ARIHANT JEWELLERS PVT. LTD.,BHILAI vs. PR. CIT-1, RAIPUR

The twofold issue under this appeals is that, firstly the appellant company assailed the basis assumption of revisionary juri iction and secondly challenged the revisionary action directing the AO for fresh adjudication.

The legal as well meritare grounds raised in the present appeal gyrate around juri ictional issue, however before proceeding for adjudication, it necessitates to reproduce effective ground/grounds challenged by the appellant assessee, as under; “1.In the facts and circumstances of the case and in law, the ld. Principal Commissioner of Income-tax has erred in initiating proceedings u/s 263 of the Income-tax Act, 1961 on the basis of audit objection and accordingly initiation of proceedings is illegal and without juri iction.”

Before we set the ball rolling, we shall make a mention that, the instant appeal was filed after the expiry of statutory period with a delay of 74 days (approx.), however in the light of direction of Hon’ble Apex Court vide MA 21 & 29 of 2022, MA 665 of 2021 and Suo-motu WP 3 of 2020, the said delay falls within the permitted relaxation period of limitation i.e. between 15/03/2020 to 28/02/2022, consequently delay requiring no condonation, the appeal is allowed and proceeded with.

The factual matrix of the case as manifested from the case records briefly are;

1 The appellant assessee is a closely held resident company incorporated under the provisions of Companies Act, 1956 [for short “COA”] on 15/07/2010 and engaged in retail and wholesale trading of jewellery. A return of income for the assessment year 2011-2012 was filed on 23/04/2018 with a returned income of ₹12,78,880/- and whereas the assessment was completed u/s 143(3) r.w.s. 147 of the Act on 26/12/2018 with an assessed total income of ₹2,12,78,880/- on account of an addition of ₹2,00,00,000/- u/s 68 of the Act, as unexplained cash credit, dislodging the claim of substantial premium on subscription of share capital from published shell companies.

2 On the receipt of objection from departmental audit, Ld PCIT invoked the revisionary powers vested in him by virtue of section 263(1) and without further placing on record any emblematic material, prefigured the assessment order as erroneous and consequently directed the Ld AO to reframe the assessment after conducting proper enquiry about genuineness of unsecured loan of ₹21,21,850/- as communicated by the revenue audit department via audit objection report.

3 Pending such direction before the Ld AO, the appellant company objected the perfunctory revisionary action of Ld PCIT on two-fold counts on grounds alleged at 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.

It is manifestly noticeable form the records after hearing to both parties that;

1 The primary issue in the present controversy is twofold, firstly, whether or not assumption of 263 juri iction on the basis of audit objection is tenable in law? And secondly as to whether or not the order passed by the assessing officer u/s 143(3)

2 During the course of escapement assessment proceedings, a statutory notice u/s 148 was issued & served on 20/03/2016 and pursuant thereto a return of income was filed on 23/04/2018 declaring total income of ₹12,78,880/-. Considering the evidential material the Ld AO observed that, the assessee company during the year

3 After a detailed inquiry into the capacity and the financial health of subscriber

4 In the light of above facts & figures, the assessee was put to notice to displace the unhewn findings of the Ld AO and upon appellant’s failure to do so, the assessment was culminated with reference to list of shell companies published by Government of India and its agencies etc., holding these subscribers as shell (paper) companies and consequently dislodging the claim of the assessee, entire amount of subscription was brought to tax as unexplained cash credit u/s 68 of the Act.

5 The said addition was assailed by the appellant before the first appellate authority vide an appeal dt 12/01/2019, however in order to buy peace of mind, the appellant subscribed for resolution of dispute by filing an application under Vivad Se Vishwas Act, 2020 [for short “VSVA”], consequently a Form No 3 is issued by the designated authority vide acknowledgement / certificate number 715802510111120 dt 11/11/2020, same been duly considered and taken into account.

6 On the basis of audit objection received vide letter F.No. ITO- 1(1)/BHI/127(1)/2020-21 dt 22/12/2020, the Ld PCIT, Raipur-1 assuming the revisionary juri iction issued & served the show cause notice [for short “SCN”] vide notice ITBA/REV1/2020-21/1031262643(1) dt 05/03/2021 and without any independent findings, clinched that, the AO failed to conduct enquiries and verify the genuineness of unsecured loan of ₹21,21,850/-.

7 Placing reliance on “Malabar Industries Co Ltd Vs CIT 243 ITR 83 (SC)”, the appellant imitating it’s earlier submissions also brought the fact to the notice of the revisionary authority of its having applied for VSVA against the disputed 143(3) r.w.s. 147 assessment, which was subject matter under revision.

8 Per contra, the Ld PCIT relying on plethora of judicial precedents and pursuant to explanation 2 of section 263, by an order dt 28/03/2021 vide para 4 held as under; “Considering the overall legal provision as held in various case laws as enumerate above it leads to conclusion that no enquiry on the issues or non- application of mid for reaching any conclusion would certainly lead to held the order erroneous so far as prejudicial to the interest of revenue.”

Before riding the cycle, it shall be necessary to tabulate the occurrence as;

From the aforestated chronological events, we have noted that, after the assessee has applied for VSVA and received the form no 3 from the designated authority viz the Ld PCIT, Raipur-1, the revisionary proceedings were initiated by same juri ictional Ld PCIT, Raipur-1 and in-spite of the fact being brought to his notice Ld PCIT, Raipur-1 concluded the revisionary proceedings desultorily.

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, whereas the Ld departmental representative [for short “DR”] supported the 263 revisionary order for failure to conduct enquiries.

At this juncture, before going into the merits of the case, we first deal with the solitary legal ground raised by the appellant company and to hit the ball on the head, it will be apt to reproduce the provision of section 263(1) in verbatim as it stood and applicable to the AY under consideration;

2 A plain reading of this provision makes it clear that, the precondition to exercise revisionary juri iction 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.

3 Albeit the foresaid twin satisfaction drawn may trigger the revisionary juri iction, 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.

4 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 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.

5 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 juri iction u/s 263 for the protection loss of revenue to the ex-chequer, and not otherwise.

6 In the light of ration laid down by Hon’ble Supreme Court of India, we have the audacity to summarise the inferential but harmonious analysis of revisionary provision laid in section 263 of the Act, into a five steps “Queen Principle”, falling out of which shall debark authorities from assuming revisionary juri iction u/s 263; a. There must be an explicit query from the adjudicating tax authority as regards to any claim made including information supplied in the return of income filed or to be filed, and b. There must be direct, clear and an unreserved submission from the assessee in reply to aforesaid query, and c. The submission must be followed by detailed inquiry (and not enquiry) by the tax authorities into assessee’s eligibility of claim, basis of claim and compliance of pre as well post conditions as may be attached to the claim under scrutiny, and ITAT-Raipur Page 8 of 11 AY – 2011-2012 d. There should be even-handed application of mind by the adjudicating authority in reaching out the allowability or dis-allowability of claim under consideration, e. And finally, the adjudication must ensure the correct application of law as regards to aforesaid upholding the principle of natural justice.

In the instant case, during the course of assessment proceedings, explicit queries were raised and unreserved submission were matured before the Ld AO, consequent to which inquiries into very existence of share subscribing companies were conducted and thereupon in the light of supportive material, drawing even-handed conclusions, addition u/s 68 was carried out, leaving no air in the assessment.

Per contra, the revisionary action and order u/s 263 of the Act, both entirely marshal out of an audit objection communicated and there was complete material absentia supporting the assumption of revisionary juri iction vis-à-vis conclusion reached by Ld PCIT. It is trite law that, while exercising revisional juri iction, 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

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 Paper Mill Ltd. Vs CWT” reported in 77 ITR 6, that while exercising power, the Commissioner must have an unbiased mind and decide

In no case, mere audit information renders the order of assessment erroneous, and the very absence of material before the revisionary authority itself sufficient to hold the action as unsustainable in law and our 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 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 any merits in the revisionary order, ergo we quash the revisionary order, thus the legal ground of the appellant is allowed.

Resultantly, the appeal of the appellant assessee is allowed, with no order as to cost. Order pronounced on this Friday 01st day of April, 2022. RAVISH SOOD JAMLAPPA D. BATTULL JUDICIAL MEMBER ACCOUNTANT MEMBER रायपुर / RAIPUR ; दिनाांक / Dated : 01st April, 2022

The CIT (Appeals), Raipur (C.G)

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 बेंच, रायपुर / DR, ITAT, Raipur