GM International , Delhi V. AO Ward-36(1), Delhi

ITA 786/DEL/2022

AI Insights

The case involves G.M. International, a company engaged in the business of fresh fruits, which filed an appeal against the order of the PCIT, Delhi - 12. The PCIT had set aside the original assessment order, claiming it was erroneous and prejudicial to the interests of the Revenue. The original assessment had made several additions to the assessee's income, including unexplained money and unsecured loans. The Tribunal found that the PCIT had overstepped its jurisdiction by assuming powers under section 263 while the matter was already sub judice before the CIT(A). The Tribunal emphasized that the PCIT could not revisit issues that were part of an ongoing appeal, thus setting aside the PCIT's order and restoring the original assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 300875 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-08-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 08-08-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 25-04-2022
• Other Referred Cases: Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, Gabriel India Ltd vs. Commissioner of Income Tax, CIT vs. Nirma Chemical Works Ltd, CIT vs. Sunbeam Auto
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gift; Revision of order; Revenue expenditure
• Section: 263; 144; 143(3); 142(1); 43

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI ‘B’ BENCH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI YOGESH KUMAR U.S, JUDICIAL MEMBER ITA No. 786/DEL/2022 [A.Y 2017-18] G.M. International Vs. The Pr. C.I.T B – 212, New Fruit Market Delhi - 12 Azadpur, Delhi PAN : AANFG 8963 B (Applicant) (Respondent) Appellant by : Shri Salil Aggarwal, Sr. Adv Shri Mahir Aggarwal, Adv Shri Shailesh Gupta, CA Department By : Shri T. James Singson CIT- DR Date of Hearing : 09.08.2023 Date of Pronouncement : 16.08.2023 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- This appeal by the assessee is preferred against the order of the Pr. CIT, Delhi - 12 dated 26.03.2022 framed u/s 263 of the Income-tax Act, 1961 [the Act, for short] pertaining to Assessment Year 2017-18. 2 2. The sum and substance of the grievance of the assessee is that PCIT erred in holding that the assessment order dated 31.12.2019 is not only erroneous but also prejudicial to the interest of the Revenue. 3. Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules. Judicial decisions relied upon by both the sides carefully perused. 4. Briefly stated, the facts of the case are that the assessee is engaged in the business of fresh fruits. Return of Income was electronically filed on 04.11.2017 declaring loss of Rs. 2,34,249/-. Return was selected for scrutiny assessment and accordingly, statutory notices were issued and served upon the assessee. 3 5. Returned loss was assessed at an income of Rs. 2,39,30,596/-, after making addition on account of unexplained money u/s 68 of the Act Rs. 54,91,025/-, addition of Rs. 1,74,35,000/- on account of unsecured loan and disallowance of interest expenses amounting to Rs. 12,38,800/-. 6. Assessee preferred an appeal before the ld. CIT(A). 7. In the meantime, pending adjudication of the appeal by the ld. CIT(A), the PCIT assumed jurisdiction u/s 263 of the Act and issued a show cause notice to the assessee which reads as under: 4 5 6 7 8. The assessee filed strong reply in response to the show cause notice and detailed reply is placed at pages 4 to 10 of the Paper Book. 9. Reply of the assessee did not find any favour with the PCIT who proceeded by partly setting aside the assessment order dated 31.12.2019 with the direction that the assessment be made after conducting appropriate enquiry and verification. 8 10. After giving thoughtful consideration to the order of the PCIT, we are of the considered view that the quarrel relating to the source of cash deposit during the demonization period is partly subjudiced before the ld. CIT(A) as the additions were made by the Assessing Officer while framing the assessment order u/s 143(3) of the Act. 11. In our understanding of the law, power u/s 263 of the Act is not exercisable under certain circumstances. In this regard, we refer to section 263(1) Explanation 1(c) which reads as follows: “(c) Where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal, filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this Sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal." 12. As can be seen from the above, there is some limitation cast upon the powers of the PCIT u/s 263 of the Act as the PCIT cannot assume jurisdiction on the issues which are also subject matter of any appeal before the ld. CIT(A). 9 13. The issues raised by the PCIT are part of the same chain of transaction relating to the availability of cash during the demonetization period and subsequent to that. Since the appeal is pending before the ld. CIT(A), in our humble opinion, the ld. PCIT has wrongly assumed jurisdiction u/s 263 of the Act, which action is not only an act usurping the power of the ld. CIT(A) but also blatant misuse of power conferred upon by provisions of section 263 of the Act. 14. On the given facts, order of the PCIT deserves to be quashed. Even on merits of the case, a close scrutiny of the evidences brought on record show that during the assessment proceedings, the first notice was issued by the Assessing Officer u/s 142(1) of the Act on 13.09.2019, raising following queries: “1. brief note on business/activities carried out by you during the per iod under consideration. 2. Detail of all bank accounts maintained by you along with bank statement for the relevant pe riod from 01.04.2016 to 31.03.2017. 10 3. Copy of Income Tax Return for A.V. 2017-18 alongwith statement of computation of Income for A .y. 2017-18. Please, also furnish the certified copy of Audited Balance Sheet, P& L account of A.y. 2017-18 alongwith all schedule, annexure, Auditors report and notes to accounts . 4. Please furnish the detail all firms/company in which you are partner/proprietor/Director. 5. Please furn ish the complete details of all business premises i.e. Officer, Factory, Shops, Godown etc possessed by you. The above information is required u/s 142(1) of the Income Tax Act, 1961. Please note that in case of non-compliance, I shall be constrained to impose penalty u/s 272A(1 )(d) of the I. T. Act, 1961 and assessment will be completed on the basis of material available on record u/s 144 of I . T. Act, 1961” 15. The assessee filed a detailed reply which reads as under: 11 12 13 16. Detailed questionnaire was again served upon the assessee vide notice dated 19.11.2019, which is placed at pages 40 to 42 of the Paper Book wherein specific queries were raised asking the assessee to explain the nature and source of large cash deposits in the bank accounts during the year with details regarding source of cash deposited during the denomination period to furnish copy of cash account with narration of entries with details of persons from whom cash has been received. 17. Point-wise reply was filed by the assessee vide reply dated 26.11.2019 which is placed at pages 3 & 44 of the Paper Book. 18. Again, vide letter dated 04.12.2019, assessee gave month-wise sales and purchases for verification of cash deposit in the format given in the questionnaire. 19. Details of month-wise cash sales and cash deposit from 01.04.2016 to 31.03.2017 in the format given by the assessee was submitted. In this reply the assessee once again explained that the modus operandi of cash deposits are sales proceeds of the fruits sold in auction in the morning 14 and also from business premises and thereafter realization from the hawkers in respect of sales. 20. The assessee has also given chart of cash deposit, the bifurcating old currency and new currency in the bank from 09.11.2016 to 30.12.2016 alongwith copy of cash book for the whole year. This reply is placed at pages 43 and 44 of the Paper Book. Details of cash deposit is as under: 15 16 21. Details of cash received from various parties is spread from pages 208 to 213 of the Paper Book. 22. After analyzing the detailed submissions alongwith evidences, some doubt remained in the mind of the Assessing Officer. Therefore, on 26.12.2019, the Assessing Officer issued final show cause notice which is as under: 17 18 23. Once again, the assessee not only reconciled the difference, but also furnished reply to the queries raised by the Assessing Officer the same reads as under: 19 20 21 22 23 24. After giving thoughtful consideration to the queries of the Assessing Officer, replies of the assessee alongwith documentary evidences, we have no hesitation to hold that specific queries were raised by the Assessing Officer to which specific replies were filed by the assessee and wherever the Assessing Officer was not satisfied, he made the additions. Therefore, by no stretch of imagination, it can be said that the Assessing Officer has framed the assessment order: a) without application of mind b) without making proper enquiry c) without making proper verification. 25. Devoid of aforementioned pre-conditions, the assessment order cannot be said to be erroneous and prejudicial to the interest of the Revenue. 26. In the light of the aforestated facts the Hon'ble Supreme Court in Malabar Industrial Co. Ltd., 243 ITR 83, has laid down the following ratio: 24 "A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue-- recourse cannot be had to section 263(1) of the Act. 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 7 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 ". 27. The Hon'ble Bombay High Court in the case of Gabriel India Ltd 203 ITR 108 has held as under: “The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub- section, viz., (i) the order is erroneous; (ii) by virtue of the order being 25 erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. According to the definition, "erroneous" means "involving error; deviating from the law". "Erroneous assessment" refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, "erroneous judgment" means "one rendered according to course and 8 practice of court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles". 12. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was 26 on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income- tax Officer. That would not vest the Commissioner with power to re- examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi- judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not 9 feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax 27 Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the 10 record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Incometax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and 28 that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income- 11 tax Officer to re- examine the matter. That, in our opinion, is not permissible. Hence the provisions of section 263 of the Act were not applicable to the instant case and, therefore, the commissioner was not justified in setting aside the assessment order.” 28. It is a settled position of law that powers u/s 263 of the Act can be exercised by the Commissioner on satisfaction of twin conditions, i.e., the assessment order should be erroneous and prejudicial to the interest of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power cannot be exercised unless the Commissioner is able to establish that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Thus, where there are two possible views and the Assessing Officer has taken one of the possible views, no action to exercise powers of revision can arise, nor can revisional power be exercised for directing a fuller enquiry to find out if the view taken is erroneous. This power of revision can be exercised only where no enquiry, as required under the law, is done. It is not open to enquire in case of inadequate inquiry. Our view is fortified by the 12 decision of 29 Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71 Taxmann.com 272 (Bombay)". 29. The Hon'ble High Court of Gujarat in the case of CIT vs. Nirma Chemical Works Ltd. 309 ITR 67 has observed as under: “if assessment order were to incorporate the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment proceedings for both the Assessment Years, the Assessing . A.Y. 2009-10 Officer issued a query memo to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the creditworthiness/capacity of the donors, the source from where these funds have come and also the creditworthiness/ capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue cannot be accepted.” 30 30. We find that the Hon'ble Delhi High Court in the case of CIT Vs Sunbeam Auto reported in 332 ITR 167 has held as held as under: “12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission 14 that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open”. 31 31. Considering the facts of the case in totality from all possible angles, we failed to persuade ourselves to accept the contention of the ld. DR who had strongly supported the findings of the PCIT. We are of the considered view that the order framed u/s 263 of the Act deserves to be set aside and that of the Assessing Officer deserves to be restored. We order accordingly. 32. In the result, the appeal of the assessee in ITA No. 786/DEL/2018 is allowed. The order is pronounced in the open court on 16.08.2023. Sd/- Sd/- [YOGESH KUMAR U.S] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 16 th August, 2023. VL/ 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi 32 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