TaxTMI 
TaxTMI 
2025 (5) TMI 2148
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....en only one-day time to submit reply, show cause notice was issued on 27.03.2023 at 21:30 in the night and date of filing of reply was 29.03.2023 at 11:00 AM, thus proper opportunity of being heard is not given to the assessee. 4. That the Ld. PCIT erred in holding that assessee was not doing any business in the relevant assessment year. 5. That order of the Principal Commissioner of Income Tax is contrary to the law and the facts of the case, and bad in law in directing the AO to make a fresh assessment after disallowing the all expenses claimed amounting to Rs. 50,18,444/- debited to P & L A/c except those required to maintain the corporate identity of the company such as fees to statutory auditors and any fees to register of companies. 6. That order of the Principal Commissioner of Income Tax is contrary to the law and the facts of the case, and bad in law in directing the AO to assessee income under section 22 of the Act. 7. The appellant craves leave to add to or amend the aforesaid grounds before disposal of the appeal." 3. The relevant facts giving rise to this appeal are that the assessee, as per its Income Tax Return (hereinafter, the....
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....sessing officer had asked the assessee to explain the purpose for booking six flats in Digital Green Projects and to provide supporting documents to explain the source for investment. The assessee failed to address these queries and had not provided any documentary evidence called for. As far as taxing of income pertaining to house property is concerned, the annual letting value of any property owned by a company is required to be taxed under section 22. Where the property is shown to be used for the purpose of business, only that part of the property is not covered under section 22. In this case the assessee has not placed any material on record to show how many out of the six flats were used for the purpose of business and in what manner. In fact, even the occupant of these flats are not mentioned by the assessee and their nexus to business if any. Under such circumstances no conclusion can be drawn that the flats were being used for the purpose of business and were outside the ambit of section 22. • No justification for claiming building maintenance charges toward lift and security in respect of the six flats has been provided nor its nexus with assessee's busin....
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....which was warranted on the facts of the case. 8. Accordingly, a notice under section 263 dated 27.03.2023 was issued to the assessee as both the conditions mandated under the section 263 as are fulfilled. The assessee was asked to explain as to why proceedings under section 263 of the Income Tax Act, should not be initiated for revision of Assessment Order for AY 2018-19 and why the amount of expenses of Rs. 50,18,444/- should not be disallowed and added back u/s 37 of the IT Act, 1961. 9. In response, the assessee has furnished its reply dated 29-03- 2023. Regarding the business operations carried out by the company during the year, the assessee has filed copy of an agreement dated 28-05-2016. As per the agreement the assessee was to sell tyres and was also responsible for repair of these tyres for the period of three years. For this purpose, the company was to depute its employees to the buyer premises. It is further stated by assessee that the amount towards sale of tyres was booked as income in earlier year whereas during this year the assessee was to undertake repairs of those tyres. The explanation again was not supported with any evidence/document such as r....
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....icient opportunity of being heard to the assessee to file detailed reply to the show-cause notice issued under section 263 of the Act. The show-cause notice issued under section 263 of the Act dated 27.03.2023 was responded to the assessee. A copy of the said reply dated 29.03.2023 was submitted along with Form 36 (appeal memo) before us. A perusal of the said reply showed that the assessee had neither sought any time to furnish further reply nor had raised any grievance with respect to two days' time for compliance. Now the assessee had raised the issue of two days' time as a grievance being contrary to the principle of natural justice. 6.1 The Ld. Counsel further submitted that the notice issued under section 263 of the Act was confined to the existence of business vis-à-vis the claim of expenses of Rs. 50,18,444/- in absence of any business activity carried out by the assessee. He drew our attention to the relevant portion of the show-cause notice as under: - "3. On perusal of the assessment record, it is found that the assessee was engaged in the business of consulting Services in respect of tyres and to sell, repair and maintain earthmover tyres. Examination....
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....-DR vehemently argued the case and prayed for dismissal of the appeal. He supported the impugned order. 8. We have heard both parties and have perused the material available on record. We perused the show-cause notice dated 29.03.2023 issued by the PCIT and the assessee's reply, dated 29.03.2023, to the show-cause notice [submitted along with Form 36 (appeal memo)]. The perusal of the said reply showed that the assessee had neither sought any time to furnish further reply nor had raised any grievance with respect to two days' time to respond. Now the assessee had raised the issue of two days' time as a grievance being in violation of natural justice. We do not see any merit in this issue on the simple reasoning that the said show-cause notice was duly responded without any grievance particularly when the said proceedings was getting barred by limitation on 31.03.2023. 9. The relevant part of the section 263 of the Act is extracted hereunder: - "Explanation 2-For the purposes of this section, it is hereby declared 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 opi....
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..... The relevant part of the order of the Hon'ble Supreme Court in the case of Paville Project Pvt. Ltd. "7. In the present case, the Commissioner, in exercise of the powers under Section 263 of the Income Tax Act and in exercise of the revisional jurisdiction, set aside the assessment order by specifically observing that the assessment order was erroneous as well as prejudicial to the interest of the Revenue. However, the High Court by the impugned judgment and order has set aside the order passed by the Commissioner by observing that the Commissioner wrongly invoked the powers under Section 263 of the Act. 7.1 Learned counsel appearing on behalf of the assessee has heavily relied upon the decision of this Court in the case of Malabar Industrial Co. Ltd. (supra). It is true that in the said decision and on interpretation of Section 263 of the Income Tax Act, it is observed and held that in order to exercise the jurisdiction under Section 263(1) of the Income tax Act, 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. It....
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....wo views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income Tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. (See Rampyari Devi Saraogi v. CIT [(1968) 67 ITR 84 (SC)] and in Tara Devi Aggarwal v. CIT [(1973) 3 SCC 482 : 1973 SCC (Tax) 318 : (1973) 88 ITR 323])" 7.2 Thus, even as observed in paragraph 9 by this Court in the case of Malabar Industrial Co. Ltd. (supra) that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. It is further observed that if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. However, only in a case where two views are possi....
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...., and (ii) must also be prejudicial to the interest of the Revenue. In the instant case we find that the CIT(A) has rightly exercised revisional powers, as both the conditions are satisfied. The AO on one hand is writing that complete documents were not furnished by the assessee and on the other accepted returned income without verification of documents. This makes the order erroneous and prejudicial to the interest of revenue. The CIT(A) while passing the order u/s. 263 of the Act has invoked the provision of section 263 read with explanation 2 inserted by the Finance Act 2015 w.e.f. 01.06.2015. Explanation 2(a) in an unambiguous manner states that where the order is passed without making enquiries or verification which should have been made, the same shall be deemed to be erroneous and in so far as it is prejudicial to interest of revenue. Considering entire facts of the case and documents on record, we find no infirmity in the impugned order. The PCIT has exercised revisional jurisdiction in a valid and justified manner. Hence, impugned order is upheld and appeal of the assessee is dismissed being devoid of any merit." 13. Lastly on merits, as discussed in the foregoing parag....