PRAMOD AGRAWAL , NAGPUR V. PRINCIPAL COMMISSIONER OF INCOME TAX-2, NAGPUR

ITA 43/NAG/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5799 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 16-05-2021
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJEEV BENJWAL
• Assessee Lawyers: KAILASH JOGANI
• Keywords: Revision of order; Audit objection; Period of limitation; Time period of passing order; Condonation of delay; Borrowed satisfaction
• Section: 147; 148; 263; 10; 142(1); 264; 48; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SH. VIKRAM SINGH YADAV, ACCOUNTANT MEMBER AND SH. YOGESH KUMAR U.S., JUDICIAL MEMBER ITA No.43/NAG/2021 (ASSESSMENT YEAR 2011-12) Sh. Pramod Agrawal (HUF) 301, Sai Ankur Apartments Ramdaspeth Nagpur-440 010 PAN:AAIHP 2699N (APPELLANT) Vs. Pr. CIT-2, Nagpur-440 001 (RESPONDENT) ORDER PER YOGESH KUMAR U.S., JM This appeal is filed by the assessee against the order of Learned Principal Commissioner of Income Tax-2, Nagpur, [“Ld. PCIT”, for short], dated 22/02/2021 for Assessment Year 2011-12. 2. The assessee has filed an application for condonation of delay in filing the present appeal. The assessee pleaded that the delay is due to covid situations and considering that the limitation period has been extended by the Hon’ble Supreme Court in Suo-Moto Writ Petition No.03/2020, vide order dated 27.04.2021, prayed for condonation of delay in filing the Appeal. The Ld. Appellant by Sh. Kailash Jogani, CA Respondent by Sh. Rajeev Benjwal, CIT-DR Date of Hearing 07.06.2022 Date of Pronouncement 19.07.2022 2 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT Departmental Representative (“Ld. DR for short”) submitted that, he has no objection to condone the delay. Accordingly, for the reasons stated in the application, the delay of 24 days in filing the present appeal is condoned. 3. The brief facts of the case are that, the case of the assessee was selected for scrutiny and reopened u/s 147 of Income Tax Act, 1961 (‘Act’ for short) on the reason that, the assessee has claimed LTCG exemption under section 10 in ITR in respect of Capital Gain trading in a Penny Stock Company. Accordingly, a notice u/s 148 of the Act dated 28.03.2018 has been issued. In response, the assessee filed ITR on 12/06/2018 for A.Y.2011-12. Further, notice u/s 143(2). and 142(1) of the Act have also been issued. The assessee through his representative participated in the assessment proceedings. Single page assessment order has been passed by accepting return of income filed by the assessee vide order dated 24/12/2018. Further, an order u/s 263 of I.T. Act has came to be passed by the Pr. Commissioner of Income Tax-2, Nagpur (“Pr. CIT” for short) vide order dated 27/02/2021, wherein the Ld. Pr. CIT has set aside the matter to Assessing Officer with the direction to re-assess the income of the assessee afresh after examining the relevant details and further directed to conduct necessary enquiry. 4. Aggrieved by the order of the Ld. Pr. CIT-2, the assessee has preferred the present appeal on following grounds: 3 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT “1. The order passed on 22.02.2021 u/s 263 of the Income Tax Act, 1961 by the Hon’ble Pr. CIT-2, Nagpur is illegal, invalid and bad in law. 2. The Hon’ble Pr. CIT-2, Nagpur erred in invoking the provisions of section 263 of the Income Tax Act, 1961 on the basis of objection raised in by Audit team and basis for revision in observing that the AO has completed the assessment without proper verification and hence the order of the AO is erroneous and prejudicial to the interest of revenue and thereby setting aside the order passed by the Assessing Officer and directing him to make necessary inquiries and pass an appropriate order. 3. The Pr. CIT has erred, in ignoring the submission/documentary evidence submitted by the assessee during the assessment and revisionary proceedings, and recording factually incorrect finding while holding that the order of the AO is erroneous & prejudicial to the interest of revenue. 4. A. The above grounds of appeal are without prejudice and notwithstanding each other. B. Any consequential relief, to which the Appellant may be entitled under the law in pursuance of the aforesaid grounds of appeal, or otherwise, may be thus granted. C. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal and the factual and legal arguments against the setting aside of assessment order passed by the Hon’ble Pr. CIT-2, Nagpur at the time or before the course of appellate proceedings in interest of natural justice.” 5. Ground No.1 and its sub grounds are general in nature which requires no adjudication. Grounds No. 2 & 3 6. The Ld. Counsel for the assessee vehemently contended that, the Ld. Pr. CIT has not applied his mind, initiated proceedings u/s 263 of the Act based on the request of Assessing Officer. Further submitted that, on the basis of 4 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT objection raised by Audit team, the Ld. Pr. CIT has invoked Section 263 of the Act, which is nothing but borrowed satisfaction. Further submitted that, the order of the AO is not erroneous and prejudicial to the interest of the Revenue, the Ld. A.O has verified all the documentary evidence which have been ignored by Pr. CIT and recorded factually incorrect findings. The Ld. Counsel for the assessee has relied on the following decisions: (i) Hon’ble Income Tax Appellate Tribunal “A” Bench Mumbai in the case of Ashok Kumar Shivpuri vs. CIT-22, Mumbai (ITA No.631/Mum/2014) (2) Hon’ble Income Tax Appellant Tribunal “C” Bench, Kolkata in the case of Rupayan Udyog vs. Commissioner of Income-tax, Kol-XVII, Kolkata (ITA No.1073/Kol/2012). 3. Hon’ble Bombay High Court in the case of CIT vs. Maharashtra Hybrid Seeds Co. Ltd. [ITA No. 47 of 2002/102 taxmann.com 48 (Bom). 7. Per contra, the Ld. DR submitted that, the order of the Ld. AO is non- speaking one. There were several notices which have been issued to the Assessee requesting to explain the details of shares, mode of purchase with the supporting documents. The Assessee even after receipt of several show cause notices, not appeared or produced the documents. Finally, after receipt of final show cause notice dated 24/12/2018, appeared and produced the documents only with an intention to burden the AO by filing all voluminous documents at the fag end of time limit for passing the assessment order. The Pr. CIT has applied his mind in invoking Section 263 of the Act and also right in remanding the matter to the file of AO for fresh adjudication. Merely a proposal from the AO and the audit objection made by the audit team will not vitiate the decision of the Pr. CIT and on such grounds, the order passed u/s 263 of the Act cannot be nullified. 5 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT 8. We have heard the parties and verified the material on record and gave our thoughtful consideration. 9. The Ld. Pr. CIT though in Para 3 of the order mentioned regarding “proposal from the A.O”, before issuing show cause notice, Ld. Pr. CIT has examined the issue, records have been perused, thereafter invoked Section 263 and proceeded to issue show cause notice, which can be corroborated from Paragraph 4 of the order impugned which is reproduced hereunder:- “ Show cause to the assessee u/s 263 of the I.T Act, 1961. After receipt of above proposal, for action u/s 263, the issue was once again examined the records were perused and thereafter show cause u/s 263 of the Income Tax Act, 1961 was issued vide this office letter dated 21/01/2021. 10. Mere forwarding proposal by the A.O or existences of audit objection which very much form part of the record cannot nullify the issuance of show cause notice or passing of the order u/s 263 of the Act. In the present case, there is nothing to show that the Ld. Pr. CIT has not applied the mind and only based on the audit objection and the opinion of the A.O initiated the proceedings u/s 263 of the Act thereby borrowed the satisfaction. On the contrary it is evident that, the Ld. Pr. CIT has has examined the issue, records have been perused, thereafter after due application of mind has invoked Section 263 of the Act and proceeded to issue show cause notice. 6 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT 11. Further, it is found that, the Ld. AO has sent five show cause notices to the assessee on 02/07/2018, 04/09/2018, 15/10/2018/ 19/11/2018 & 28/11/2018. The assessee has not replied to any of the show cause notices, wherein Assessing Officer specifically directed to produce the details regarding the share transaction etc. The assessee has replied to last show cause notice dated 28.11.2018, wherein the Ld. AO had only one month time left to complete the assessment order. The assessee has not given any explanation for such delayed reply. In our opinion, the assessee who had deliberately kept quite till the 5 th show cause notice issued and therefore filed the reply, which is only with the intention to put pressure on the A.O by giving lesser time to apply his mind and to do proper enquiry and investigation which ultimately resulted on passing single page cryptic assessment order. When the matter was reopened for the specific purpose of examination the claim of exemption of long term capital gains in respect of Penny Stock basis information received from the Investigation wing, it would be expected from the Assessing officer to not just call for the information and documentation from the assessee but to independently verify the same and corroborate with other material and documentation available on record and carry out further enquiries, if any which has clearly not been undertaken in the instant case. It is therefore a clear case of no enquiry and not just lack of enquiry or inadequate enquiry on part of the Assessing officer as he has merely taken on record the 7 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT information/documentation submitted by the assessee in face of adverse material/information on record and without carrying out further corroboration/enquiry and the order so passed is clearly erroneous and prejudicial to the interest of the Revenue. 12. As per Explanation 2 to Section 263 of the Act, an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue if in the opinion of the Principal Commissioner or Commissioner. The said provision was subject to judicial scrutiny by the Supreme Court and also by various High Courts: 6.9 The Hon’ble Apex Court, in The Malabar Industrial Co. Ltd. Vs. CIT 1243 ITR 83) had on the scope of proceedings u/s263 observed as under: “There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase prejudicial to the interests of the revenue is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax.” 8 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT 6.9 Further reference may be made to the decision of Hon’ble ITAT Bench in the case of Apollo Tyres Ltd vs. Assistant Commissioner of Income Tax, as reported in the 65 ITD 263 (Delhi), where it has been held as under: “On appeal, the assessee contended (i) that under section 263, the Commissioner could only act suo motu for assuming jurisdiction under section 263 and hence, the action initiated at the instance of the Assessing Officer was null and void ab initio; ( ii) that the action taken by the Commissioner in relation to the incomes which had escaped assessment and which could be lawfully brought to tax under section 147 did not come within the ambit of section 263 as there was no order of the Assessing Officer in regard to such incomes; (Hi) that the firm findings of me Commissioner relating to under-assessment by Rs. 2.10 crores arc assessment of income of Rs. 19.05 crores on account of divider a or :s of UTI purchased by the assessee but not registered in its name on more hand and setting aside the entire assessment with directions to make fresh assessment after proper investigation on the other; was erroneous: , ms: while cancelling the entire assessment the Commissioner had erred in law, in pointing out certain mistakes of the Assessing Officer: and (v) the: the Commissioner had gone beyond his jurisdiction under section 263 r directing the Assessing Officer to examine action under sections 2760 and 271. On the other hand, it was contended on behalf of the Department: the Commissioner was entitled to initiate proceedings either suo motu or on the basis of information given bv the Departmental authorities or bv audit that there was no bar in the exercise of powers under section 263 in relation to income escaping assessment or having been under- 9 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT assessed arc ms: the Commissioner was justified in giving firm finding about the under- assessment of items of income in question. HELD A plain reading of section 263 clearly indicates that the Commissioner may call for and examine the records of any proceedings under the Act. For this purpose, he is not required to show as to what reasons prompted him to call for and examine the record. The provisions also do not prescribe any limitation that the Commissioner should suo-moto call for and examine the record and he cannot take into consideration or rely upon any report or information which may be supplied to him by the other officers of the department or on the basis of any information which he may obtain from any other source. The authority of the Commissioner to call for and examine the record on the basis of any information from any source or suo moto is purely an administrative matter. If after calling for and examining the records, the Commissioner considers that the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, then subsequent proceeding acquires quasi-judicial character. On comparison of sections 263 and 264 it would be seen that in section 264 the Commissioner may, either of his own motion or on an application by the assessee, call for the records of any proceeding under the Act. However, in section 263 the expression ‘on his own motion’ is absent. In the absence of such an expression and also in view of the fact that there is no restriction or limitation on the power of the Commissioner to call for and examine the record of any proceeding pursuant to the report given by the Assessing other Departmental Officer, the Commissioner for arc examine the record of the assessee in the instan: case for the 10 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT relevant year pursuant to a letter of the Assessing Officer containing a proposal under section 263. Therefore : there was no merit in the contention of the assessee in this regard. As regards the question as to whether the Commissioner can exercise revisionary jurisdiction in relation to income which escaped assessment various courts have held that simultaneous initiation of proceedings under section 263 as well as proceedings under section 147 are legally possible. The words ‘prejudicial to the interests of the revenue’ used in section 263 are of wide import and they will certainly cover within its ambit the cases where income liable to tax had been under-assessed or escaped assessment on account of the failure on the part of the Assessing Officer to conduct necessary and proper investigation. Since no limitations and restrictions have been provided for in section 263, the Commissioner is clearly entitled to invoke jurisdiction under this section in cases where he considers that the order by the Assessing Officer is erroneous and prejudicial to the interests of the revenue regardless of the fact that action could also be taken by the Assessing Officer under section 147. It is a well-settled law that where the Assessing Officer fails to make proper inquiries and investigation, such failure on the part of the Assessing Officer will result in prejudice to interests of the revenue and initiation of action under section 263 by the Commissioner under such circumstances will be perfectly valid and justified. The question whether an order of the ITO is prejudicial to the interests of the revenue and whether there was a failure on the part of the ITO to make proper and necessary enquiries would depend upon the facts of each case. ............ 11 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT However, the Commissioner should have simply set-aside the order of the Assessing Officer in relation to the aforesaid two points and ought to have directed the Assessing Officer to decide the aforesaid two points after conducting necessary investigation and inquiries .and after providing reasonable opportunity to the assessee instead of giving a firm finding that total income had been under-assessed by a sum of Rs. 2.10 crores in respect of loss on purchase and sale of said units and also in regard to under-assessment of income by a sum of Rs. 19.5 crores on account of dividend on such units. The firm findings given by the Commissioner for inclusion of the said income of Rs. 2.10 crores and Rs. 19.5 crores were, therefore, cancelled and the order of the Commissioner in relation to those two items was modified to the extent that the Commissioner had rightly held that the order of the Assessing Officer was erroneous and prejudicial to the interests of the revenue as the same was passed without making proper and necessary inquiries in relation to the aforesaid two points and consequently, the order of the Commissioner directing the Assessing Officer to make fresh assessment after proper investigation and after giving due opportunity to the assessee in relation to the aforesaid two items, was upheld.’’ 6.10 Rajmandir Estates Private Limited V. Principal Commissioner of Income Tax’ - 2016 (51 TMI 801 - CALCUTTA HIGH COURT- T he High Court held that lack of enquiry, where enquiry is necessary, can be treated as prejudicial to the interest of the Revenue so as to justify revisional jurisdiction. It was for non inquiry, the validity of action under Section 263 was held justified in a case of non verification of share capital contribution when there was evidence to suggest that the transaction could not be genuine. 12 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT 6.11 The Hon’ble Karnataka High Court in the case of CIT Sri. Biluru Gurubasava Pattina held that This Court had an occasion to consider Section 2.63 of the Act in the case of- COMMISSIONER OF INCOME-TAX AND ANOTHER V. DIGITAL GLOBAL SOFT LTD. [2013] 354 ITR 489 (Karri) where paragraph-18, it has held as under: "As is clear from the wording in section 263, the Commissioner gets the jurisdiction to revise any proceedings under this Act if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. Therefore, it is clear that he cannot exercise the power of revision solely on the ground that the order passed is erroneous. He gets jurisdiction only if such erroneous order is prejudicial to the interest of the Revenue. "Prejudicial to the Revenue" means, lawful revenue due to the State has not been realized or cannot be realized. In other words, by the order of the assessing authority if the lawful revenue to the Stale has not been realized or cannot be realized, as the said order is prejudicial to the interests of the Revenue and also erroneous, he gets jurisdiction to interfere with the said order under section 263. Therefore, for attracting section 263. the condition precedent is (a) the order of the Assessing Officer sought to be revised is erroneous, and (b) it is prejudicial to the interests of the Revenue. If one of them is absent, i.e., if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue, recourse cannot be had to section 263(1) of the Act. The satisfaction of both the conditions stipulated in the section is the sine qua non for the Commissioner to exercise his jurisdiction under Section 263 ." 13 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT 6.13 Hon’ble Rajasthan High Courtin the case of CIT Vs.Bhawal Synthetics (India) has held that. “So far as the second question is concerned as to whether the Commissioner of income Tax was justified in invoking powers under section 263 of the Act of 1961 by holding that the inquiry conducted by the assessing officer before the assessment order was neither proper nor adequate, we would like to state that the order passed by the assessing officer nowhere reflects about any inquiry said to be made. It simply refers the explanation given by the assessee and nothing beyond that” 6.14. The Hon’ble ITAT Ahmedabad Bench in the case of M/s. Sonalank Investment & Trading Pvt. Ltd. Vs. CIT(A) (ITA No. 1343/AM/2011) and relied on following observations: “An assessment order can be erroneous either in law or in fact. An assessment order can be an erroneous one when prima facie a claim is allowed which according to the learned CIT was against the provisions of law. An assessment order can be held as prejudicial to the interest of the revenue if in the opinion of the learned CIT the inquiry was not adequate or no inquiry at all has been made. We may like to mention that the assessing officer is not only an adjudicator but also an investigator. The assessing officer cannot remain a passive spectator while dealing with a return of income filed by the tax payer. If on the face of the return it is apparent that an inquiry is required: then it is expected from the assessing officer to conduct an investigation so as to ascertain correctness of the return filed as also the income declared therein. It is his duty to ascertain the truth of the facts stated in the return. Where the circumstances indicate to 14 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT provoke an inquiry, then the same should not be withhold. In a landmark decision in the case of G.V. Enterprises, 99 ITR 375, the Hon’ble Delhi High Court has held that “inadequacy of inquiry is a good reason for invoking the proceedings under section 263 of the Act.” In any case, we are not confining our decision entirely on the issue of “lack of inquiry” or “inadequate inquiry”. From the side of the assessee the learned authorized representative, Mr. Tushar P. lilmani has argued that this is not the case of lack of inquiry by assessing officer and that if the assessing officer had made inadequate inquiry then that should not be a ground to applying the provisions of section 263 of the IT Act. Nevertheless, we are on the issue that no inquiry at -all has been made by the assessing officer in respect of the determination of the nature of the transaction. The law is very clear that the assessing officer has quasi-judicial powers vested on him. By exercising those powers it is necessitated to pass a reasoned order. If the reasoning is lacking in an assessment order, then also the learned CIT can invoke the revisionary powers. There must be some prima facie materials on record to show that the tax which was offered by the assessee was lawfully excisable on the assessee and, therefore, it was accepted by the assessing officer without any change or alteration." “A plain reading of section 263 clearly indicates that the Commissioner may call for and examine the records of any proceedings under the Act. For this purpose, he is not required to show as to what reasons prompted him to call for and examine the record. The provisions also do not prescribe any limitation that the Commissioner should suo-moto call for and examine the record and he cannot take into consideration or rely upon any report or information which may be supplied to him by the other officers of the department or on the basis of any information which he may obtain from any other source. The authority of the Commissioner to call for and examine the record on the basis of any information from any 15 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT source or suomoto is purely an administrative matter. If after calling for and examining the records, the Commissioner considers that the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, then subsequent proceeding acquires quasi-judicial character. On comparison of sections 263 and 264 it would be seen that in section 264 the Commissioner may, either of his own motion or on an application by the assessee, call for the records of any proceeding under the Act. However, in section 263 the expression ‘on his own motion’ is absent. In the absence of such an expression and also in view of the fact that there is no restriction or limitation on the power of the Commissioner to call for and examine the record of any proceeding pursuant to the report given by the Assessing Officer or by other Departmental Officer, the Commissioner could validly call for and examine the record of the assessee in the instant case for the relevant year pursuant to a letter of the Assessing Officer containing a proposal under section 263. Therefore, there was no merit in the contention of the assessee in this regard. As regards the question as to whether the Commissioner can exercise revisionary jurisdiction in relation to income which escaped assessment, various courts have held that simultaneous initiation of proceedings under section 263 as well as proceedings under section 147 are legally possible. The words ‘prejudicial to the interests of the revenue’ used in section 263 are of wide import and they will certainly cover within its ambit the cases where income liable to tax had been under-assessed or escaped assessment on account of the failure on the part of the Assessing Officer to conduct necessary and proper investigation. Since no limitations and restrictions have been provided for in section 263, the Commissioner is clearly entitled to invoke jurisdiction under this section in cases where he considers that the order by the Assessing Officer is erroneous and prejudicial to the interests of the revenue regardless of the fact that action could also be taken by the Assessing Officer under section 147.” 13. It is well settled law that if the Assessing Officer failed to make proper enquiry and investigation and if such failure results in prejudicial to the 16 ITA No.43/Nag/2021 Pramod Agrawal (Huf) vs. PCIT interest of the Revenue, initiation of action u/s 263 of the Act by the Commissioner under such circumstances is perfectly justified. The Ld. Pr. CIT has considered all the facts and remanded the matter to the file of the AO, therefore, in our considered opinion; the order of the Pr. CIT requires no interference. Accordingly, the grounds of appeal 2 & 3 are dismissed. 14. In result, the appeal filed by the assessee is dismissed . Order pronounced in the Open Court on this 19 th Day of July, 2022. Sd/- Sd/- (VIKRAM SINGH YADAV) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 19/07/2022 PK/Sps/R.N Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT 6. Guard File True Copy By Order Assistant Registrar, Income Tax Appellate Tribunal, Nagpur Bench, Nagpur