DCIT, ITO V. RAJA ARORA, DELHI

ITA 623/DEL/2024

AI Insights

The case involves an appeal by the Deputy Commissioner of Income Tax (DCIT) against Raja Arora concerning the assessment for the year 2016-17. The primary legal issue was the validity of the scrutiny selection of the assessee's case, which was challenged on the grounds that it did not adhere to the procedural requirements set out in CBDT Instruction No. 5/2017. The assessee argued that the selection was made without specific verifiable information pointing to tax evasion and without the mandatory approval from the PCIT as required by the instruction. The Tribunal examined the compliance with the CBDT instructions and the procedural correctness of the assessment.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470183 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 22-10-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 12-02-2024
• Other Referred Cases: Commissioner of Customs vs Indian Oil Corporation Ltd, CIT vs Best Plastics P Ltd, CIT vs Laxman Das Khandelwal
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMANGLA SAXENA
• Assessee Lawyers: RAJEEV SAXENA
• Keywords: Set aside; Transfer pricing; Question of law; Capital Gains; Search and seizure
• Section: 148; 143(3); 292BB; 143(2); 119; 250; 143(1); 132; 153A; 153C; 133A; 10(23C)

Judgement Text

"Page | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F”: NEW DELHI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No. 623/Del/2024 (Assessment Year: 2016-17) DCIT, ITO, New Delhi Vs. Raja Arora, 2115-2116, Hotel Ahluwalia Palace, bank Street, karol Bagh, New Delhi (Appellant) (Respondent) PAN:AAJPA1175B CO No. 52/Del/2024 (In ITA No. 623/Del/2024) (Assessment Year: 2016-17) Raja Arora, 2115-2116, Hotel Ahluwalia Palace, bank Street, karol Bagh, New Delhi Vs. DCIT, ITO, New Delhi (Appellant) (Respondent) PAN:AAJPA1175B Assessee by : Shri Rajeev Saxena, Adv Revenue by: Ms. Sumangla Saxena, Adv Date of Hearing 22/10/2024 Date of pronouncement 24/10/2024 O R D E R PER BENCH 1. The appeal in ITA No.623/Del/2024 filed by the revenue and CO No. 52/Del/2023 filed by the assessee for AY 2016-17, arise out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „ld. NFAC‟, in short] in Appeal No. ITBA/NFAC/S/250/2023-24/1058801500(1) dated 15.12.2023 against the order of assessment passed u/s 143(3) of the ITA No. 623/Del/2024 CO No. 52/Del/2024 Raja Arora Page | 2 Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 06.12.2018 by the Assessing Officer, ACIT, Circle-21(1), New Delhi (hereinafter referred to as „ld. AO‟). 2. At the outset, there is a delay of 7 days in filing of cross objections by the assessee before us. Considering the reasons adduced in the condonation petition, we are inclined to condone the same and admit the cross objections of the assessee for adjudication. 3. The assessee has raised the following grounds of appeal in his cross objections:- “1. That the Ld. CIT(A) has erred in law as well as on facts in dismissing the specific legal ground raised as Ground No. 1(a) and (b) which clearly leads to the assessment bad in law and required to be quashed as he failed to appreciate that: a) The Assessing officer cannot select the case of the assessee for scrutiny contrary to the criteria for selection for scrutiny as specified in Para 1 (vi) of the Instruction No. 5/2017 dated 07.07.2017, since no specific or verifiable information has been received in the case of assessee pointing out tax evasion. b) No mandatory approval as specified in Para 1(vi) of the Instruction No. 5/2017 dated 07.07.2017 for selection of scrutiny was obtained by the Assessing Officer from the concerned jurisdictional Pr. CIT/Pr.DIT/CIT/DIT. 4. We have heard the rival submissions and perused the materials available on record. The assessee is an individual earning income from house property and capital gains during the year under consideration. The return of income for the Asst Year 2016-17 was filed by the assessee on 27.2.2017 declaring total income of Rs 17,32,160/- which was processed u/s 143(1) of the Act. A search and seizure operation u/s 132 of the Act was carried out by the department on 30.9.2015 on the premises of the assessee comprising Airwill Group of Cases. The Airwill Group is a Realty/Real Estate group of Noida which is involved in the development of housing as well as commercial projects. ITA No. 623/Del/2024 CO No. 52/Del/2024 Raja Arora Page | 3 5. The year under consideration, being the year of search, accordingly, notice u/s 143(2) of the Act stood issued to the assessee for the first time on 29.9.2017, though the ld AO had wrongly mentioned the date as 15.9.2017 in his assessment order, which fact is duly confirmed by the ld DR before us. It is pertinent to note that the following notices u/s 143(2) of the Act were issued on the assessee:- a) Notice u/s 143(2) of the Act dated 29.9.2017 by ITO Ward 21(1), Delhi wherein it has been clearly mentioned that the case was selected under Compulsory Manual Selection of cases for Scrutiny on the basis of parameter at Para 1(iii) of the Manual Compulsory Guidelines of CBDT issued vide Instruction No. 5/2017 dated 07/07/2017. Date of compliance for the assessee was mentioned as 29.9.2017 itself at 5.04 P.M. b) Notice u/s 143(2) of the Act dated 29.9.2017 by DCIT, Circle 21(1), New Delhi wherein it has been clearly mentioned that the case was selected under Compulsory Manual Selection of cases for Scrutiny on the basis of parameter at Para 1(vi) of the Manual Compulsory Guidelines of CBDT issued vide Instruction No. 5/2017 dated 07/07/2017. Date of compliance for the assessee was mentioned as 10.10.2017 at 12.30 P.M. 6. The revenue before us was not able to place on record any notice u/s 143(2) of the Act issued on 15.9.2017 as mentioned in the assessment order. Even the factual report furnished by the ld AO dated 21.10.2024 states only the notice u/s 143(2) of the Act dated 29.9.2017 issued in accordance with Para 1(iii) of Manual Compulsory Guidelines of CBDT issued vide Instruction No. 5/2017 dated 7.7.2017. The factual report of ld AO also says that no approval is required to be obtained by the ld AO from the concerned jurisdictional Principal Commissioner of Income Tax (PCIT) for ITA No. 623/Del/2024 CO No. 52/Del/2024 Raja Arora Page | 4 selecting the case for scrutiny in terms of Para 1(iii) of Instruction No. 5/2017 dated 7.7.2017. 7. The assessee had raised Ground No. 1(a) and 1(b) before the ld NFAC that the return selected for scrutiny in terms of Para 1(vi) of the Instruction No. 5/2017 dated 7.7.2017 is invalid as no approval was obtained by the ld AO from the Jurisdictional PCIT as mandated in the Instruction No. 5/2017 dated 7.7.2017. For the sake of convenience, the said CBDT Instruction No. 5/2017 dated 7.7.2017 is reproduced below:- “SECTION 143 OF THE INCOME-TAX ACT, 1961 – ASSESSMENT – GENERAL – GUIDELINES FOR SELECTION OF CASES FOR SCRUTINY DURING FINANCIAL YEAR 2017-18 INSTRUCTION NO.5/2017 [F.NO.225/180/2017/ITA.II], DATED 7-7-2017 1. In supersession of earlier Instructions on the above subject, the Board hereby lays down the following procedure and criteria for compulsory manual selection of returns/cases requiring scrutiny during the financial-year 2017-2018:— (i) Cases involving addition in an earlier assessment year(s) on a recurring issue of law or fact of following amounts: • in excess of Rs. 25 lakhs in eight metro charges at Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai and Pune, while at other charges, quantum of such addition should exceed Rs. 10 lakhs; • for transfer pricing cases, quantum of such addition should exceed Rs. 10 crore and where: (a) such an addition in assessment has become final as no further appeal was/has been filed; or (b) such an addition has been confirmed at any stage of appellate process in favour of revenue and assessee has not filed further appeal; or (c) such an addition has been confirmed at 1st appeal stage in favour of revenue or subsequently and further appeal of assessee is pending. ITA No. 623/Del/2024 CO No. 52/Del/2024 Raja Arora Page | 5 (ii) All assessments pertaining to Survey under section 133A of the Income-tax Act, 1961 ('Act') excluding those cases where books of account, documents etc. were not impounded and returned income (excluding any disclosure made during the Survey) is not less than returned income of preceding assessment year. However, where the assessee retracts from disclosure made during the Survey, such cases will not be covered by this exclusion. (iii) Assessments in search and seizure cases to be made under section(s) 158B, 158BC, 158BD, 153A & 153C read with section 143(3) of the Act and also for the returns filed for the assessment year relevant to the previous year in which authorization for search and seizure was executed u/s 132 or 132A of the Act. (iv) Return filed in response to notice u/s 148 of the Act. (v) Cases where registration/approval under various sections of the Act such as 12A, 35(1)(ii)/(iii), 10(23C) etc. of the Act have not been granted or have been cancelled/withdrawn by the competent authority, yet the assessee has been claiming tax- exemption/deduction in the return. However, where such order of withdrawal of registration/approval has been reversed/set-aside in appellate proceedings, those cases will not be selected under this clause. (vi) Cases in respect of which specific and verifiable information pointing out tax-evasion is given by any Government Department/Authority. However, before selecting a case for scrutiny under this criterion, Assessing Officer shall take prior administrative approval from the concerned jurisdictional Pr. CIT/Pr.DIT/CIT/DIT. 2. Computer Aided Scrutiny Selection (CASS): Cases are also being selected under CASS-2017 on the basis of broad based selection filters and in a non-discretionary manner in two categories viz. Limited Scrutiny & Complete Scrutiny. List of such cases is being separately intimated by Pr.DGIT(Systems) to the concerned jurisdictional authorities for further action in these cases. 3. These instructions may be brought to the notice of all concerned for necessary compliance. ITA No. 623/Del/2024 CO No. 52/Del/2024 Raja Arora Page | 6 8. We find that the Grounds 1(a) and 1(b) were disposed of by the ld NFAC by making the following observations in pages 7 to 9 of its order which is reproduced hereunder:- “4. In Ground No. 1, the appellant has stated that the Assessing Officer erred in selecting the case of the appellant for scrutiny even though the criteria for compulsory selection for scrutiny as specified in para 1 (vi) of the Instruction No. 52017 dated 07.07.2017 were not fulfilled since no specific or verifiable information had been received in the case of appellant pointing out tax evasion as well as in selecting the case for scrutiny without requisite mandatory approval as specified in para 1 (vi) of the Instruction No. 52017 dated 07.07.2017. In the statement of facts the appellant also stated \"Neither in the assessment order nor in the notices issued has the Assessing Officer pointed out whether any specific or verifiable information has been received in the case of appellant pointing out tax evasion\". 4.1 In response to notice u/s 250 of the I.T. Act, 1961, the appellant has made submission relying upon several decisions of the Hon'ble Supreme Court and High Courts in support of grounds taken in Ground No. 1. 4,2 However, in the assessment order at Page 4 & 5, Pare 5.1, the Ld. AO clearly mentioned that - \"5.1 On perusal of the information received from DCIT, Central Circle, Noida it is found that search and seizure operation u/s 132 of the I.T. Act, 1961 was conducted on 30.09.2015, during the post search proceedings it was found that the assessee advanced sum of Rs. 12,25,00,000/- to M/s Airwill Business Park Pvt. Ltd. during the FY. 2015-16 The same was admitted and claimed as by Sh. Vikash Bhagat Director, Airwill Group of Companies in his statement under oath. M/s Airwill Business Park Pvt. Ltd. also paid interest @ 12% per annum to the instant assessee.. Again, at Para 5.4 in the assessment order, the Ld. AO stated that - \"..... Therefore, the assessment is completed on the basis of information received and the facts of the case which are discussed in the foregoing paragraphs.\" INCOME TAX Further, at Para 6.1, the Ld. AO stated that - DEPARTMENT \"6.1 On perusal of the information received from DCIT, Central Circle, Noida, it is found that A search and seizure operation u/s 132 of the I.T. Act, 1961 was conducted on 30.09.2015, during the post search proceedings it was found that the assessee advanced sum of Rs. 12,25,00,000/- to M/s Airwill Business Park Pvt. Ltd. during the F.Y. 2015-16. The same was admitted and claimed as by Sh. Vikash ITA No. 623/Del/2024 CO No. 52/Del/2024 Raja Arora Page | 7 Bhagat Director, Airwill Group of Companies in his statement. M/s Airwill Business Park Pvt. Ltd. also paid interest @ 12% per annum on the aforesaid money advance of Rs. 12,25,00,000.....\" 4.3 Thus the appellant's contention taken in Ground No. 1 and statement of facts information from the DCIT, Central Circle, Noida and which was clearly mentioned in the impugned order. When an Assessing Officer receives any information from another wing of the department it is obviously for the purpose of verification of the same. Although, the appellant has relied upon several judicial pronouncements in his submission, the question of application of the case laws relied upon does not arise in this present case due to the above. Considering facts and circumstances of the case, Ground No. 1 taken by the appellant stands dismissed.” 9. Hence it is very clear that the ld NFAC had conceded to the fact that the return was selected for scrutiny as per Para 1(vi) of Instruction No. 5/2017 dated 7.7.2017. We find that the ld NFAC was silent on the aspect of approval not obtained by the ld AO from ld PCIT before selecting the case for scrutiny as mandated in Para 1(vi) of Instruction No. 5/2017 dated 7.7.2017. Since this is a legal issue, we are addressing the same as all the facts are already available on record and further a factual report from the ld AO is also placed on record by the ld DR before us. As stated earlier, the ld NFAC had adjudicated the issue of return getting selected for scrutiny in terms of Para 1(vi) of Instruction No. 5/2017 dated 7.7.2017. The order of assessment gets merged with the order of ld NFAC. When the appeal is pending before this Tribunal, the revenue cannot change its stand that the return was selected for scrutiny in terms of Para 1(iii) of Instruction No. 5/2017 dated 7.7.2017 and hold that there is no requirement of seeking permission or approval from the ld PCIT by the ld AO. Since the requisite permission from the ld PCIT is admittedly not obtained by the ld AO for selecting the case for scrutiny in the instant case, there is a clear violation of CBDT Instruction No. 5/2017 dated 7.7.2017. We find that the powers to issue Circulars, Instructions and Notifications by CBDT are provided in section 119 of the Act and the same are mandatorily to be followed by the revenue authorities. Reliance in this regard is placed on the decision of ITA No. 623/Del/2024 CO No. 52/Del/2024 Raja Arora Page | 8 Hon‟ble Supreme Court in the case of Commissioner of Customs vs Indian Oil Corporation Ltd reported in 267 ITR 272 (SC). Now the short question that arises for our consideration is whether non-following of the CBDT Instructions would become fatal to the assessment proceedings per se? This question is answered by the Hon‟ble Jurisdictional High Court in the case of CIT vs Best Plastics P Ltd reported in 295 ITR 256 (Del) wherein it was held that the revenue is bound to follow the instructions given by CBDT and not following the same would become fatal to the entire assessment proceedings. For the sake of convenience, the full judgement is reproduced below:- “1. The Commissioner of Income-tax and the Income-tax-Appellate Tribunal have both relied upon a decision of the Supreme Court in Commissioner of Customs v. Indian Oil Corpn. Ltd. [2004] 267 ITR 272 to have that the circulars issued by the Central Board of Direct Taxes (CBDT) binding on the officers of the Income-tax Department. To the same effect is the decision of the Supreme Court in UCO Bank v. CIT [1999] 237 ITR 889. 2. The respondent-assessee's return was in the instant case taken up for scrutiny in violation of the Central Board of Direct Taxes circular according to which if the returned income is 30 per cent more than the income of the earlier assessment year, the case of the assessee should not be scrutinised under Instruction No. 1922, dated 9-3-1995, extended the operation of the circulars to the assessment year 1995-96 also as is evident from the following paragraphs appearing in the same : \"Under Board's Instruction No. 1917, dated 3-6-1994, certain categories of cases were kept outside the scope of sample scrutiny during the financial year 1994-95. On such category consisted of those assessees who declared a total income for the assessment year 1994-95 that was more by 30 per cent of the total income returned for the assessment year 1993-94 subject to the conditions that : (a) the income for both the assessment years exceeded the basic exemption limit; (b) the total income for the assessment year 1993-94 was Rs. 5 lakhs or less; and ITA No. 623/Del/2024 CO No. 52/Del/2024 Raja Arora Page | 9 (c) the tax was fully paid for the assessment year 1994-95 before the return was filed. 2. Suggestions have been received to extend this scheme for the assessment year 1995-96 also. After considering them, it has been decided that the above norm of exclusion from sample scrutiny could be extended for the assessment year 1995-96 also in such cases where the following criteria are satisfied : (i)the income returned for the assessment year 1995-96 is at least 30 per cent more than the total income returned for the assessment year 1994-95.\" 3. The assessment order passed by the Assessing Officer has in the light of the above been set aside by the Commissioner which order has been upheld by the Tribunal in appeal. No substantial question of law arises for our consideration in the light of the settled legal position emanating from the aforementioned judgments of the Supreme Court. This appeal accordingly fails and is hereby dismissed.” 10. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that the entire assessment proceedings becomes void ab initio as the return was selected for scrutiny in violation of Para 1(vi) of CBDT Instruction No. 5/2017 dated 7.7.2017 by not getting approval from the ld PCIT. The ld DR vehemently placed reliance on the provisions of section 292BB of the Act which would cure the defect pointed out in the instant case. We find that the jurisdictional defect cannot be cured by provisions of section 292BB of the Act. Reliance in this regard is placed on the decision of Hon‟ble Supreme Court in the case of CIT vs Laxman Das Khandelwal reported in 266 Taxman 171 (SC) wherein it was held as under:- “6. The question, however, remains whether Section 292BB which came into effect on and from 01.04.2008 has effected any change. Said Section 292BB is to the following effect:— \"292BB. Notice deemed to be valid in certain circumstances.—Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such ITA No. 623/Del/2024 CO No. 52/Del/2024 Raja Arora Page | 10 assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was – (a) Not served upon him; or (b) Not served upon him in time; or (c) Served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment.\" 7. A closer look at Section 292BB shows that if the assessee has participated in the proceedings it shall be deemed that any notice which is required to be served upon was duly served and the assessee would be precluded from taking any objections that the notice was (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner. According to Mr. Mahabir Singh, learned Senior Advocate, since the Respondent had participated in the proceedings, the provisions of Section 292BB would be a complete answer. On the other hand, Mr. Ankit Vijaywargia, learned Advocate, appearing for the Respondent submitted that the notice under Section 143(2) of the Act was never issued which was evident from the orders passed on record as well as the stand taken by the Appellant in the memo of appeal. It was further submitted that issuance of notice under Section 143(2) of the Act being prerequisite, in the absence of such notice, the entire proceedings would be invalid. 8. The law on the point as regards applicability of the requirement of notice under Section 143(2) of the Act is quite clear from the decision in Hotel Blue Moon's case (supra). The issue that however needs to be considered is the impact of Section 292BB of the Act. 9. According to Section 292BB of the Act, if the assessee had participated in the proceedings, by way of legal fiction, notice would be deemed to be valid even if there be infractions as detailed in said Section. The scope of the provision is to make service of notice having certain infirmities to be proper and valid if there was requisite participation on part of the assessee. It is, however, to be noted that the Section does not save complete absence of notice. For Section 292BB to apply, the notice must have emanated from the department. It is only the infirmities in the manner of service of notice that the Section seeks to cure. The Section is not intended to cure complete absence of notice itself. 10. Since the facts on record are clear that no notice under Section 143(2) of the Act was ever issued by the Department, the findings rendered. by the High Court and the ITA No. 623/Del/2024 CO No. 52/Del/2024 Raja Arora Page | 11 Tribunal and the conclusion arrived at were correct. We, therefore, see no reason to take a different view in the matter. 11. These Appeals are, therefore, dismissed. No costs.” 11. Hence reliance placed by the ld DR on section 292BB of the Act would not rescue the ld AO if there is a defect in assuming jurisdiction per se. Accordingly, we quash the entire assessment framed in the hands of the assessee for the Asst Year 2016-17. The grounds raised by the assessee in his cross objections are allowed. Since the entire assessment is quashed, the adjudication of grounds raised by the revenue on merits becomes academic in nature and they are left open. 12. In the result, the appeal of the revenue is dismissed as infructuous and cross objection of the assessee is allowed. Order pronounced in the open court on 24/10/2024. -Sd/- -Sd/- (VIMAL KUMAR) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:24/10/2024 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi ITA No. 623/Del/2024 CO No. 52/Del/2024 Raja Arora Page | 12 Date of dictation Date on which the typed draft is placed before the dictating member Date on which the typed draft is placed before the other member Date on which the approved draft comes to the Sr. PS/ PS Date on which the fair order is placed before the dictating member for pronouncement Date on which the fair order comes back to the Sr. PS/ PS Date on which the final order is uploaded on the website of ITAT date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the order "