PAWAN BANSAL,HISAR V. PCIT, HISAR

ITA 5162/DEL/2019

AI Insights

The case involves an appeal by the legal heir of Late Shri Pawan Bansal against the orders of the Principal Commissioner of Income-tax (PCIT), Hisar, concerning the assessment year 2009-10. The original assessment was reopened under section 147 of the Income Tax Act, 1961, based on alleged unexplained cash deposits in a bank account. The PCIT later issued a revisionary order under section 263, which was contested by the assessee. The Tribunal examined the legality of both the reopening of the assessment and the revisionary proceedings, ultimately finding them to be without jurisdiction and not in accordance with the law.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 112074 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Other Referred Cases: Majinder Singh Kang vs. CIT, Mehak Finvest (P) Ltd vs. CIT, Vijaya Vinod Duragkar vs. ITA No. 339/Nag/2023, United Electrical Co. (P) Ltd. vs. CIT, CIT vs. Indian Oil Corporation, Ashok Kumar Sen vs. ITO, M/s Westlife Development Ltd vs. Pr. CIT, Raghuvir Singh vs. PCIT, CIT vs. Maharashtra Hybrid Seeds Co. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: GAUTAM JAIN
• Keywords: Set aside; Business expenditure; Reopening of assessment; Audit objection; Assessment record; Reason to believe; Revision of order; Tangible material
• Section: 147; 148; 143(3); 143(1); 263; 48; 139(1); 13

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’: NEW DELHI BEFORE SHRIS.RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI VIMAL KUMAR, JUDICIAL MEMBER ITA No.5162/DEL/2019 (Assessment Year: 2009-10) Late Shri Pawan Bansal, vs. PCIT, (through L/H Mrs. Meena Bansal), Hisar. 2030/4, Mohalla Rampura, Hisar – 125 001 (Haryana). (PAN : ADGPB3493H) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Gautam Jain, Advocate Shri Ankit Kumar, Advocate Shri Parth Singhal, Advocate REVENUE BY : Ms. Suman Malik, CIT DR Date of Hearing : 06.02.2025 Date of Order : 16.04.2025 O R D E R PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. This appeal is filed by the assessee against the order of ld. Pr. Commissioner of Income-tax, Hisar (hereinafter referred to ‘ld. PCIT’) dated 30.03.2019 for Assessment Year 2009-10. 2. Brief facts of the case are, the return of income was filed on 30.09.2009 declaring a loss of Rs.1,13,02,549/- u/s 139(1) of the Income Tax Act, 1961 (for short ‘the Act’) by the assessee for the AY 2009-10. The return 2 ITA No.5162/DEL/2019 of income was processed u/s 143(1) of the Act. Subsequently, a notice was issued on 26.03.2016 u/s 148 of the Act. Pursuant to the aforesaid, the order of assessment was framed u/s 147/143(3) of the Act on 26.10.2016 at returned income. The ld. PCIT post the aforesaid order issued notice on 31.10.2018 u/s 263(1) of the Act primarily on the basis that there was over assessment of loss by allowing a deduction of Rs.58,90,372/- u/s 36(1)(iii) of the Act since there was a debit balance of capital in the transport business of Rs.5,14,12,855/- on account of withdrawals of Rs. 4,90,86,440/- and despite thereof, assessee had claimed deduction of Rs.72,11,728/- on loans. 3. The assessee in reply contended that no disallowance was called for u/s 36(1)(iii) of the Act. It was submitted that assessee had non-interest bearing funds of Rs.5,10,09,587.77/- in the shape of unsecured loans amounting to Rs.49,00,000/- and Rs.4,61,09,587.77/- as withdrawals from his other proprietorship/partnership business which are almost sufficient to cover negative balance of capital of the assessee amounting to Rs.5,14,12,855.58. Apart from the above, it was contended that even otherwise, since AO did not make any addition on the issue which was the basis for opening/reopening of the case u/s 147, the assessment becomes null and void, hence, revisionary proceedings on other issues may not be initiated. It was also contended that proceedings u/s 263 of the 3 ITA No.5162/DEL/2019 Act is based on audit objection raised by the audit party which is not in accordance with law. It was submitted that mere audit objection and merely because a different view could be taken, were not enough to say that the order of AO was erroneous or prejudicial to the interest of Revenue. 4. The ld. PCIT having regard to the submission of the assessee has in the impugned order proposed a disallowance of Rs.32,91,575/- which was claimed in the computation of income and not Rs.58,90,372/- out of Rs.72,11,728/- claimed in the profit and loss account by observing as under: \"…..From the computation of income of the assessee, it is observed that the assessee has paid interest of Rs. 32,91,577/- to his two partnership concerns as under. National Transport Co. 17,08,476/- National Bulk Carriers 15,83,101/- Total 32,91,577/- The above payment of Rs.32,91,577/- was also claimed as deduction from his total taxable income. The AR submitted that the interest payments were made by the assessee to banks on behalf of the two firms on account of loan taken by them from banks. Since the assessee is a partner in the above two firms, therefore, the above interest payments are only capital contribution of the assessee in the two partnership firms and cannot be claimed as deductions from the taxable income of the assessee. Further, as against the interest payment of Rs.17,08,476/- to National Transport Co. the withdrawal of the assessee from National Transport Co. during the EY. 2008-09 is Rs.1,38,48,855/-. Therefore, the contention that negative balance and withdrawals in the capital account are out of interest free funds from 4 ITA No.5162/DEL/2019 proprietorship /partnership business is also without any merit from the particulars given above, it is clear that fund of atleast Rs.1,38,48,855/- received from National Transport Co. is not interest free as interest of Rs.17,08,476/- is paid to National Transport Co. and. therefore, the corresponding interest of Rs.17,08,476/- is also not eligible for deduction w/s 36(1)(iii). Further, as discussed, the interest payment of Rs. 32,91,577/- to his two partnership firms (including the payment of Rs.17,08,476/-) are also not eligible as deduction from his total taxable income being capital payment in nature. Consequently, omission has resulted in over assessment of loss amounting to Rs.32,91,577/-. The AO failed to consider the above aspects while completing the assessment.\" 5. He further held that there is no bar in initiation of proceedings u/s 263 on the basis of observations by audit party. Further as far as submission of ld. AR that if the AO did not make any addition on issue which was the basis for opening/reopening of the case u/s 147, the assessment becomes null and void was rejected by relying upon on the judgment of Jurisdictional High Court in the case of Majinder Singh Kang reported in 344 ITR 358 and CIT v. Mehak Finvest (P) Ltd reported in 367 ITR 769. 6. Aggrieved, the assessee is in appeal before us raising following grounds of appeal :- “1 That notice u/s 148 of the Act was illegal and without jurisdiction therefore both the order of assessment dated 26.l0.2016 u/s 147/143(3) of the Act and also the impugned order are consequently void-ab-initio. 1.1 That since the notice u/s 148 of the Act had been issued mechanically without application of mind much less independent application of mind and without having any tangible, relevant credible material to form a reason to believe that income of the 5 ITA No.5162/DEL/2019 appellant has escaped assessment therefore the order of assessment u/s 147/143(3) of the Act was without jurisdiction and as such the impugned order is also without jurisdiction. 2. That order dated 30.3.2019 u/s 263 of the Act by learned Principal Commissioner of Income Tax, Hisar has been made without satisfying the statutory preconditions contained in the Act and is therefore without jurisdiction and thus, deserves to be quashed as such. 3. That learned Principal Commissioner of Income Tax has erred both in law and on facts in assuming jurisdiction u/s 263 of the Act as on erroneous basis that the \"proceedings u/s 147 have been initiated for the reasons that source of cash deposit of Rs.53,85,000/- in bank account maintained with HDFC Bank Ltd. remains unexplained. However, neither any details and source of deposit in HDFC Bank Ltd. have been submitted by the assessee, nor the same have been inquired into and verified by the AO during the course of assessment proceedings\". Infact, having later found that such an assumption was factually incorrect the learned Pr. CIT ought to have dropped the proceedings as such either. 4 That the learned Pr.CIT has failed to appreciate that once the edifice on the basis of which action u/s 147 of the Act has been initiated and, the same has not resulted into an addition in an order U/S 1471143(3) of the Act, then order made u/s 263 of the Act is perse illegal since no addition could be validly made in an order u/s 147/143(3) of the Act. 4.l That judgment relied upon by the learned Pr. CIT an wholly and, entirely inapplicable and, in any case once they were not part of show cause notice no reliance could be placed upon in the impugned order and that too without granting any opportunity. 5. That the learned Pr. CIT has failed to appreciate that audit objection could not be made a valid basis to invoke section 263 of the Act. 6. That the learned Pr. CIT has also erred both in law and, on facts in issuing notice on the subjective, conjectural, presumption premise that interest claimed and, incurred as business expenditure 6 ITA No.5162/DEL/2019 is not allowable sum there is a debit balance in the capital account of partners. 7. That the finding that \"the assessment order dated 26.10.2016 passed by the AO u/s 143(3)/147 of the Income Tax Act for the AY 2009-10 is hereby set-aside u/s 263(1) of the LT. Act' 1961 and restored to the AO for making fresh assessment with direction to add back the interest payment made to his two partnership firms of Rs. 32,91,577/-\" is misconceived, misplaced and untenable. 7.1 That impugned order is based on premeditated and preconceived supposition assumption and perception and not on objective appreciation of facts and evidence gathered during the course of revision and hence the illegal action be held to be vitiated and coloured by an arbitrary approach which finds no sanction in law. 7.2 That the learned Principal Commissioner of Income Tax has failed to appreciate that' once the learned Assessing Officer on examination of the facts on record and after making all possible and, relevant enquiries had accepted claim of the appellant then such an order of assessment could not be regarded as erroneous in as much as prejudicial to the interest of revenue merely because the learned Commissioner of Income Tax had a different opinion in respect of an altogether difference issue and that too, without having established in any manner that, view adopted by the learned Assessing Officer was an impossible view. Prayer : It is therefore prayed that, impugned order made under section 263 of the Act dated 30.3.2019 be held to be without jurisdiction and, therefore be quashed and appeal of the appellant be allowed.” 7. At the time of hearing, Id. AR for the assessee submitted that as per the record that the assumption of jurisdiction u/s 147 of the Act was not in accordance with law and therefore, as a consequence, the impugned order is not in accordance with law. The assessee submitted that the initiation 7 ITA No.5162/DEL/2019 of proceedings u/s 147 of the Act was based on the assumption that there was cash deposit in the bank account, source of which was not explained which is not legally permissible. The Ld AR placed reliance on the decision of Nagpur Bench in the case of Vijaya Vinod Duragkar in ITA No. 339/Nag/2023 dated 18.11.2024 for Assessment year 2015-16. The ld. AR further submitted that even otherwise proceedings u/s 263 of the Act is based on audit objection which too is not in accordance with law. Moreover, it was submitted that once the order dated 26.10.2016 u/s 147/143(3) of the Act is invalid then consequential proceedings u/s 263 is also invalid. On merits, it was submitted that the proposed disallowance of Rs.32,91,577/- was made without any opportunity and therefore was not in accordance with law as has been held by the judgment of Apex Court in the case of CIT v. Amitabh Bachchan reported in 384 ITR 200. 8. On the other hand, the ld. DR of the Revenue contended that action u/s 263 of the Act was in accordance with law and relied upon the findings of ld. PCIT. The ld. DR however objected to the contention of invalidity of proceedings u/s 147 of the Act on the ground that such a plea cannot be raised in an appeal arising from an order u/s 263 of the Act. 9. The ld. AR of the assessee in rejoinder contended that action u/s 147 of the Act can be challenged in collateral proceeding as has been held by 8 ITA No.5162/DEL/2019 Mumbai Bench in the case of M/s Westlife Development Ltd v. Pr. CIT reported in 49 ITR (T) 406. 10. Considered the rival submissions and material placed on record. We observed that the reasons for re-opening of the assessment recorded by the Assessing Officer which are as under: \"......As per the information available with this office, it has been noticed that the above mentioned assessee has deposited, during the financial year 2008-09, the amount of Rs. 53,85,000/- in cash into his/her saving account maintained with HDFC Bank Ltd. As per records of this office, the assessee has filed the return of income for the relevant assessment year i.e. 2009-10. Since, the assessee has not disclosed all the material facts/above transactions to the department, the source of the above investment of Rs. 53,85,000/- remains unexplained which exceeded the maximum amount which is not chargeable to tax......\" 11. The case of the assessee was reopened on the ground that the assessee has deposited, during the financial year 2008-09, the amount of Rs.53,85,000/- in cash into his saving account maintained with HDFC Bank Ltd., despite the fact that the assessee had filed return of income on 30.09.2009 for the impugned assessment year which stood accepted as such. It is thus evident that the Assessing Officer re-opened the case only for the purpose of verification of the source of deposits in the bank account. It is now well settled that no re-assessment can be done to make an enquiry or verification of the deposits in the bank account. The Nagpur 9 ITA No.5162/DEL/2019 Bench in the case of Vijaya Vinod Duragkarin in ITA No. 339/Nag/2023 dated 18:11.2024 for Assessment year 2015-16 has held as under: “15. Here, as is evident, the re-opening was done only for the purpose of verification of the source of investment in the property, which is also evident from the reasons so recorded by the Assessing Officer and also reproduced herein above. Relying upon the aforesaid judicial propositions, which categorically held that the re-opening cannot be done for verification, therefore, we hold that re-opening of assessment is invalid and accordingly the consequent assessment also becomes invalid, unjustified and bad- in-law. Accordingly, the re-opening of assessment by the Assessing Officer and confirmed by the learned CIT(A) is hereby quashed for the reasons stated herein above. Since the re-opening itself is quashed, the corresponding Vijaya Vinod Duragkar assessment order does not survive as well. Thus, the assessee succeeds in ground no.1. 16. Since the assessee has succeeded in ground no.1, i.e., re- opening of assessment being bad-in-law, the other grounds raised by the assessee became academic in nature, hence left un- adjudicated.” 12. Further, the Hon’ble Delhi High Court in the case of United Electrical Co. (P) Ltd. v. CIT reported in 258 ITR 317 has held that existence of tangible material, for the formation of opinion is a pre-requisite for initiation of action u/s 147 of the Act. It has been held that the Assessing Officer must have facts before him that reasonably give rise to the belief that income has escaped assessment, but the facts on the basis of which he entertains the belief need not at this stage be rebuttal conclusive to support his tentative conclusion. It is noted that there was no information 10 ITA No.5162/DEL/2019 on record which could provide foundation for the Assessing Officer’s belief that the source of the deposits in the bank account was not explained and income had escaped assessment on that account. Therefore, the impugned action of the Assessing Officer cannot be sustained. Further, the Hon’ble Apex Court in the case of CIT vs. Indian Oil Corporation reported in 159 ITR 956 has held that the, `reason to believe’ is not the same thing as `reason to suspect'. 13. The Hon’ble Delhi High Court in the case of Ashok Kumar Sen Vs. ITO reported in 132 ITR at 707 has held as under :- “The words “if the income tax officer has reason to believe used in section 147(a) suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the ITO may act under this section on direct or circumstantial evidence but no on mere suspicion, gossip or rumor. The powers under this section are not plenary. They are subject to judicial review. The ITO in his affidavit has merely stated his belief but has not set out any material on the basis of which he formed such belief. There is nothing in the affidavit to suggest that the ITO had any material before him that would warrant a belief that a part of the income of the petitioner had escaped assessment by reason of his failure to make a true and full disclosure of the material facts. (See ITO Vs. Madnai Engineering Works Ltd (1979) 118 ITR 1 (SC)]” [Emphasis Supplied] 14. Further, the objection of the ld. DR that validity of action u/s 147 of the Act cannot be raised in present proceedings has been considered and decided by the Mumbai Bench of ITAT in the case of M/s. Westlife 11 ITA No.5162/DEL/2019 Development Ltd. v. Pr. CIT as reported in 49 ITR (T) 406 by observing as under :- “8. Challenging the jurisdictional defects of assessment order for assailing the jurisdictional validity of the revision order passed u/s 263: The first issue that arises for our consideration is - whether the assessee can challenge the jurisdictional validity of order passed u/s 143(3) in the appellate proceedings taken up for challenging the order passed u/s 263? If we analyse the nature of both of these proceedings, which are under consideration before us, we find that the original assessment proceedings can be classified in a way as ’primary proceedings’. These are, in effect, basic/foundational proceedings and akin to a platform upon which any subsequent proceedings connected therewith can rest upon. The proceedings initiated u/s 263 seeking to revise the original assessment order is off shoot of the primary proceedings and therefore, these may be termed as ’collateral proceedings' in the legal framework. The issue that arises here is whether any illegality/invalidity in the order passed in the 'primary proceedings' can be set up in the 'collateral proceedings' and if yes, then of what nature? 8.1. We have analysed this issue carefully. There is no doubt that after passing of the original assessment order, the primary (i.e. original proceedings) had come to an end and attained finality and, therefore, outcome of the same cannot be disturbed, and therefore, the original assessment order framed to conclude the primary proceedings had also attained finality and it also cannot be disturbed at the instance of the assessee, except as permitted under the law and by following the due process of law. Under these circumstances, it can be said that effect of the original assessment order cannot be erased or modified subsequently. In other words, whatever tax liability had been determined in the original assessment order that had already become final and that cannot be sought to be disturbed by the assessee. But, the issue that arises here is that if the original assessment order is illegal in terms of its jurisdiction or if the same is null & void in the eyes of law on any jurisdictional grounds, then, whether it can give rise to initiation of further proceedings and whether such subsequent proceedings 12 ITA No.5162/DEL/2019 would be valid under the law as contained in Income Tax Act? It has been vehemently argued before us that the subsequent proceedings (i.e. collateral proceedings) derive strength only from the order passed in the original proceedings (i.e. primary proceedings). Thus, if order passed in the original proceedings is itself illegal, then that cannot give rise to valid revision proceedings. Therefore, as per law, the validity of the order passed in the primary (original) proceedings should be allowed to be examined even at the subsequent stages, only for the limited purpose of examining whether the collateral (subsequent) proceedings have been initiated on a valid legal platform or not and for examining the validity of assumption of jurisdiction to initiate the collateral proceedings. If it is not so allowed, then, it may so happen that though order passed in the original proceedings was illegal and thus order passed in the subsequent proceedings in turn would also be illegal, but in absence of a remedy to contest the same, it may give rise to an 'enforceable' tax liability without authority of law. Therefore, the Courts have taken this view that jurisdictional aspects of the order passed in the primary proceedings can be examined in the collateral proceedings also. This issue is not res integra. This issue has been decided in many judgments by various courts, and some of them have been discussed by us in followings paragraphs. 8.10 Thus, on the basis of aforesaid discussion we can safely hold that as per law, the assessee should be permitted to challenge the validity of order passed u/s.263 on the ground that the impugned assessment order was non est and we hold accordingly. [Emphasis supplied]. 15. Having regard to the aforesaid, we hold that the present proceedings being collateral proceedings and if the assessment order is inherently invalid or bad in law, then validity of such an order can be challenged at any stage in the collateral proceedings including the proceedings u/s.263, because invalid order cannot be set aside or can be revised to make it valid; therefore, the order of assessment dated 26.10.216 u/s 147/143(3) 13 ITA No.5162/DEL/2019 of the Act and the impugned order dated 30.03.2019 u/s 263 of the Act are held to be without jurisdiction. 16. Moreover, even otherwise proceedings u/s 263 of the Act have been initiated on the basis of audit objection. The learned PCIT has been held in this regard as under :- “6 In this regard, the submission of the AR that issues raised in the proceedings u/s 263 are based on audit objection raised by Audit Party, is without any merit as there is no bar in initiation of proceedings u/s 263 on the basis of observations by Audit Party.” 17. The aforesaid observation is not in accordance with law. We observed that the decision of the co-ordinate Bench of this Tribunal in the case of Raghuvir Singh v. PCIT in ITA No. 1132/D/2022 has been held as under:- “27. Coming back to the facts of the case, the root cause for initiation of the impugned proceedings is the audit objection by the audit party, order dated 29.12.2019. The operative part reads as under :- ….. 29. A plain reading of section 263 of the Act would show that the PCIT may call for and examine the record of any proceedings under this Act whereas in the case in hand, we find that it was the Assessing Officer who recommended the PCIT to initiate proceedings u/s 263 of the Act for which it can be safely concluded that the PCIT did not apply his mind. Even the recommendation of the Assessing Officer is based upon the audit objection when the Assessing Officer was well aware of the questions raised during the assessment proceedings which have been duly verified and examined by him before framing the impugned assessment order. 14 ITA No.5162/DEL/2019 30. Considering the facts of the case in totality in light of judicial decisions discussed hereinabove, we do not find any error or infirmity in the assessment order which could make it erroneous and prejudicial to the interest of the Revenue. Therefore, we set aside the order of the PCIT and restore that of the Assessing Officer dated 29.12.2019. We order accordingly.” 31. In the result the appeal of the assessee in ITA No. 1132/DEL/2022 is allowed.” 18. The Hon'ble Bombay High Court in the case of CIT v. Maharashtra Hybrid Seeds Co. Ltd. reported in 102 taxmann.com 48 held as under:- “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 of the note, the Tribunal held that it would be a fair 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.” 19. Respectfully following the aforesaid decisions, proceedings u/s 263 of the Act is based on audit objection raised by the audit party which is not in accordance with law. 20. Moreover, it is seen that notice dated 31.10.2018 u/s 263 of the Act was in respect of disallowance of Rs.58,90,372/- out of interest of 15 ITA No.5162/DEL/2019 Rs.72,11,728/- u/s 36(1)(iii) of the Act. So far as another notice dated 18.03.2019 u/s 263 of the Act was limited to verification of cash deposits maintained with HDFC Bank Ltd. and loss declared in the return of income and no more. No such issues have been raised in the final order dated 20.03.2019 u/s 263 of the Act. The final order is restricted to disallowance of Rs.32,91,577/- as deduction of interest paid to partnership firm and claimed in the computation of income which apparently is without any opportunity and therefore not in accordance with law in view of the judgment of Hon’ble Apex Court in the case of CIT v. Amitabh Bachchan reported in 384 ITR 200. 21. Accordingly, for the aforesaid reasons, we set aside the impugned order passed u/s.263 of the Act and appeal of the assessee is allowed. 22. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on this 16th day of April, 2025. SD/- SD/- (VIMAL KUMAR) (S.RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 16.04.2025 TS 16 ITA No.5162/DEL/2019 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals). 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "