ASSISTANT COMMISSIONER OF INCOME TAX V. SUN AND SUN INFRAMETRIC PVT. LTD.

TAXC/7/2022

AI Insights

The case involves two appeals by the Assistant Commissioner of Income Tax against Sun and Sun Inframetric Pvt. Ltd., concerning the orders of the ITAT which set aside the revisional orders passed by the Principal Commissioner of Income Tax under Section 263 of the Income Tax Act. The Revenue contended that the ITAT erred in nullifying the revisional orders which sought to re-examine certain financial transactions and their tax implications, including issues related to the genuineness of transactions, the applicability of Sections 40A(3), 43CA, and 68 of the Act, and the treatment of cash credits and loans. The ITAT had found that the revisional authority had overstepped its mandate and that the original assessments were not erroneous or prejudicial to the interests of the Revenue.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 730144 (HC-CHHATTISGARH)
• Appeal Type: Others
• Pronouncement Date: 03-08-2023
• Assessment Year: misc
• Other Referred Cases: M/s, Natural Ores Pvt. Ltd. Raipur Versus Principal Commissioner of Income Tax-1, Raipur, Commissioner of Income Tax vs. Gabriel India Ltd, Commissioner of Income Tax vs. Shree Manjunathesware Packing Products and Camphor Works, Commissioner of Income Tax Vs. Greenworld Corporation
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: SUMIT NEMA; ANAND DADARIYA; AISHWARYA DUBEY
• Assessee Lawyers: AMIT CHAUDHARI; NAUSHINA ALI; TOPILAL BARETH
• Keywords: Assessment; Cash credit; Erroneous order; Income Tax; Prejudicial to revenue; Revisional power; Shell company
• Section: 143(3); 263; 43CA; 68; 40A(3); 40(a)(ia); 260-A

Judgement Text

"Page 1 AFR HIGH COURT OF CHHATTISGARH, BILASPUR (Reserved for judgment on 26.07.2023) (Delivered on 03.08.2023) TAXC No. 5 of 2022 Assistant Commissioner of Income Tax Central Circle-1, Raipur (C.G.) ---- Petitioner Versus Sun and Sun Inframetric Pvt. Ltd. 11/146, Chikni Mandir, Malviya, Road, Raipur District Raipur (C.G.) --- Respondent TAXC No. 7 of 2022 Assistant Commissioner of Income Tax Central Circle -1, Raipur Chhattisgarh. --- Petitioner Versus Sun and Sun Inframetric Pvt. Ltd. 11/146, Chikni Mandir, Malviya, Road, Raipur District Raipur Chhattisgarh. --- Respondent For the Appellant : Mrr. Amit Chaudhari with Ms. Naushina Ali and Mr. Topilal Bareth, Advocates For the State/Respondents : Mr. Sumit Nema, Sr. Advocate with Mr. Anand Dadariya and Ms. Aishwarya Dubey, Advocates Hon'ble Shri Justice Goutam Bhaduri, Judge & Hon'ble Shri Justice Sanjay S. Agrawal, Judge Per Goutam Bhaduri, J 1) These are two appeals filed by the appellant/Revenue under section 260-A of the Income Tax Act, 1961 against the orders passed by the Income Tax Appellate Tribunal, Raipur. Since the facts and substantial questions of law involved in both the cases are similar, they are heard analogously and decided by the common order. Page 2 2) The facts of TAX Case No.5 of 2022 are that the return of income was electronically filed by the assessee company for the year under consideration 16.10.2016 declaring the total income of Rs.7,93,940/- for the Assessment Year 2016-2017. The case was selected for scrutiny through CASS and accordingly the assessment under section 143(3) of the Income Tax Act, 1961 was completed on 28.12.2018. The Revenue Department initiated the revision proceeding against the order passed by the Assessing Officer on the ground that it is erroneous and prejudicial to the interest of Revenue. It was alleged that certain properties were sold by the assessee by showing lesser value than the value, which was assessed for the purpose of payment of stamp duty and it was contended that short levy of tax was made of Rs.3,66,049/-. The revenue contended that the assessee has paid Rs.9 lakhs on account of commission or brokerage which is deductible under TDS was not deducted. Therefore, wrong assessment of income was made and the disallowance of Rs.2,70,000/- i.e., 30% of Rs.9,00,000/- should have been ordered as per section 40(a)(ia) of the I.T. Act. It is stated that the enquiry to ascertain the facts about the issue having not been done by the Assessing Officer and since no addition was made during the course of assessment proceeding, the order of the assessing officer was prejudicial to the interest of Revenue which has resulted in under-assessment. It is the further case of revenue that the Principal Commissioner of Income Tax exercising the revisional power under Section 263 of the I.T. Act set aside the order 28.12.2018 and remanded the matter to the Assessing Officer for fresh adjudication of the following issues by affording adequate opportunity of hearing to the assessee :- (1) Identity, genuineness and creditworthiness of M/s,. Gangotri Tracon P. Ltd., in respect of sum of Rs.18,12,00,000/- in the light of provisions of Section 68 of the IT Act, 1961 ; (2) To verify the genuineness of both stamp papers with the competent authority who issued those stamp papers ; (3) To invoke the doctrine of substance over form in respect of transaction with M/s. Gangotri Tracon Page 3 P. Ltd., after due verification ; (4) To verify the unsecured loan, repayment of loan and interest payment of sum of Rs.7,63,19,047/-, Rs.5,59,31,494/- & Rs.19,71,250/- respectively ; (5) To verify the applicability of Section 43CA in respect of sale deed executed below stamp duty value; and (6) To verify the applicability of Section 40A(3) in respect of payment for purchase of land ; 3) The facts of Tax Case No. 7 of 2022 are that the return of income was electronically filed by the assessee company for the year under consideration on 29.09.2015 declaring total income of Rs.49,48,309/- for the assessment year 2015-2016. The case was selected for scrutiny through CASS and accordingly, assessment u/s 143(3) of the IT Act was completed on 21.08.2017. The Revenue having considered that the order passed by the Assessing Officer was prejudicial to the interest of the Revenue initiated the revision proceeding . The Principal Commissioner Income Tax vide its revisional order dated 22.03.2021 passed u/s 263 of the Act set aside the order passed by the Assessing Officer and remanded the case to the Assessing Officer for fresh adjudication of the following issues by conducting necessary enquiries and affording adequate opportunity of hearing to the assessee : (1) Identity, genuineness and creditworthiness of M/s. Gangotri Tracon Ltd in respect of receipt of sum of Rs.16,00,00,000/- in the light of provisions of section 68 of the I.T. Act, 1961; (2) To verify the genuineness of both stamp papers with the competent authority who issued those stamp papers; (3) To invoke the doctrine of substance over form in respect of transaction with M/s Gangotri Tracon P. Ltd after due verification. (4) To verify the repayment and interest payment of sum of Rs.6,11,26,848/- & Rs.47,36,052/- respectively ; (5) To verify applicability of Section 56(2) (vii-b) in respect of shares issued ; (6) To verify the applicability of 43CA in respect of sale deed executed below stamp duty value; (7) To verify the applicability of Section 40A(3) in Page 4 respect of payment for purchase of land ; 4) Being aggrieved by the Revisional Order passed by the PCIT under Section 263 of the Act in both the revisions, the assessee preferred appeals before the Income Tax Appellate Tribunal. The Tribunal vide its Orders dated 25.10.2021 and 22.10.2021 (challenged in Appeal Nos. 5/2022 & 7/2022 respectively) set aside the order of the PCIT on the ground that the PCIT travelled beyond its statutory mandate and quashed the order passed u/s 263 of the IT Act, 1961. Being aggrieved by such orders, Revenue filed these appeals before this Court. 5) This Court by order dated 12.01.2023 has admitted the appeal (TAXC No.5 of 2022) on the following substantial questions of law : (1) Whether the Income Tax Appellate Tribunal (ITAT) was justified in nullifying the direction of the Principal Chief Commissioner, Income Tax (PCIT) in respect of transactions covered under Section 43CA of the Income Tax Act, 1961 (for short, the Act) by holding that the stamp duty value and actual consideration amount does not exceed 10%, ignoring the fact that the amendment of section 43CA of the Act had increased safe harbour limit of 10% to be effective from 01.04.2021 ? (2) Whether the ITAT was justified in holding that the inaction on the part of Assessing Officer (AO) in not examining the genuineness of the cash credit under Section 68 of the Act and not making enquiry in terms of section 68 of the Act, does not render the assessment order passed under Section 143(3) of the Act erroneous and prejudicial to the interest of the Revenue ? (3) Whether the ITAT was justified in the interpretation given to Section 263 of the Act contrary to law and in holding that an order passed by the AO ignoring the relevant materials does not give jurisdiction to the PCIT for exercise of revisional jurisdiction under Section 263 of the Act ? 6) Similarly, this Court on 12.01.2023 has admitted the appeal (TAXC No.7 of 2022) on the following substantial questions of law : (1) Whether the ITAT was justified in holding that the inaction on the part of the Assessing Officer (AO) in not examining the genuineness of the cash credit under Section 68 of the Act and not making enquiry in terms of Section 68 and 69C of the Act, does not render the assessment order passed under Section 143(3) of the Act erroneous and prejudicial to the interest of the Revenue ? (2) Whether the ITAT was justified in the interpretation given to Section 263 of the Act contrary to Page 5 law and in holding that an order passed by the AO ignoring the relevant materials does not give jurisdiction to the PCIT for exercise of revisional jurisdiction under Section 263 of the Act ?” 7) Mr. Amit Chaudhari, learned counsel appearing for the appellant Revenue would submit that : a) the PCIT in exercise of supervisory jurisdiction u/s 263 of the Income Tax Act has rightly held that the order passed by the AO was erroneous and therefore, by virtue of it, prejudice has been caused to the interest of Revenue. b) he made a reference to the decision of this Court rendered in Tax Case No.69 of 2016 – M/s, Natural Ores Pvt. Ltd. Raipur Versus Principal Commissioner of Income Tax-1, Raipur decided on 25.10.2016 and would submit that when the order is erroneous on the face of it, the view taken by the Assessing Officer is unsustainable. Therefore, the order of Assessing Officer is not only erroneous but would be deemed to be prejudicial to the interest of revenue. c) he would submit that in any case, the order of reassessment will not prejudice to the interest of the assessee/respondent as he would get complete opportunity to defend them. He would further submit that the assessee has received a sum of Rs. 5,59,31,494/- against the sale of land and unsecured loan and made a repayment to some extent with interest but failed to furnish any document with respect to such transaction made with the above company and the above company was found to be a shell company and the genuineness of the Company having not been established, the sum received should have been disallowed. d) he would next submit that cash credit entry which was found in the books of the assessee is needed to be explained by producing Page 6 proper documents and having not been done so, the cash credit income should be taken as the income of the assessee. e) He further placed reliance in case law reported in 2023 LiveLaw (SC) 282 The commissioner of Income Tax 7 Versus M/s. Paville Projects Pvt. Ltd to submit that when the Revenue is losing tax lawfully payable by a person it would certainly be prejudicial to the interest of the revenue. Therefore, the substantial question of law be answered in favour of the appellant and set aside the order of the Tribunal. 8) Per contra, Mr. Sumit Nema, learned Senior Counsel assisted by Mr. Anand Dadariya appearing on behalf of the respondent would submit that - (i) the legal proposition as has been narrated by the appellant is not in dispute, however, the foundation of the entire genesis of the case is based on Section 68 of the I.T. Act. He would submit that when any sum is found credited in the books of assessee maintained for the previous year, the sum so credited may be charged to income tax as the income of the assessee of “that previous year” and not beyond. (ii) according to the admitted facts, the assessment made in this case was of 2012-2013 and the assessment year in this case was of 2015-2016. Therefore, the cash credit entry which was of the previous year and the closing balance which was carried forward ought not to have been taken for the assessment year and the subsequent year of 2015-2016, for which, the previous year ended on 2014-2015 and the assessment year of 2016-2017 for which the previous year would end before it i.e., 2015-2016. (iii) He further submits that the assessment order would reflect that certain deductions were disallowed as the document could not be produced but the very genesis of section 68 of the IT Act which was made applicable to compute income is wrong. He would further submit that section 69-C would also not be Page 7 attracted as the entries were shown in the books of accounts and the details were mentioned in such books of accounts which was duly supported by vouchers and no defect was found. He further submits that there no substantial question of law is available for consideration and no interference is required by this court. 9) We have heard learned counsel for the parties. The legal proposition as pointed out by the appellant/respondent is not much in dispute. The power of suo-motu revision under sub-section (1) of section 263 of the Act is in nature of supervisory jurisdiction and the same can be exercised only if the two circumstances specified therein exist. To appreciate the rival contention of the parties, it would be apposite to refer to Section 263 of the Act, relevant portion of which reads as follows: “263. Revision of Orders prejudicial to revenue.-- (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or 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.” 10) The Bombay High Court in Commissioner of Income Tax vs. Gabriel India Ltd {(1993) 203 ITR 108 Bom)} held as follows: “The power of suo-motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz. (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expression “erroneous”, “erroneous assessment” and “erroneous judgment” have been defined in Black’s Law Dictionary. According to the definition, “erroneous” means “involving error; deviating from Page 8 the law”. “Erroneous assessment” refers to an assessment that deviates from the law and is, therefore, invalid and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, “erroneous judgment” means “one rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles.” (Emphsis supplied) 11) The Apex Court in Commissioner of Income Tax vs. Shree Manjunathesware Packing Products and Camphor Works {(1998) 231 ITR 53 (SC)} held as follows: “Section 263 of the Income Tax Act, 1961 enables the Commissioner to call for and examine the record of any proceeding under the Act and 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, if he considers that any order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. The section did not at first contain any Explanation. An Explanation was added to section 263(1) by the Taxation Laws (Amendment) Act, 1984. By the Finance Act, 1988, the said Explanation was substituted with effect from June 1, 1988. The Explanation was again amended by the Finance Act, 1989. By the amendments made by the Finance Acts of 1988 and 1989 a definition of the term “record” was provided. It has been provided that “record” shall include and shall be deemed always to have included all records relating to any proceeding under the Act available at the time of examination by the Commissioner.” (Emphasis supplied) 12) Further, the Apex Court in Commissioner of Income Tax Vs. Greenworld Corporation {(2009) 314 ITR 81 (SC)} while dealing with Section 263 held as follows: “Jurisdiction under Section 263: The scope of the provisions of Section 263 of the Act is no longer res integra. The power to exercise suo motu power of revision in terms of section 263(1) is in the nature of supervisory jurisdiction and same can be exercised only if the circumstances specified therein, viz., (1) the order is erroneous; (2) by virtue of the order being erroneous prejudice has been caused to the interest of the Revenue, exist.” (Emphasis supplied) 13) A reading of the aforesaid principle laid down by the Supreme Court would Page 9 show that the power conferred to the Commissioner under Section 263 wherein the order is sought to be reviewed is in the nature of supervisory jurisdiction, can be exercised if two circumstances exist viz., (i) the order is erroneous and (ii) by virtue of order being erroneous, prejudice has been caused to the interest of Revenue. If the assessing officer adopts one or two courses available under the law and it results in loss of revenue, then the order cannot be said to be erroneous or prejudicial to the interest of revenue within the meaning of section 263 of the Act. The case of the assessee was that financial statement, income tax return and ledger books of lender Company of the years 2014-2015, 2015- 2016, & 2016-2017 were filed in pursuance of the enquiry made by the A.O., on this record. According to the PCIT, Rs.18.12 crores was allegedly not received during the year but was received over different financial years mainly financial year 2013-2014 and 2015-2016 and reference was made to the account of the lender company. According to the assessee, the amount of Rs.18.12 crores was received through banking channel in the F.Y. 2013-2014 and 2014- 2015 which was pertaining to the Assessment Years 2014-2015 and 2015-2016. At this juncture, section 68 of the Income Tax Act which deals with cash credits would be relevant here to read and quoted below: “68. Cash Credits . - Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year; Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless - (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Page 10 Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of Section 10.]” 14) A reading of Section 68 of the Act which has been invoked by the PCIT would show that the sum credited in the books of an assessee maintained for any previous year can be accounted for income-tax as the income of the assessee of “that previous year”. The finding has been recorded by the appellate Tribunal that Rs.18.12 crores lent from GTPL was not received in the assessment year in question but was received in earlier assessment year and was duly assessed and most importantly the finding has been recorded that the amount represents opening balance of carried forward credit of an earlier year. Therefore, according to Section 68 of the I.T. Act which operates in the limited field , any sum found credited in the books of assessee maintained for “that previous year” may be charged to income tax as income of the assessee of that previous year, if - (i) the assessee offers no explanation about the nature of source of such sum or (ii) the explanation offered by him in the opinion of the Assessing Officer is not satisfactory. Therefore, the very genesis to invoke the provisions of Section 68 of the Act apparently appears beyond the scope of PCIT as the amount was received from the Company in the financial years 2013-2014 and 2014-2015 which were pertaining to the assessment years 2014-2015 and 2015-2016 respectively. According to the findings recorded by the learned Tribunal, the credit entries appearing in the accounts of the assessee were taken into account and section 68 could not have been invoked for the past credits which were carried forward. 15) Further, apart from the aforesaid observations, the order passed by the PCIT also suffers from lack of due opportunity of hearing as the PCIT while making such observation that the lender Company was classified as shell company and relied on some statement recorded but before such finding was recorded which was prejudicial to the right of the assessee, no opportunity of hearing was given to the assessee. The entire observation made by PCIT is on a foreign subject, Page 11 which was not a matter of lis. Therefore the reliance of credit worthiness of lender Company which dominated the track for PCIT to arrive at a finding to invoke Section 263 of I.T. Act was defective. Thereby the PCIT has not followed the rules of natural justice and admissibility of such document or the statement becomes doubtful as the rules of natural justice were given a go-bye. The finding of fact that the amount of unsecured loan got by the assessee from the lender Company was not received in assessment year in question on the basis of a finding which was never before the assessee to counter it. As such, section 68 cannot be invoked in the garb of Section 263 as fiscal statute is to be given a strict interpretation. 16) Further observation made by the appellate Tribunal that consequential direction towards genuineness of stamp paper of receipt of advance from GTPL etc., being relatable to receipt of loans in other assessment year are apparently far- fetched and have no relevance for assessment of income of this year, appears to be reasonable as no prejudice is caused to the interest of Revenue. A reading of the order would further would show that the Tribunal held that the repayment of loan and payment of interest expenditure was recorded in the books of transaction, which do not fall within the purview of section 69C of the Act. The Tribunal held that there is no dispute about the maintenance of book of accounts by the assessee and the same having been accepted in the past no defects were pointed out in the books maintained by the assessee. With respect to investment which is made in the property, there can be only two methods to find out the correct position - (i) When proper books of account are maintained, and (ii) valuation report. The finding of the Tribunal shows that proper books of account were maintained and no defects are pointed out about enormous gap of any valuation and consequently the books were not rejected. Therefore the figures shown therein have to be followed. The valuation report can be taken into consideration when the books of account are not reliable or are not supported by proper vouchers. The assessment year in this case has not doubted such entry and it has not been stated that the books of account Page 12 maintained by the assessee are defective or not reliable. It may have marginal difference with the valuation but that may be for various reasons but primarily aforesaid two conditions are required to be satisfied, which having not been present, the appellate Tribunal has rightly held the issue in favour of the assessee. 17) The Tribunal also recorded the fact that the so called incriminating information that the lender company being classified by the SEBI as shell Company coupled with some adversarial statement of one Amit Kumar Kedia which has been relied by the PCIT post assessment, were not supplied to the assessee despite requests made by him that those information and statement would enable him to place its defence. Therefore, a serious flaw was committed by the PCIT. The assessment order also records the fact that GTPL is a NBFC registered with RBI and is a Company of sound financial standing and a regular tax payer of huge amounts year after year, therefore, withholding certain documents which is used against the assessee by the PCIT defeats the rules of natural justice of doctrine of audi alteram partem. 18) A perusal of the order of Tribunal would further reflect that after assessment of the factual aspect of applicability of Section 43CA it records that the transaction was duly reported in tax audit report and the appellate authority was unable to find any error in action of the Assessing Officer to accept the transaction outside the ambit of Section 43CA where the variations in actual consideration qua assessable value for the purposes of stamp duty does not exceed 10%. The Tribunal has upheld the direction of PCIT to the extent that the difference upto 10% is only saved by the amendment made in the Finance Act and the enquiry directed by PCIT in respect of transaction covered u/s 43CA where the difference exceeds 10% appears to be justified and the direction of the PCIT to the limited extent was upheld. Therefore considering the totality of the aforesaid averments, we are of the view that the order of Tribunal does not give rise to a substantial question of law warranting Page 13 interference of this Court in the order of Tribunal. 19) In view of the aforesaid discussion and after going into the merits of the case, we are of the considered view that the appeals do not involve any substantial question of law and accordingly, both the appeals are dismissed. Sd/- Sd/- (Goutam Bhaduri) (Sanjay S. Agrawal) Judge Judge Rao "