Shri Harshadkumar Manilal Patel, Ahmedabad V. The Pr. CIT-5, Ahmedabad

ITA 365/AHD/2020

AI Insights

The case involves Shri Harshadkumar Manilal Patel, who appealed against the order of the PCIT-5, Ahmedabad, which set aside an assessment order and directed a fresh assessment under Section 263 of the Income Tax Act, 1961. The PCIT's action was based on the grounds that the original assessment order was erroneous and prejudicial to the interest of the revenue, particularly concerning a deduction claimed under Section 35(1)(ii) for a donation to the Arvindo Trust. The Tribunal examined whether the PCIT's order was justified and whether the conditions for invoking Section 263 were met. The Tribunal concluded that the PCIT's order was not in accordance with the principles of natural justice and that the deduction claimed was valid based on the circumstances at the time of the original assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129376 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 05-09-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 23-06-2020
• Other Referred Cases: Malabar Industries Co. Ltd. vs. CIT, PCIT vs. Thakkar Govindbhai Ganpatlal HUF, PCIT vs. Shreeji Prints, Rishi Kiran Logistics P. Ltd. vs. PCIT, Jay Rashmikant Patel vs. PCIT, Veer Plastics Pvt. Ltd. vs. PCIT, CIT vs. Nirma Chemicals Works (P.) Ltd., Gujarat Power Corporation vs. ACIT, Rayon Silk Mills vs. CIT, Hari Iron Trading Co. vs. CIT, CIT vs. Gabriel India Ltd., CIT vs. Vikas Polymers, CIT vs. Honda Siel Power Products, CIT vs. Sunbeam Auto Ltd., CIT vs. Anil Kumar Sharma, Malabar Industrial Co. Ltd. vs. CIT, Kwality Steel Suppliers vs. CIT, Mehsana Dist. Co-op. Milk Producers Union vs. CIT, CIT vs. D. P. Karia, CIT vs. Arvind Jewellers, Sir Dorabji Tata Trust vs. DCIT (E), Torrent Pharmaceuticals vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Retrospective amendment; Competent authority
• Section: 263; 113

Judgement Text

ITA No.365/Ahd/2020 A.Y: 2015-16 Page 1 of 6 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA No.365/Ahd/2020 Assessment Year: 2015-16 Shri Harshadkumar Manilal Patel 162, Patel Vas, Swaminarayan Mandir, Kocharb Gam, Paldi, Ahmedabad – 380 007. [PAN – AFXPP 6589 H] Vs. The Principal Commissioner of Income Tax-5, Ahmedabad. (Appellant) (Respondent) Assessee by Shri Tushar Hemani, Sr. Advocate Revenue by Shri Kamlesh Makwana, CIT (DR) Da te o f He a r in g 06.09.2023 Da te o f P ro n o u n ce m e n t 18.10.2023 O R D E R PER SUCHITRA KAMBLE, JUDICIAL MEMBER : This appeal is filed by the Assessee against order dated 28.04.2020 passed by the PCIT-5, Ahmedabad for the Assessment Year 2015-16. 2. The Assessee has raised the following grounds of appeal :- “1. The order u/s.263 of the Act has been passed beyond the period of limitation prescribed u/s.263(2) of the Act and is thus illegal and bad in law. 2. The ld. PCIT has grossly erred in law and on facts in assuming jurisdiction u/s.263 of the Act on the erroneous ground that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue. 3. Ld. PCIT grossly erred in not appreciating that in order to invoke Section 263, two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, ld. AO has passed the reasoned assessment order after analyzing all details and therefore there was no error in the impugned assessment order so as to justify action u/s. 263 of the Act. Under the circumstances, the very assumption of power u/s.263 ITA No.365/Ahd/2020 A.Y: 2015-16 Page 2 of 6 of the Act is unjustified and bad in law and therefore, order u/s.263 of the Act deserved to be quashed. 4. The subject order u/s.263 passed by ld. PCIT is illegal and bad in law in absence of any finding of ld. PCIT how the alleged error of AO has resulted in loss of revenue particularly when the clarifying CBDT Circular was dated 14.12.2018, i.e. after the end of the Assessment Year in question. 5. The ld. PCIT has further erred in law in not coming to any concrete conclusion and without conducting any inquiry or investigating the issue, merely directed the AO to frame the assessment order afresh. Without there being any positive finding about order being erroneous and prejudicial to the interest of the revenue, the action of ld. PCIT is without jurisdiction and illegal and hence deserves to be deleted. 6. Ld. PCIT has erred in not considering various facts and in not appreciating the facts and law in their proper perspective. 7. The appellant craves leave to add, amend, alter. edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.” 3. The assessee is an individual, engaged in business of renting of immovable properties and real estate management. The case was selected for limited scrutiny for the reasons that (i) Income from capital gain on sale of land or building (ii) Sale of property miss-match (iii) Sales turnover miss-match and (iv) Deduction for scientific research. The assessee had claimed to have donated an amount of Rs.25,00,000/- to Shri Arvindo Institute of Applied Scientific Research Trust, Mumbai and claimed deduction u/s.35(1)(ii) of the Income Tax Act, 1961 @ Rs. 18,75,000/- and the same was allowed by the Assessing Officer vide Assessment Order dated 03.08.2017. The Principal CIT observed that the returned income has been accepted by the Assessing Officer without examining the facts and making necessary enquiries, hence, the assessment order is erroneous in so far as it is prejudicial to the interest of the Revenue. Thus, the PCIT issued notice under Section 263 of the Act. The Assessee did not file any reply. The PCIT relying on the CBDT Circular dated 14.12.2018 wherein clarified that the said trust was approved under Section 35(1)(ii) of the Act which is expired on 31.03.2006 and thereafter this entity is not recognized for the purpose of Section 35(1)(ii) of the Act, set aside the assessment order and directed the Assessing Officer to pass a fresh assessment order vide order dated 28.04.2020 u/s 263 of the Act. ITA No.365/Ahd/2020 A.Y: 2015-16 Page 3 of 6 4. Being aggrieved by the order under Section 263 of the Act, the assessee filed appeal before us. 5. As regards to Ground Nos. 1 to 7, the Ld. AR submitted that assessee vide letter dated 22.06.2017 furnished various information including details pertaining to donation to Arvindo Trust and deduction claimed u/s. 35 of the Act in respect of such donation with supporting documentary evidences. The Assessment was completed and the return income was accepted by the Assessing Officer u/s.143(3) of the Act after due verification. The PCIT issued show cause notice dated 17.02.2020 u/s.263 whereby the assessee was called upon to show cause as to why Assessment order should not be revised n relation to the claim of deduction u/s.35(1)(ii) of the Act in respect of donation to Arvindo Trust. Before assessee could furnish reply to such notice, PCIT passed the order u/s.263 on 28.04.2020 i.e. during the period when national lockdown was imposed by the Central Government in the wake of Covid-19 pandemic. The Ld. AR further submitted that the two conditions required for invoking revisionary jurisdiction i.e. Assessment Order must be erroneous and prejudicial to the interest of revenue were not satisfied. The Ld. AR relied upon the decision of Hon’ble Apex Court in case of Malabar Industries Co. Ltd. vs. CIT 243 ITR 83 (SC). The Ld. AR submitted that the said Arvindo Trust was having valid approval granted by the competent authority as well as CBDT for the purposes of Section 35(1)(ii) of the Act at the time when donation in question was made by the assessee. It is well settled law that subsequent withdrawal of approval granted by CBDT cannot be a ground to disallow the claim of deduction. The Ld. AR relied upon the decision of Hon’ble Gujarat High Court in case of PCIT vs. Thakkar Govindbhai Ganpatlal HUF (Tax Appeal No. 881 of 2019). Even as per Explanation to proviso to clause (iii) of sub- section (1) of Section 35, deduction u/s.35(1)(ii) of the Act shall not be denied merely on the ground that subsequent to payment of such sum by assessee, approval granted to the concerned research association has been withdrawn. The Ld. AR further submitted that it is well settled that in absence of invoking Explanation 2 to Section 263 of the Act, provisions contained in clause (a) therein cannot be relied. The Ld. AR relied upon the following decisions: * PCIT vs. Shreeji Prints (2021) 130 taxmann.com 294(SC) * PCIT vs. Shreeji Prints (2021) 130 taxmann.com 293 (Guj) ITA No.365/Ahd/2020 A.Y: 2015-16 Page 4 of 6 * Rishi Kiran Logistics P. Ltd. vs. PCIT (ITA No. 136/RJT/2022) The Ld. AR further submitted that when the issue has been examined at the original assessment stage but the same does not get reflected in the final assessment order, then that, by itself, would not lead to a conclusion that order of AO calls for interference by CIT u/s.263 of the Act. The Ld. AR relied upon the following decisions: * Jay Rashmikant Patel vs. PCIT – ITA 427/Ahd/2020 * Veer Plastics Pvt. Ltd. vs. PCIT – ITA 456/Ahd/2020 * CIT vs. Nirma Chemicals Works (P.) Ltd. – 309 ITR 67 (Guj) * Gujarat Power Corporation vs. ACIT – 350 ITR 266 (Guj) * Rayon Silk Mills vs. CIT – 221 ITR 155 @ 158-159 (Guj) * Hari Iron Trading Co. vs. CIT 263 ITR 437 (P&H) * CIT vs. Gabriel India Ltd. 203 ITR 108 (Bom) * CIT vs. Vikas Polymers – 341 ITR 537 (Del) * CIT vs. Honda Siel Power Products – 333 ITR 547 The Ld. AR submitted that if two views are possible as regards a particular issue and Assessing Officer adopts either of two such views, then CIT cannot invoke jurisdiction u/s.263 of the Act. Mere fact that different view could have been taken does not justify proceedings u/s.263 of the Act. The Ld. AR relied upon the following decisions: * Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83(SC) * Kwality Steel Suppliers vs. CIT 395 ITR 1 (SC) * Mehsana Dist. Co-op. Milk Producers Union – 263 ITR 645 (Guj) * CIT vs. D. P. Karia 266 ITR 113 (Guj) * CIT vs. Arvind Jewellers 259 ITR 502 (Guj) * Sir Dorabji Tata Trust vs. DCIT (E) (2021) 188 ITD 38 (Mum) * Torrent Pharmaceuticals vs. DCIT (2021) 173 ITD 130 (Ahd) ITA No.365/Ahd/2020 A.Y: 2015-16 Page 5 of 6 The Ld. AR submitted that inadequacy of inquiry by the Assessing Officer also cannot be ground for proceedings under Section 263 of the Act. The Ld. AR relied upon the following decisions: * CIT vs. Sunbeam Auto Ltd. – 332 ITR 167 (Del) * CIT vs. Anil Kumar Sharma – 335 ITR 83 (Del) * CIT vs. Vikas Polymers – 341 ITR 537 (Del) The Ld. AR submits that even on merits, there is no error in the order passed by the Assessing Officer in the case of the assessee for the year under consideration. 6. The Ld. DR submitted that since the assessee did not respond to the show cause notice issued u/s.263 of the Act, the PCIT rightly passed the order. As regards to merits, the Ld. DR submitted that the Assessing Officer was supposed to verify the evidences regarding claim of deduction and its eligibility. But the Assessing Officer failed to do so and allowed the deduction without application of mind. The CBDT on 14.12.2018 clarified that the said trust was earlier approved under Section 35(1)(ii) of the Act which expired on 31.03.2006 and thereafter this entity was not recognized for the purpose of Section 35(1)(ii) of the Act and hence not eligible to raise donations. Thus, the PCIT rightly invoked Section 263 of the Act as the assessment order was prejudicial to the interest of revenue as well as erroneous. The Ld. DR relied upon the following decisions: * PCIT vs. Hill Queen Investment (P.)Ltd. (2023) 152 taxmann.com 335 (Cal HC) * CIT vs. Paville Projects (P.) Ltd. 453 ITR 447 (SC) 7. We have heard both the parties and perused the relevant material available on record. It is pertinent to note that the PCIT while passing the order under Section 263 of the Income Tax Act, 1961 has not followed the principles of natural justice, thereby allowing the assessee to submit its reply to Show Cause notice dated 17.02.2020. Besides this, the PCIT has not taken into account that CBDT letter no. F. No. 225/351/2018-ITA(ii) dated 14.12.2018 was passed after the Assessment Order dated 03.08.2017. During the Assessment Proceedings, the Assessing Officer has raised the query relating to the deduction u/s.35, 35(2AA), 35(2AB) etc. The Assessee before the Assessing Officer filed the documents such as the renewal u/s. 35(1)(II) of the Act ITA No.365/Ahd/2020 A.Y: 2015-16 Page 6 of 6 of the said trust dated 14.05.2012 issued by Government of India, Ministry of Finance, Department of Revenue, CBDT (F.No.CBDT/203/107/2000/12. There are other documents also related to the said Trust including statutory Forms. After verifying the same at that juncture, the Assessing Officer has allowed the deduction as per the Income Tax Act, 1961. The subsequent letter of the CBDT issued on 14.12.2018 was not known to the assessee or the Assessing Officer and the retrospective effect of the said letter cannot impose the assessee to deny the said deduction as it is beyond the control of the assessee. Thus, the second opinion expressed by the PCIT is beyond the scope of Section 263 of the Act. It cannot be stated in the present case that there is inadequate inquiry of insufficient inquiry on part of the Assessing Officer as well as that the Assessing Officer passed erroneous order which is prejudicial to the interest of Revenue. The Assessment Order passed was very much within the parameters of the records available at the time of assessment proceedings and therefore, Section 263 cannot be invoked in such cases. The decision of the Hon’ble Apex Court in case of Paville Projects (P.) Ltd. (supra) relied upon by the Ld. DR will not be applicable in the present case as the facts are different in the said case and in the case of the assessee herein. The order u/s.263 of the Act passed by the PCIT is quashed. The appeal of the assessee is allowed. 8. In result appeal of the assessee is allowed. Order pronounced in the open Court on this 18 th October, 2023. Sd/- Sd/- (WASEEM AHMED) (SUCHITRA KAMBLE) Accountant Member Judicial Member Ahmedabad, the 18 th day of October, 2023 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE CO Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad