KLG Orchards & Resorts Pvt. Ltd. , Kolkata V. ITO, Ward-4(4), Kolkata

ITA 296/KOL/2021

AI Insights

The case involves KLG Orchards & Resorts Pvt. Ltd., which appealed against the order of the PCIT, Kolkata, passed under Section 263 of the Income Tax Act, 1961. The PCIT had set aside the assessment order passed by the AO under Section 143(3), claiming it was erroneous and prejudicial to the interest of the revenue. The main contention was whether the PCIT could exercise jurisdiction under Section 263 based on a proposal from the AO. The Tribunal referenced decisions from the Calcutta High Court, which held that the PCIT must independently verify the assessment records before invoking Section 263.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127290 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-12-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 08-09-2021
• Other Referred Cases: PCIT vs. Reeta Lakhmani & Ors, PCIT vs. Kaushalya Dealers Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Question of law; Assessment record; Set aside
• Section: 263; 143(3); 142(1); 14A; 143(2)

Judgement Text

आयकर अपील य अ धकरण, कोलकाता पीठ ‘‘बी’’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA ी राजेश क ु मार, लेखा सद य एवं ी संजय शमा या यक सद य के सम [Before Shri Rajesh Kumar, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.A. No. 296/Kol/2021 Assessment Year: 2015-16 KLG Orchards & Resorts Pvt. Ltd. (Pan: AABCK 4949 C) Vs. ITO, Ward-4(4), Kolkata Appellant / (अपीलाथ ) Respondent / ( !यथ ) Date of Hearing / स ु नवाई क$ त&थ 14.12.2022 Date of Pronouncement/ आदेश उ)घोषणा क$ त&थ 04.01.2023 For the Appellant/ नधा /रती क$ ओर से Shri S. M. Surana, Advocate For the Respondent/ राज व क$ ओर से Shri Sudipta Guha, CITDR ORDER / आदेश Per Rajesh Kumar, AM: This is the appeal preferred by the assessee against the order of the Ld. Principal Commissioner of Income Tax-2, Kolkata (hereinafter referred to as the Ld. PCIT”] passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) dated 29.05.2020 for the AY 2015-16. 2. The only issue raised by the assessee in the various grounds of appeal is against the invalid exercise of jurisdiction by Ld. PCIT u/s 263 of the Act on the ground that the assessment framed is neither erroneous nor prejudicial to the interest of the revenue. 2 I.T.A. No. 296/Kol/2021 Assessment Year: 2015-16 KLG Orchards & Resorts Pvt. Ltd. 3. Facts in brief are that the assessment in this case was framed vide order dated 18.09.2017 passed u/s 143(3) of the Act accepting returned income of Rs. 2,57, 850/-. Thereafter , the Ld. PCIT upon perusal of the assessment order/ assessment record observed that the AO has failed to assess the income correctly and accordingly the assessment framed u/s 143(3) of the Act is erroneous and prejudicial to the interest of the revenue. The Ld. PCIT issued show cause notice u/s 263 of the Act as to why the order passed by the AO should not be revised or set aside which was responded by the assessee and the reply of the assessee has been reproduced in Para 5. The reason for exercising jurisdiction u/s 263 of the Act was that the AO has not properly verified the issue of Section 14A despite the assessee earning dividend to the tune of Rs. 9,61,361/- and also issue of incurring long term capital loss of Rs. 16,88,000/- on the sale of shares of M/s Sulabh Engineers & Services Ltd. which was stated to be penny stock. The Ld. PCIT finally set aside the order of AO and directed to frame the assessment afresh after doing necessary verification of the issues as discussed in para 3 and 6 of the order. 4. The Ld. A.R. vehemently argued before us that the jurisdiction exercised u/s 263 of the Act is bad in law as it was exercised on the proposal moved by the AO. The Ld. A.R. drew our attention to para 2 wherein the ld PCIT stated that proposal was for review of the impugned order u/s 263. On perusal of the proposal of the AO, it appears that the AO has failed to take a logical action on certain issues. The Ld. A.R submitted that the action u/s 263 cannot be taken by the Ld. PCIT on the proposal by the AO but is required to act on his own after perusal of assessment records/order that assessment framed is erroneous and prejudice to the interest of the revenue. The Ld. A.R. in defense of his arguments relied on the decision of Hon’ble Calcutta High Court in the case of PCIT vs. Reeta Lakhmani & Ors in ITAT/129/2022, IA No. GA/1/2022; GA/2/2022 dated 22.11.2022 wherein the Hon’ble Court has held that initiation of proceedings u/s 263 of the Act was based on a proposal given by the AO and not at the behest of the Ld. PCIT. The second plea of the assessee was that it is not the case of no enquiry but a case of inadequate enquiry and the Ld. A.R. in order 3 I.T.A. No. 296/Kol/2021 Assessment Year: 2015-16 KLG Orchards & Resorts Pvt. Ltd. to prove his averment referred to the notice issued u/s 142(1) of the Act dated 14.06.2017 wherein item no. 8 the assessee was required to provide the list of the share transactions during the year in the tabular format which were duly furnished and examined by the AO and only thereafter the assessment was framed. The Ld. A.R submitted that in case of inadequate enquiry the revisionary jurisdiction u/s 263 of the Act is not available to the ld PCIT and cannot be exercised. In defense of his arguments, the ld AR relied on the decision of Hon’ble Calcutta High Court in the case of PCIT vs. Kaushalya Dealers Pvt. Ltd. in ITAT/72/2022, IA No.GA/1/2022 dated 24.11.2022 wherein the Hon’ble High Court has upheld the order of Tribunal wherein the Tribunal has held that jurisdiction u/s 263 of the Act cannot be invoked in case of detailed enquiry has been done by the AO. 5. The Ld. D.R on the other hand relied heavily on the order of Ld. PCIT by submitting that the AO has not examined this issue. The Ld. D.R also submitted that there is no force in the contentions of the Ld. A.R. that the proceedings u/s 263 of the Act initiated at the behest of the AO. The ld DR contended that in the hierarchical system in the department , the Ld. PCIT gets information / proposal from the AO and and PCIT cannot dream of any error or fault in the assessment order. Therefore, the plea raised by the assessee may kindly be dismissed. On the second issue, the Ld. D.R. submitted that though the AO has called for the information by issuance of notice u/s 142(1) vide item no. 8 in respect of sale of shares. However AO was not examined the same and therefore the order passed by the AO is wrong insofar as prejudicial to the interest of the revenue. The Ld. D.R. prayed before the Bench that the appeal of the assessee may kindly be dismissed. 6. After hearing the rival submissions and perusing the material on record, we find that certainly the jurisdiction u/s 263 of the Act was invoked by PCIT after a proposal was received from AO. According to the ld PCIT , the Order passed u/s 143(3) of the Act is wrong as the AO has failed to examine certain issues and to that extent it is prejudicial to the interest of the revenue . We have perused the facts on record and also the decision of Hon’ble Calcutta High Court in the case of Reeta 4 I.T.A. No. 296/Kol/2021 Assessment Year: 2015-16 KLG Orchards & Resorts Pvt. Ltd. Lakhmani & Ors. (supra) wherein the Hon’ble High Court has held that the exercise of revisionary jurisdiction cannot be at the proposal given by the AO but at the behest of the Ld. PCIT. The relevant part is reproduced as under: “This aspect was considered by the learned Tribunal and after going through the facts of the case it was found that the initiation of the proceedings under Section 263 of the Act was based on a proposal given by the assessing officer and not at the behest of the PCIT. It may be true that the PCIT may have information from the assessment file or through other sources. Nevertheless while exercising powers under Section 263 of the Act the PCIT has to bear in mind the twin conditions are to be conjointly fulfilled.. Therefore, before exercise of power under Section 263 it is the PCIT who has to apply its mind to the issue and thereafter record reasons as to how the twin conditions are satisfied and then issue a show-cause notice to the assessee. In the cases on hand there is nothing on record to show that such an exercise was done by the PCIT. Therefore, learned Tribunal after noting several decisions on the subject rendered by the Coordinate Benches of the Tribunal had allowed the assessee’s appeal and set aside the order passed by the PCIT under Section 263 of the Act. Thereafter, the learned Tribunal has proceeded to examine the merits of the matter and granted relief. It is the submission of Mr. Mitra that so far as the merit of the cases are concerned similar issue was tested by this Court in the case of Principal Commissioner of Income Tax Vs. Swati Bajaj reported in 2022 SCC online page 1572. Though such may be the issue, as pointed out earlier the learned Tribunal had granted relief to the assessee on two grounds the first of which being that the exercise of power under Section 263 of the Actwas not in accordance with law. As could be seen from the substantial questions of law suggested by the revenue, the revenue has not raised any question on the said finding of the Tribunal which goes to show that the revenue had reconciled with the reasoning given by the learned Tribunal in that record. Therefore, a piecemeal challenge to the order passed by the learned Tribunal on one of the grounds on which relief was granted to the assessee is not maintainable. In more or less identical circumstances in the case of Principal Commissioner of Income Tax, Durgapur Vs. M/s. Sinforte Pvt. Ltd. in ITAT No.104/2019 dated 7.1.2022 the court had dismissed the appeal filed by the revenue on the ground that the PCIT in order to exercise jurisdiction under section 263 of the Act exercised jurisdiction at the instance of the assessing officer which is against the provisions of the law. This decision supports the case of the respondent assessee. Hence, for the above reasons, we are of the view that the order passed by the learned tribunal on the first ground, namely with regard to the correctness of the exercise of power under section 263 of the Act has to be affirmed and, accordingly, the appeal filed by the revenue is dismissed and the substantial questions of law suggested by the revenue are not required to be decided in the instant case. For the reasons set out by us above and, accordingly, the same are left open.” Considering the facts of the case in the light of the decision passed by the jurisdictional High Court, we are inclined to quash the order passed by the Ld. PCIT u/s 263 of the Act. We have also examined the notice issued u/s 142(1) and the reply of the assessee wherein the details furnished with regard to dividend earned and share transactions done during the year and is only after taken into account of this reply, the 5 I.T.A. No. 296/Kol/2021 Assessment Year: 2015-16 KLG Orchards & Resorts Pvt. Ltd. assessment was framed. Therefore it is not the case of no enquiry but the AO has conducted enquiry by issuing notice u/s 142(1) and calling for the details on sale of share. Accordingly we hold that the exercise u/s 263 of the Act is invalid as it is not the case of no enquiry but a detailed or inadequate enquiry was carried out of the AO. The case of the assessee finds support from the decision of Hon’ble Calcutta High Court in the case of PCIT vs. Kaushalya Dealers Pvt. Ltd. (supra). The operative part is reproduced as under: “We have heard Ms. Smita Das De, learned standing counsel appearing for the appellant/revenue and Mr. S.M. Surana, learned senior counsel assisted by Mr. Bhaskar Sengupta, learned advocate for the respondent/assessee. The short issue which, falls for consideration is whether the assumption of jurisdiction by the Principal Commissioner of Income Tax under Section 263 of the Act was justified. The learned Tribunal has pointed out that on four grounds the PCIT exercised power under Section 263 of the Act of which three issues have become academic and the only surviving issue was in respect of loss of penny stock. On going through the order passed by the PCIT under Section 263 of the Act dated 23rd March, 2020, we find that the allegation is that the Assessing Officer has not done proper verification. To examine the correctness of the same, we have perused the paper book filed, by the respondent/assessee from which we find the Assessing Officer at the first instance issued notice under Section 143(2) dated 17lh March, 2016. In the said notice the assessee was directed to furnish documents and details on 10 issues of which one is pertaining to-sale of shares during the financial year 201.4-15. Thereafter, notice under Section 142(1.) dated 9th March, 2017 was issued. In. response to this notice, the assessee had submitted a reply dated 26th April, 201.7 along with the details and. documents in support of the transaction in shares and such other details which were called for by the Assessing Officer. Thereafter, another notice under Section. 142(1) dated 2nd August, 2017 was issued calling for further information and particulars. This was furnished by the assessee by reply dated 10th August, 201.7. Thereafter, the assessee had submitted an explanation on14th August, 2017 in respect of allowability of the loss and also explained various queries raised by the Assessing Officer on the said issue. The copy of the explanation has been filed in the paper book and. we find it is an elaborate explanation not only on facts but also setting out various decisions of the High Courts and that of the Tribunal contending that the loss as reported by the assessee was permissible. After such elaborate discussion of the case with the assessee, the Assessing Officer has completed the assessment. Thus, the learned Tribunal rightly held that it is not a case of ‘no enquiry’ or no proper verification but a detailed enquiry had been done by the Assessing Officer. The learned Tribunal has noted the factual position as put forth by the assessee before it in paragraph 6 of the order. Thus, we are of the view that the twin conditions which are required to be fulfilled before exercising jurisdiction under Section 263 of the Act have not been fulfilled in the facts and circumstances of the case on hand. Thus, we are of the view that no interference is called for with the order passed by the learned Tribunal. 6 I.T.A. No. 296/Kol/2021 Assessment Year: 2015-16 KLG Orchards & Resorts Pvt. Ltd. In the result, the appeal filed by the revenue is dismissed and the substantial question of law is answered against the revenue. Consequently, the application for stay being IA No.GA/1/2022 stands closed.” In view of the facts and circumstances as discussed above and decisions as extracted above , we quash the order passed u/s 263 of the Act by the Ld. PCIT and the appeal is allowed. 7. In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 4 th January, 2023 Sd/- Sd/- (Sonjoy Sarma /संजय शमा ) (Rajesh Kumar/राजेश क ु मार) Judicial Member/ या यक सद य Accountant Member/लेखा सद य Dated: 4 th January, 2023 SB, Sr. PS Copy of the order forwarded to: 1. Appellant- M/s KLG Orchards & Resorts Pvt. Ltd., C/o Rajesh Mohan & Associates, Unit No. 18, 5 th Floor, Bagati House, 34, Ganesh Chandra Avenue, Kolkata-700013. 2. Respondent – ITO, Ward-4(4), Kolkata 3. Ld. CIT(A) - Kolkata 4. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata