TaxTMI 
TaxTMI 
TaxTMI 
2024 (11) TMI 306
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....1961 ('Act') by setting aside the assessment order passed by the National e- Assessment Centre, Delhi ('AO') under section 143(3) of the Act as being erroneous and prejudicial to the interest of the revenue. The order passed under section 263 of the Act is bad in law and liable to be quashed. 1.2 The order of the Pr. CIT in so far it is against the assessee is against the law, facts, circumstances, natural justice, equity and al! other known principles of law. 1.3 The learned Pr. CIT erred in in issuing notice u/s 263 when there was no error prejudicial to the interest of revenue attracting proceedings u/s 263. 2. Grounds relating to the order passed under section 263 of the Act: 2.2 The learned Pr. CIT erred in refusing to allow sufficient opportunity. 2.2 The order of the learned Pr. CIT is against the principles of natural justice as sufficient time was not given to the assessee to furnish the necessary . details. 2.3 The learned Pr. CIT erred in rushing the proceedings on the plea of limitation in the absence of any such impediment. 2.4 The learned Pr. CIT erred in holding that the assessment order p....
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....the second year of claim; b) All bills, vouchers in support of the claim under section 54 were submitted during the assessment proceedings conducted under section 143(3) of the Act; c) All the expenses incurred towards making the residential house habitable are eligible for deduction under *ction 54 of the Act. 3.4 Without prejudice to the above, the learned Pr. CIT erred in following the binding decision of the Jurisdictional High Court in Rahana Siraj vs CIT ([2015] 232 Taxman 327) relating to deduction under section 54 of the Act. 3.5 Even otherwise, the capital gains amount, if any, not utilized towards the new asset can be brought to tax in the previous year in which the period of three years from the date of transfer of original asset expires. 3.6 On the facts and circumstances of the case at hand, the disallowance of deduction under section 54 of the Act amounting to Rs. 4,80,33,694/- is bad in law and deserves to be deleted in its entirety. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds, at any time before or at the time of hearing. The Appellant prays accordingly." ....
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....g work, air -conditioning etc which does not qualify for deduction u/s. 54. d) most of the expenses claimed by the assessee prima facie are in the nature of renovation & refurnishing of existing house. Section 54 requires construction or acquisition of a 'residential house' but not merely refurnishing an existing house to make it better. e) No clarity under which section (i.e., 54 or 54F), the deduction was claimed and allowed considering the nature and source of re-investment of LTCG. 2.3 From the above, it is evident that the deduction u/s. 54/54F has been allowed without proper examination of relevant details and materials. Accordingly, the assessment was completed in this case without conducting necessary enquiries and examining relevant issues / evidence. 2.4 The assessee has mentioned that there had been reinvestment in Villa for which deduction has been claimed u/s 54. However, the assessee has not furnished any details regarding the Villa as to whether any purchase or construction of a residential house was undertaken by him, nor has he furnished the address of the premises or the details regarding the cost of land, or cost towards basic building mat....
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....iries in accordance with law and CBDT guidelines. He shall give the assessee an opportunity to furnish necessary evidence to establish his claim and explain why the proposed additions be not made to income. The AO shall consider the facts, and the results of any enquiries made, as well as the explanation furnished by the assessee, and make a fresh assessment in accordance with law. Against this assessee is in appeal before us. 4. The ld. A.Rs for the assessee submitted that the ld. PCIT issued a notice in respect of revision proceedings u/s 263 of the Act dt. 15.03.2022 to comply by 22.03.2022. The said notice was received by the assessee only on 19.03.2022 being a Saturday and 20.03.2022 being a Sunday; thus effectively leaving a day for compliance. The assessee to the best extent possible has replied to the notice on 21.03.2022. Thus he submitted that the proceedings are in violation to the established principles of natural justice and requires to be quashed. 4.1 He submitted that the contention of the ld. PCIT in para 2 of the notice dt. 15.03.2022 that the claim of deduction u/s 54 of the Act has not been properly dealt with and no enquiry with regard to the maintainabili....
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....t Ltd (2023) 118 CCH 187 relying on the judgement of Mumbai High Court in 203 ITR 108, wherein it has been held as under: ''15. Learned counsel for the assessee is right in his submission 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 Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open.'' 4.5 Further he submitted that even Explanation 2 (a) of Section 263 - (a) the order is passed without making inquiries or verification which should have been made is clear that section 263 can be invoked only when no inquiry is made. In this case since the AO has already caused the enquiry the assessment order cannot be regarded as erroneous and prejudicial to interest of revenue. 4.6 He submitted that the details submitted by the assessee in compliance of notice u/s 263 has not even gone into by the PCIT and upon consideration of the details filed the PCIT has not caused any enquiry nor has....
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....rder but also includes records available with the Commissioner at the time of passing his order. The Assessing Officer had called for the details on as many as nine aspects and had examined the issues before allowing the assessee's claim. Once the Assessing Officer, based on the details placed on record, takes up a plausible view of the matter, it could not be subjected to revision under section 263 even in light of the revised Explanation 2 there to. The jurisdiction under section 263 could not be invoked for making short enquiries or go into the process of assessment again and again d merely on the basis that more inquiry ought to have been conducted to find something. As the Assessing Officer had passed the assessment order after relevant inquiries, the order passed by the Principal Commissioner was not in accordance with law and, therefore, was to be quashed." 5. The ld. D.R. submitted that there was no enquiry by ld. AO while passing the order u/s 143(3) of the Act. Hence, ld. PCIT after verifying the records given a direction for re-examining claim of assessee u/s 54F of the Act and same to be confirmed. 6. We have heard the rival submissions and perused the materia....
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....sh assessment. The interpretation of expression "erroneous in so far as it is prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue it is proposed to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. This amendment will take effect from 1st day of June, 2015." 6.3 The Clause (a) of the Explanation, as all other clauses are self explanatory. Clause (a) talks about the inquiry or investigati....
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....in law." 6.6 The said view has also been held in a judgment of the Hon'ble Punjab & Haryana High Court in the case of CIT v. Indo German Fabs IT Appeal No. 248 of 2012, dated 2412-2014, in the following words: "Section 263 of the Act confers power to examine an assessment order so as to ascertain whether it is erroneous and prejudicial to the interest of the revenue but does not confer jurisdiction upon the CIT to substitute his opinion for the opinion of the Assessing Officer. The words prejudicial and erroneous have to be read in conjunction and therefore, it is not each and every error in an assessment that invites exercise of powers under Section 263 of the Act, but only orders that are erroneous and prejudicial to the interest of the revenue." 6.7 Further, Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), wherein, while considering the distinction between lack of inquiry and inadequate inquiry, the Hon'ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 on the ground of inadequate inquiry: "12. We have considered the rival submissions of the counsel ....
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....oner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was 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 feel satisfied with the conclusion. 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. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather tha....
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....page 10) 6.10 There are other plethora of case laws from various High Courts and various benches of the Tribunal for the same effect. 6.11 Further, there was another angle to these cases when the Commissioner of Income Tax held the order of the Assessing Officer to be erroneous and at the conclusion of his order directs the Assessing Officer to make assessment de-novo. This approach of the Commissioner of Income Tax was held to be not correct in law. The revisionary powers under section 263 of the Act are given to the Commissioner of Income Tax when he finds the order of the Assessing Officer to be erroneous as well as prejudicial to the interest of the Revenue. In case the Commissioner of Income Tax finds the error in the order of the Assessing Officer, still prefers to direct him to make assessment denovo, these two things contradict each other. If the Commissioner of Income Tax directs the Assessing Officer to make assessment after further enquiry, this act of the Commissioner of Income Tax would show that he is not sure whether the original order was erroneous or not, as on conclusion of further enquiry, the Assessing Officer may not make the proposed addition or disallow....
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.... cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question." 6.14 Hon'ble Delhi High Court in the case of Director of Income Tax Vs. Jyoti Foundation (357 ITR 388) (Delhi) has also held that where revisionary authority opined that further enquiry was required, such enquiry should have been conducted by revisionary authority himself to record finding that assessment order passed by the AO was erroneous and pre judicial to the interest of the revenue. This principle is also based on Hon'ble Delhi High court in the case of Sunbeam Auto Limited (supra) whereby it was held that if the AO, while making an assessment, has made inadequate enquiry that would not by itself give occasion to the CIT to pass order u/s.263 merely becau....
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....rs need to act reasonably and impartially. They must not handle matters in which they have an actual or reasonably perceived conflict of interest. It is important to apply the values that the legislation promotes, professional values and the values of the agency, not personal values. 6.19 The risk of arbitrariness in such discretion has been weighed by the Supreme Court of United States in Harold Withrow v. Duane Larkin (43 L. Ed. 2d 712). "The contention that the combination of investigative and adjudicative functions necessarily creates an unconstitutional risk of bias in administrative adjudication has a much more difficult burden of persuasion to carry. It must over come a presumption of honesty and integrity in those serving as adjudicators; and it must convince that, under a realistic appraisal of psychological tendencies and human weakness, conferring investigative and adjudicative powers on the same individual poses such a risk of actual bias or prejudgment that the practice must be forbidden if the guarantee of due process is to be adequately implemented." 6.20 In exercising discretionary powers, decision makers should have regard to any specific requirement....
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....acts and circumstances of a particular case and then to come to an honest judgment as to whether the case calls for exercise of the power (Vetcha Sreeramamurthy's case [1956] 30 ITR 252 (AP)). It implies necessarily that all these circumstances are to be taken into account and an appropriate order is to be passed having regard to the facts of the case. Exercise of such power cannot be summarily rejected on the basis that the power is with the officer, but he is not bound to exercise it (M.L.M. Mahalingam Chettiar v. Third ITO [1967] 66 ITR 287 (Mad) and K.M. Rahmath Bibi's case [1969] 72 ITR 73 (Mad))." 6.21 In the case of Hindalco Industries Ltd. vs. Union of India (1994) 2 SCC 594, the Apex Court observed: "The discretion must be exercised reasonably. A person entrusted with a discretion must direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to the matter he has to consider. If he does not obey those rules, he may truly be said to be acting unreasonably. 8. There lies a distinction between the administrative authorities exerci....
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.... claimed amounting to Rs. 4,64,71,744/- without specifying the details of expenses against which deduction u/s 54F of the Act has been claimed. Once the ld. PCIT himself has noted that assessee has furnished the details of expenditure amounting to Rs. 6,66,50,852/- to claim deduction of Rs. 4,64,71,744/-, it cannot be said that there is no enquiry or inadequate enquiry on the issue of exemption u/s 54F of the Act. 6.29 Thus, the judgement relied by the ld. A.R. in the case of Cisco Systems (India) Pvt. Ltd. of Hon'ble Karnataka High Court cited (supra) and in the case of Klaxon Trading Pvt. Ltd. of Hon'ble Delhi High Court cited (supra) are support the case of assessee. 6.30 Further, in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 "20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means tha....
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.... be any point of finality in the legal proceedings. The ITAT Mumbai Bench of the Tribunal went on to hold that the opinion of the Commissioner referred to in section 263 of the Act has to be understood as legal and judicious opinion and not arbitrary opinion." 6.32 In the case of Rajgul Credit Invest P. Ltd. Vs. PCIT, I.T.A. No. 2519/DEL/2019, dt. 19.09.2019 "We further note that Explanation to section 263 of the Act does not change the scope of section 263 of the Act, the Mumbai Tribunal in the case of Narayan Tatu Rane vs. ITO reported in 70 taxmann.com 227 has also held that in a case where learned Pr. CIT has not brought any material on record by making enquiries or verifications to substantiate his inference, the learned PCIT is not justified in holding that the impugned assessment order was erroneous. The relevant portion of the decision is as under:- "21. In the instant case, as noticed earlier, the AO has accepted the explanations of the assessee, since there is no fool proof evidence to link the assessee with the document and MIs RNS Infrastructure Ltd, from whose hands it was seized, also did not implicate the assessee. Thus, the assessee has....
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....der. The Assessing Officer had called for the details on as many as nine aspects and had examined the issues before allowing the assessee's claim. Once the Assessing Officer, based on the details placed on record, takes up a plausible view of the matter, it could not be subjected to revision under section 263 even in light of the revised Explanation 2 thereto. The jurisdiction under section 263 could not be invoked for making short enquiries or go into the process of assessment again and again d merely on the basis that more inquiry ought to have been conducted to find something. As the Assessing Officer had passed the assessment order after relevant inquiries, the order passed by the Principal Commissioner was not in accordance with law and, therefore, was to be quashed." 6.34 In view of above, we note that notice u/s. 263 of the Act issued by the Pr. CIT is vague and only for making deeper enquiry and re-considering the evidences already on record duly considered during assessment proceedings based on purported proposal that fresh facts have been emerged subsequent to the order of assessment which is factually incorrect and untenable and the conditions or the factors enabl....
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....2019 at 12:30 PM. c) The above mentioned evidence/information is to be furnished online electronically in 'E-Proceeding' facility through your account in 'e-filing' website of Income Tax Department. d) Para(s) (a) to (c) are applicable if you have an account in e-filing website of Income Tax Department. Till such an account is created by you, assessment proceedings shall be carried out either through your e-mail account or manually (if e-mail is not available). e) In cases where order has to be passed under section 153A/153C of the Income Tax Act, 1961 read with section 143(3), assessment proceedings would be conducted manually. Yours faithfully, ANNEXURE VIJI SESHADRI CIRCLE 2(3)(1), BANGALORE CERTIFIED TRUE COPY Dhin 1. Please give a detailed note on the professional activities carried out during the year. 2. Please furnish computation of income. 3. Please give the details of unsecured loans in the following format 4. Loan taken Name and PANO. of the Mode of taking the Whether during the year person from whom the loan loan any was taken interest is paid on the loan Details of investments made duri....
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....fit and Loss Account for the year ended 31.03.2017. The said income is offered to tax under the head Profits and gains of business or profession' in the return of income filed for the A.Y. 2017-18. Point no. 2 of the notice u/s 142(1): As required by your good self, please find enclosed herewith computation of income of A.Y. 2017-18. Point no. 3 of the notice u/s 142(1): As required by your good self, please find enclosed herewith details of unsecured loans. Point no. 4 of the notice u/s 142(1): The details of investments reflected in the balance sheet as at 31.3.2017 are under compilation. I am in the process of collecting and collating the information. I request your good self to kindly give us ten days' time to prepare and submit the said details. Point no. 5 of the notice u/s 142(1): As required by your good self, please find enclosed herewith details of current liabilities reflected in the balance sheet as at 31.3.2017 Point no. 6 of the notice u/s 142(1): i. ii. Immovable properties transferred: As required by your good self, please find enclosed herewith details of assets sold during F. 2016-17 relevant for A.Y. 2017-18, copy o....
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....0/1022734857(1) Notice under sub-section (1) of Section 142 of the Income Tax Act, 1961 In connection with the assessment for the assessment year 2017-18 you are required to: a) Furnish or cause to be furnished on or before 23/12/2019 at 11:00 AM the accounts and documents specified overleaf. b) Furnish and verified in the prescribed manner under Rule 14 of I.T. Rules 1962 the information called for as per annexure and on the points or matters specified therein on or before 23/12/2019 at 11:00 AM. c) The above mentioned evidence/information is to be furnished online electronically in 'E-Proceeding' facility through your account in 'e-filing' website of Income Tax Department. d) Para(s) (a) to (c) are applicable if you have an account in e-filing website of Income Tax Department. Till such an account is created by you, assessment proceedings shall be carried out either through your e-mail account or manually (if e-mail is not available). e) In cases where order has to be passed under section 153A/153C of the Income Tax Act, 1961 read with section 143(3), assessment proceedings would be conducted manually. Yours faithfully, VIJI SESHADRI ....