of evidential documents made available and thereupon in the light of supportive material, drawn even-handed conclusions, without proposing or carrying out any addition u/s 68, and thereby left no bubbles in the order of assessment. Per contra, the revisionary action and order u/s 263 of the Act, both entirely marshal out of an audit objection communicated by the revenue audit team and in the circumstance of complete material absentia supporting the assumption of revisionary jurisdiction reached the conclusion holding the order of assessment as erroneous insofar as it is prejudicial to the interest of revenue in view of explanation 2 to section 263 of the Act.
It is trite law that, while exercising revisional jurisdiction u/s 263 of the Act, it must bear in mind that the principles of natural justice do not permit the decision of a revisionary authority to be influenced by any other authority or agency, which indeed unfortunately the case squarely is, therefore, we are of the view that, this revisionary proceedings initiated on the thin ice of audit objection report and concluded in absence of deprecative material, is untenable in law, moreover it was a change of opinion on the basis of audit objection on the issue duly inquired and addressed by the Ld. AO while framing assessment u/s 143(3) of the Act. In this count we shall necessarily refer the ratio drawn by Hon'ble Guwahati High Court while adjudicating on similar issue in “B & A Plantation & Industries Ltd Vs CIT” reported at 290 ITR 395, where Hon’ble Lordship have emphasised the ratio decidendi laid by Hon’ble Apex Court in “Sirpur ITAT-Raipur Page 10 of 12
M/s Prachi Agriculture & Properties Private Limited Paper Mill Ltd. Vs CWT” reported in 77 ITR 6, that while exercising power, the Commissioner must have an unbiased mind and decide the dispute according to the procedure which is consistent with the principles of natural justice and cannot permit his mind to be influenced by the dictation of another authority. The relevant observations from page 7 of the order read as under; “In exercise of the power the Commissioner must bring to bear and unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice; he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority." (Emphasis supplied)
On the other hand, in no case, mere audit information form a sole basis material and renders the order of assessment erroneous, and the very absence of tangible material before the revisionary authority itself sufficient to hold the action as unsustainable in law and this view has been invigorated by the Hon’ble Kolkata High Court in “Jeewanlal limited Vs ACIT” reported in 108 ITR 407 (Cal). Further the Hon’ble High of Court of Bombay in “CIT Vs Gabriel India Ltd” reported in 203 ITR 108 has also taken similar view that, unless the revisionary authority forms a conclusion on the basis of concrete, tangible & evidential material, it cannot reach to the conclusion rendering the order of assessment erroneous and prejudicial to the interests of the Revenue. In the light of aforestated reasoning, we neither find any infirmity with the order of assessment nor ITAT-Raipur Page 11 of 12
M/s Prachi Agriculture & Properties Private Limited any merits in the revisionary order, ergo we quash the revisionary order, thus the legal ground of the appellant is allowed.
Since the legal ground is answered in favour of the appellant company and against the revenue, the remaining grounds are not adjudicated as academic and resultantly rendered itself as infructuous.
Resultantly, the appeal of the appellant assessee is allowed, in terms of aforesaid observation.
Order pronounced on this Thursday 21st day of April, 2022.
-S/d- -S/d- RAVISH SOOD JAMLAPPA D BATTULL JUDICIAL MEMBER ACCOUNTANT MEMBER रायपुर / RAIPUR ; दिनाांक / Dated : 21st April, 2022 आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to :
1. 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent.
3. The CIT (Appeals), Raipur (C.G) 4. The Pr. CIT, Raipur (C.G) 5. दवभागीय प्रदतदनदि, आयकर अपीलीय न्यायादिकरण, रायपुर बेंच, रायपुर / DR, ITAT, Raipur Bench, Raipur 6. गार्डफ़ाइल / Guard File. आिेशानुसार / BY ORDER, दनजीसदचव / Private Secretary आयकर अपीलीय न्यायादिकरण रायपुर / ITAT, Raipur.
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