AI Insights
The case involves M/s. Thalia Akshar Developers, a partnership firm engaged in real estate activities, which appealed against the revision order of the PCIT under section 263 of the Income Tax Act for the assessment year 2017-18. The PCIT had revised the assessment order initially passed by the AO, claiming it was erroneous and prejudicial to the interests of the Revenue because the AO had not adequately verified the genuineness and creditworthiness of unsecured loans and the purpose of advancing interest-free loans. The Tribunal examined whether the PCIT had validly assumed revision jurisdiction under section 263, focusing on the independence of the PCIT's decision-making process and the adequacy of the AO's initial inquiries.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 302397 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
10 month(s) 15 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
23-02-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
E
Next Hearing Date
06-02-2023
Assessment Year
2017-2018
Appeal Filed On
07-04-2022
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL, ‘E‘ BENCH MUMBAI BEFORE: SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI M.BALAGANESH, ACCOUNTANT MEMBER ITA No.634/Mum/2022 (Asse ssment Year :2017-18) M/s. Thalia Akshar Developers 225, Plot No.78/79 Sector – 17, Vashi Navi Mumbai – 400 705 Vs. Pr. Commissioner of Income Tax Mumbai – 27 Room No.401, 3 rd Floor 6 th Tower, VSRCCL Vashi, Navi Mumbai Maharashtra – 400 703 PAN/GIR No.AAJFT0172D (Appellant) .. (Respondent) Assessee by Ms. Ritika Agarwal Revenue by Shri Biswanath Das Date of Hearing 07/02/2023 Date of Pronouncement 24/02/2023 आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.634/Mum/2022 for A.Y.2017-18 preferred by the order against the revision order of the ld. Principal Commissioner of Income Tax-27, Mumbai u/s.263 of the Act dated 21/03/2022 for the A.Y.2017-18. 2. Though the assessee has raised several grounds before us, the only effective issue to be decided in this appeal is as to whether the ld. PCIT ITA No. 634/Mum/2022 M/s. Thalia Akshar Developers 2 had validly assumed revision jurisdiction u/s.263 of the Act on law as well as on merits of the case. 3. We find that assessee is a partnership firm involved in purchasing, developing and selling of immovable properties, construction and building, selling on ownership basis or giving on lease or rental or leave and license or any other basis the flats, shop, row houses, garages, apartments, bungalows, tenements, industrial plots etc and / or such other business or businesses related thereto. The return of income for the A.Y.2017-18 was electronically filed by the assessee firm on 02/11/2017 declaring total income of Rs. Nil. The assessment was completed u/s.143(3) of the Act on 10/12/2019 accepting the returned income of Rs. Nil by the ld. AO. Later, this assessment was sought to be revised by the ld. PCIT by invoking his revision jurisdiction u/s.263 of the Act on the ground that the order passed by the ld. AO is erroneous in as much as it is prejudicial to the interest of the Revenue on the ground that unsecured loan of Rs.9,23,80,823/- received by the assessee during the year had not been verified by the ld. AO for its genuineness and creditworthiness of the lenders. Further, the assessee had advanced loans to the tune of Rs.64.98 Crores without offering any interest income and since the purpose of making interest free loans was not examined by the ld. AO, the order passed by him was treated as erroneous and prejudicial to the interest of the Revenue. 3.1. The assessee vide submissions dated 14/03/2022 before the ld. PCIT stated that in response to notice u/s.142(1) of the Act issued by the ld. AO, the assessee vide letter dated 21/11/2019 submitted before the ld. AO the loan details, loans taken by it together with loans given by it together with related annexures which are enclosed as Exhibit D & E. The ld. AO also called for certain information u/s.133(6)of the Act on test ITA No. 634/Mum/2022 M/s. Thalia Akshar Developers 3 check basis from the details furnished by the assessee. The assessee also furnished the confirmation from lenders for certain parties before the ld. AO together with their PAN details and bank statements. The assessee placed on record the balance sheet of the assessee for the year under consideration and for immediately preceding year. The assessee also placed on record the ledger account of all the parties before the ld. AO. Further the summons u/s.131 of the Act was issued directly to the loan creditors on sample basis by the ld.AO during the course of assessment proceedings. The assessee submitted that the said parties had apparently complied with the said summons by furnishing the requisite details which must be part of the assessment records. The ld. DR before us was fair enough to produce the assessment records at the time of hearing. On perusal of the same, we find that the parties to whom summons had been issued had indeed furnished the requisite details directly before the ld. AO by accepting to the fact of giving loans to the assessee firm out of their sufficient creditworthiness through regular banking channels. The confirmations from the lenders together with their income tax assessment particulars and ITR acknowledgement were also placed on record. All these documents are forming part of the assessment folders. To buttress this argument, the ld. DR before us stated that though the assessee furnished the details of name and address of all the parties for loans taken and loans given by it, the PAN was not available for all the parties. Further, the assessee had filed confirmation only for few parties before the ld. AO. Subsequent to the letter dated 21/11/2019 filed by the assessee before the ld. AO, the ld. AO vide his letter dated 25/11/2019 had sought further information from the assessee which was never complied with by the assessee. Despite this fact, the ld. AO completed the assessment accepting the return of income of the assessee. Accordingly, the ld. DR pleaded that though some enquiry was carried out by the ld. AO in the assessment proceedings, it did not tantamount to complete ITA No. 634/Mum/2022 M/s. Thalia Akshar Developers 4 enquiry. Hence, the ld. DR argued that the ld. PCIT was justified in assuming revision jurisdiction u/s.263 of the Act. 3.2. Further, the ld. DR placed on record a small paper book. In the said paper book, there was a communication of the ld. AO vide letter dated 22/03/2022 addressed to the ld. PCIT stating that proper enquiries were not carried out by the ld. AO in respect of unsecured loans taken by the assessee and loans given by the assessee. In the said letter, the ld. AO had also requested the ld. PCIT to treat the assessment order passed u/s.143(3) of the Act dated 10/12/2019 as erroneous and prejudicial to the interest of the Revenue and invoke his revision jurisdiction u/s.263 of the Act. The ld. PCIT based on this letter dated 23/02/2022 had initiated revision proceedings u/s.263 of the Act in the instant case. 3.3. This goes to prove that the ld. PCIT had initiated revision proceedings u/s.263 of the Act based on borrowed satisfaction from the ld. AO and not on his independent application of mind after due examination of the records. We find that the provisions of section 263(1) of the Act clearly says –“The Commissioner may call for and examine the records of any proceedings under this Act, and if he considers ... ", which means that proposal for initiation of revision proceedings must be initiated by the ld. PCIT, because, it is the ld. PCIT who has to call for and examine the records. In the instant case, the ld. PCIT did not initiate the proceedings himself but initiated the proceedings on the proposal received from the ld. AO. It is not the case where ld. PCIT called for the record and after examining the same, initiated the proceedings u/s 263 of the Act. This clearly proves that there is no application of mind on the part of the ld. PCIT while invoking jurisdiction u/s 263 of the Act. Hence the revision proceedings u/s 263 of the Act are to be held invalid in view of the following decisions :- ITA No. 634/Mum/2022 M/s. Thalia Akshar Developers 5 (i) Decision of Mumbai Tribunal in the case of Ashok kumar Shivpuri v. CIT in ITA No.631/Mum/2014 dated 07.11.2014 It has been observed by us that the assessment was framed subject to valuation by the DVO. This, by itself is a deficiency in the order under section 143(3). We further find that the proposal was received by the CIT from the AO, which clearly means that there has been no independent application of mind by the CIT, because section 263(1) clearly says, "The Commissioner may call for and examine the records of any proceedings under this Act, and if he considers ... ", which means that proposal for initiation of revision proceedings must be initiated by the CIT, because, it is the CIT who has to call for and examine the records. But in the instant case the proposal came from the AO and on receipt of the proposal, the CIT initiated revision proceedings. Therefore, in our opinion, the proceeding gets flagged at the threshold. - We, therefore, hold that the proceedings were bad in law and thus subsequent proceedings are annulled. (ii)Decision of Kolkata Tribunal in the case of Rupayan Udyog Vs. CIT in ITA No. 1073/Kol/2012 dated 28.11.2018 The power vested in the CIT is that of revisional jurisdiction to interfere with the order of AO, if it is erroneous in so far as prejudicial to the revenue and therefore, the power to exercise the revisional jurisdiction is vested only with Pr. CIT/Commissioner if he considers the order of the AO to be erroneous in so far as prejudicial to the interest of the revenue. The power cannot be usurped by the AO to trigger the revisional jurisdiction vested with the CIT as per the scheme of the Act which gives various powers to various authorities to exercise and they have to exercise powers in their respective given sphere which is clearly ear- marked and spelled out by the statute. Here, we note that the AO who is empowered by the Act to assess a subject within a prescribed time period has first assessed the assessee and later after passing of time has taken up a proposal with the CIT to exercise his revisional jurisdiction cannot be countenanced for the simple reason that when in the first place the AO noticing that he failed to properly enquire before assessing the assessee within the time limit prescribed by the statute cannot be allowed to get fresh innings to reassess because it was his duty to enquire properly within the time limit prescribed by the statute. (iii) Decision of Ahmedabad Tribunal in the case of Shanti Exim Ltd Vs CIT reported in 88 taxmann.com 361 The Commissioner set aside assessment order in exercise of his power under section 263 on the ground that the Assessing Officer did not make any independent verification to establish the genuineness of the purchase transaction of the assessee-company with eight parties. ITA No. 634/Mum/2022 M/s. Thalia Akshar Developers 6 Held that the action under section 263 initiated on the basis of recommendation by the concerned Assessing Officer/Joint Commissioner. The said Assessing Officer has categorically held that the order of his predecessor is erroneous and prejudicial to the interest of the revenue. Thereafter the case record was called for by the Commissioner. If the recommendation would not have received from the successor the Assessing Officer, then the Commissioner would even not have initiated the proceedings under section 263. Therefore, it could not be termed that the Commissioner himself has called for the records. In this case, the record has been called for only after the recommendation received from the successor Assessing Officer. In similar situation, the ITAT, Mumbai "A" Bench in the case of Ashok kumar Shivpuri v. CIT dated 07-11-2014, in ITA No.631 (M) of 2014, held that the revision proceedings simply on the basis of proposal from the Assessing Officer is not valid, because section 263(1) says that proposal for initiation of revision proceedings must be initiated by the Commissioner. It is the Commissioner who has to call for and examine the records; but in the instant case the proposal came from the Assessing Officer and on receipt of the proposal, the Commissioner initiated revision proceedings, which is not justified. (iv)Decision of Mumbai Tribunal in the case of Adishwar K. Jain Vs. CIT in ITA No. 3389/Mum/2014 dated 12.03.2018 We may refer to a plea set-up by the assessee based on the decision of our co- ordinate Bench in the case of Ashok Kumar Shivpuri, ITA No. 631/Mum/2014 dated 07.11.2014. In this case, the Tribunal found that the Commissioner invoked Sec. 263 of the Act based on a proposal received from the Assessing Officer. The Tribunal found it inconsistent with the requirement of Sec. 263(1) of the Act and held that the initiation of proceedings u/s 263 of the Act was bad-in-law. The aforesaid proposition also supports the infirmity in the action of the Commissioner in as much as para 2 of the impugned order brings out that the initiation of proceedings u/s 263(1) of the Act is based on the proposal of the Assessing Officer dated 03.01.2013. ITA No. 634/Mum/2022 M/s. Thalia Akshar Developers 7 (v) Decision of Mumbai Tribunal in the case of VinayPratap Thacker in ITA No. 2939/Mum/2011 dated 27.02.2013 As per Section 263(1), the CIT must himself come to a conclusion, after applying his own mind, because, the words used in the section are"..... and if he considers ....",here, application of his own mind becomes important. It is important to examine the similarity of the expression used under section 147(1) and 263(1). Under section 147(1), the expression used is "has reason to believe" and under section 263(1), the expression used is "if he considers". Though the expressions used are not verbatim parimateria, but the meaning which is to be drawn in both the expressions are parimateria, i.e., an independent, unpolluted and un-adopted application of mind by the officer, invoking the provision. We have seen from the impugned order of the CIT, dated 11.02.2011, the CIT admits, "A proposal was received on 10.06.2010 from the AO under section 263 of the Income Tax Act, 1961, pointing out some discrepancies/short comings in the assessment order". This clearly shows that in so far as the CIT was concerned, he did not apply his own mind........ We are of the considered opinion that the CIT could not have invoked the jurisdiction under section 263 without his own independent application of mind. (vi) Decision of Pune Tribunal in the case of Span Overseas Ltd. Vs. CIT, Pune in ITA No. 1223/PN/2013 dated 21.12.2015 The Commissioner of Income Tax has invoked the provisions of section 263 without applying his own independent judgment and merely at the behest of proposal forwarded by the Dy. Commissioner of Income Tax is against the spirit of Act. Thus, the impugned order is liable to be set aside. (vii) Decision of Hon’ble Jurisdictional High Court in the case of CIT Mumbai vs Maharashtra Hybrid Seeds Co. Ltd in Income Tax Appeal No. 47 of 2002 dated 4.9.2018 9. As rightly held by the Tribunal, this note firstly shows that all the explanations and arguments of the Assessee have been considered by the Assessing Officer and secondly that the action taken under Section 263 is only on the basis of the audit party's note or report, who it would appear, ultimately did not approve of the Assessing Officer's view regarding the allowability of the deduction. Admittedly, the CIT has not referred to any audit objection but in the light Aswale 7/8 itxa.47.02.doc of the note, the Tribunal held that it would be a fair ITA No. 634/Mum/2022 M/s. Thalia Akshar Developers 8 inference that his action under Section 263 was consequent upon the audit objection. Be that as it may, this office note clearly shows that the Assessing Officer had taken all explanations and arguments of the Assessee into consideration before allowing deduction. This being the case, the CIT could not have merely substituted his own views for that of the Assessing Officer by invoking Section 263 of the I. T. Act. 3.4. In view of the above and respectfully following the judicial precedents relied upon hereinabove, we hold that the revision jurisdiction invoked by the ld. PCIT u/s.263 of the Act was merely based on borrowed satisfaction which is not permissible in law. The revision order deserves to be quashed on this aspect alone. 3.5. Further, it is not in dispute that the ld. AO had indeed made certain enquiries in the instant case. This is quite evident from the fact that summons u/s.131 of the Act had been issued to certain loan parties and those parties had directly responded before the ld. AO by furnishing the requisite details. This fact is not disputed by the revenue before us. This at best can only result in ‘inadequate enquiry’ and not ‘lack of enquiry’. The law is very well settled that revision proceedings u/s.263 of the Act cannot be initiated for ‘inadequate enquiry’ and the same could be done only for ‘lack of enquiry’. Reliance is placed on the decision of the Hon’ble Delhi High Court in the case of ITO vs. DG Housing Projects Ltd reported in 343 ITR 329 (Del) and the decision of Hon’ble Jurisdictional High Court in the case of Nirav Modi reported in 390 ITR 292 (Bom). 3.6. Further, the ld. DR before us vehemently argued that provisions of Explanation 2 to Section 263 of the Act would come to the rescue of the Revenue and therefore, the ld. PCIT was justified in invoking his revision jurisdiction u/s.263 of the Act. We find that the entire show-cause notice issued by the ld. PCIT is reproduced in pages 2 & 3 of his order passed u/s.263 of the Act. In the entire show-cause notice, there is not even a ITA No. 634/Mum/2022 M/s. Thalia Akshar Developers 9 whisper of invoking provisions of Explanation-2 to Section 263 of the Act. Once, the same is not reflected in the show-cause notice issued by the ld. PCIT, the same i.e. invocation of provisions of Explanation-2 to Section 263 of the Act cannot be directly applied in the revision order passed by the ld. PCIT u/s.263 of the Act. Reliance in this regard is placed on the decision of the Hon’ble Gujarat High Court in the case of PCIT vs. Shreeji Prints Pvt. Ltd reported in 130 taxmann.com 293 wherein it was held as under:- “5 The Tribunal has found that in the order passed by the PCIT, Explanation 2 of section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law. 6 Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue.” 3.6.1. It is pertinent to note that the Special Leave Petition (SLP) preferred by the revenue against this decision before the Hon’ble Supreme Court was dismissed which is reported in 130 taxmann.com 294 (SC). Hence, the revision order passed by the ld. PCIT u/s.263 of the Act deserves to be quashed on this count also. 3.7. In view of the aforesaid observations and respectfully following the various judicial precedents relied upon hereinabove, we quash the revision order passed u/s.263 of the Act on the ground that the ld. PCIT has invalidly assumed revision jurisdiction u/s.263 of the Act. Since the relief is granted to the assessee on legal issue itself, there is no need to ITA No. 634/Mum/2022 M/s. Thalia Akshar Developers 10 adjudicate the issue on merits. Accordingly, the grounds raised by the assessee on the legal issue are allowed. 4. In the result, appeal of the assessee is allowed. Order pronounced on 24/02/2023 by way of proper mentioning in the notice board. Sd/- (VIKAS AWASTHY) Sd/- (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 24/02/2023 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy//
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