TaxTMI 
TaxTMI 
2024 (7) TMI 1813
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..... ITBA/COM/F/17/2019-20/1023532842(1) dt. 31/12/2019. In the said assessment order it is observed and held as follows: In this case, during the course of regular assessment proceedings for the A.Y. 2013-14, case of the assessee was referred to the District Valuation Officer (DVO) to determine the cost of construction of the property as declared in the ITR filed for the A.Y. 2013-14. The assessee claimed that the construction was made in two F.Ys. i.e 2011-12 and 2012-13. Accordingly the DVO vide his valuation report received on 14.10.2016 determined the cost of construction made by the assessee as under :- F.Y 2011-12 Rs. 127812900 2012-13 Rs. 53255800 Total Rs. 181068700 Thus the assessee had made investment of Rs. 127812900/- in the construction of property during the F.Y. 2011-12 related to A.Y. 2012-13. Since no ITR was filed by the assessee and investment of Rs. 127812900 was made in construction of the property, therefore after recording the satisfaction and belief by the A.O that income to the extent of Rs. 127812900/- has escaped assessment proceedings were initiated u/s 147 of the Income Tax Act, 1961 and notice u/s 148 o....
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..... Commissioner of Income tax vs. K.Jaya Kumar (Madras HC) 6. CIT Vs Chohan Resort (2013 P&H Court) 4. The reply of the assessee is duly analyzed and in light of various judicial pronouncements by Hon'ble Supreme Court of India, the contention of the assessee is accepted. Therefore income of the assessee as declared in the ITR at Nil income is accepted. Assessed. Issue requisite documents. 5. In brief the Ld. AO accepted the return income of assessee at NIL income. 6. The Chapter XX of the Income Tax Act, 1961 as amended from time to time deals with " Appeals & Revision". Section 263 of the said Chapter at E-speaks of revision by the Pr. Commissioner or Commissioner. The heading deals with broad caption " Revision of order and prejudicial to Revenue". By virtue of Section 263 (1) the PCIT or Chief Commissioner or Pr. Commissioner or Commissioner may call for and examine the record of any proceedings under this Act and if he considers that any order passed therein by the AO (or Transfer Pricing Officer, as the case may be) is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity o....
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....012-13/F.Y .- 2011-12. Since, the assessee had not filed any return and had made investment of Rs. 2,12,09,600/-(Rs.12,78,12,900 - 10,66,03,300/-) from his undisclosed sources of income, the case of the assessee was reopened u/s 147 of the Act vide notice u/s 148 dated 28.03.2019. In response to the notice u/s 148, the assessee submitted his Income Tax Return dated 08-04-2019 showing 'NIL' income. Consequently, the assessment in this case was completed u/s 143 r.w.s 147 of the Income Tax Act, 1961 on 31.12.2019 at "NIL" income. However, the assessing officer decided the value of the investment in constructed property on the basis of report of registered valuer submitted by the assessee and failed to take cognizance of the DVO report on the same matter. The assessing officer failed to verify the correctness of the rates on which the registered valuer had prepared report. Since the report of the registered valuer had not been made as per PWD Haryana rates and moreover no comparison was made between the rates of CPWD and PWD rates, the assessing officer should have enquired the correctness of the rates on which registered valuer had made valuation. In absence of the same, the ....
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....d on 15.02.2022, mentioning instances of failure on the part of the A.O, in not making enquiry, as envisaged under the said provision and the assessee was requested to show- cause as to why the assessment made for A.Y. 2012-13 vide Order Dated 31.12.2019 u/s 143(3) r.w.s 147 should not be revised by invoking the Provisions of Section-263 of the Act. For the sake of clarity, the said notice mentioning instances of failure on the part of Assessing Officer, is reproduced as under: Dated 15.02.2022 "Sub : Notice U/s 263(1) of the Income Tax Act, 1961 for the A. Y. 2012-13 Regarding- Return declaring Nil Income for the A.Y. 2012-13 was filed by you on 08.04.2019. Subsequently, the assessment for the year under consideration was completed u/s 143(3) of the Income Tax Act, 1961 at returned income by the Income tax officer Ward-2, Kaithal vide order dated 31.12.2019. 2. The assessment record for the period under consideration was called upon and examined. On such examination, it has been noticed that you have shown cost of construction at Rs. 10,66,03,300/- in your ITR. You have shown this cost of construction on the basis of valuation made by a register....
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....mpyari Devi Saraogi Vs. CIT [ 1968] 167 ITR 84 (SC) and in Smt. Tara Devi Aggarwal Vs. CIT [1973] 88 ITR 323 (SC)" Wherein it was held that " Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO 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 ITO is unsustainable in law." 2. We also wish to bring to your kind attention that notice issued u/s 148 was not valid. At the time of hearing before AO, we had objected to it. We are also in appeal against the same. Form 35 filed with CIT appeal is enclosed herewith for our necessary perusal. Accordingly this was a case, wherein proceedings were void ab initio and Sec 263 is not applicable. 3. Referral to DVO was not valid At the time of original assessment in our case, we had provided copies of ledger and other supporting voucher....
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....he report of the registered valuer had not been made as per PWD Haryana rates and moreover no comparison was made between the rates of CPWD and PWD rates, the assessing officer should have enquired the correctness of the rates on which registered valuer had made valuation. In absence of the same, the AO should have taken the valuation of the property on the basis of the report of the DVO made on the basis of CPWD and added back the difference of Rs. 2,12,09,600/- as investment from unexplained sources. However, the AO had failed to do so. 5.1 Accordingly, in the above mentioned case, a show cause notice was given to the assessee on a specific issue i.e. difference of valuation as per report of DVO and registered valuer. In response to the show-cause notice, the assessee submitted that the notice issued u/s 148 was not valid and proceedings were void ab initio. In his reply, the assessee also submitted that referral to DVO was not valid as books of accounts had not been rejected nor any defect was pointed out therein and also sought benefit of ratio of High Court and Supreme Court case laws. The objections raised by the assessee is not the reason for which show-cau....
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....is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order passed by the Ld AO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of Revenue. The phrase "Prejudicial to the Interest of Revenue" has to be read with in conjuction with erroneous order passed by the Ld. AO. Every order where there is loss of Revenue cannot be treated as Prejudicial to the interest of Revenue. Twin test is key. 10. In Form No. 36 the assessee has raised the following grounds of appeal: 1. That on the facts and circumstances of the case and in law, the order passed by the PCIT, Rohtak u/s 263 of the Income Tax Act, 1961 ('the Act') setting aside the assessment framed u/s 147 of the Act as erroneous and prejudicial to the interest of the revenue is without jurisdiction, bad in law and void ab-initio. 2. That on the facts and circumstances of the case and in law, the PCIT erred in holding that the assessment order is erroneous and prejudicial to interest of revenue on the issue of valuation of property 3. That on the facts and c....
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....ully satisfied. There is no imposition of any view and same is also not urged by the Ld. AR. The Ld. DR further contended that in reply to the show cause notice issued by PCIT under section 263 proceedings the assessee has failed to submit any effective objection to the specific issue raised by the PCIT which was failure to enquire into rates and genuineness of report of Private Registered Valuer. Hence, assessee reply is rightly rejected by PCIT as devoid of merits on issue in question. Findings & Conclusions 13. In view of the forgoing, we now examine legality, validity and proprietary of the impugned order. We have to examine the sole issue whether the power exercised by Ld. PCIT under section 263 is correct in law or not. We also have to examine that while exercising the power under section 263 whether PCIT has acted in arbitrary and caparacious manner or not. We observe and notice that entire records of the case were before the Ld. PCIT before he ventured to pass the order under section 263 of the Act. The Ld. PCIT has also given full and complete opportunity to the assessee before he passed the impugned order. Assessee has not raised any contentions with regard to non a....
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....tion report of a valuer has gone unverified during the course of the assessment proceedings causing serious prejudice to the Revenue. Since there was a clear failure or inaction on part of the Ld. AO then only recourse available with the Ld. AO is to go by the valuation report of DVO; the same too having not been taken into consideration is resulting into prejudice to the Revenue. 14. In brief Ld. PCIT has exercised his power under section 263 legitimately by noticing failure and inaction on part of AO in conducting necessary and requisite inquiry and verification on rates given by Registered Private Valuer in his report. The Ld. PCIT has correctly held that failure and inaction has resulted into both erroneous exercising of power and prejudice to the Revenue interest. We therefore sustain PCIT impugned order. 15. We hold that Ld. AO exercises quasi judicial power while drawing up an assessment order. It is expected on part of Ld. AO who is acting in quasi judicial capacity to legitimately see the interest of both the parties equally by treating them equally. As a quasi judicial authority it is expected on part of the Ld. AO to weigh the material evidences i.e; both the repor....
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....er was done on rates basis which the Registered Private Valuer had given his Valuation Report. The Ld. PCIT in such a situation has rightly held that it was incumbent upon the Ld. AO to have verified the rates and since this exercise was not done then as a natural corollary he ought to have gone by the Valuation Report given by DVO which was based on CPWD Rates. 18. We hold that it is incumbent upon the Ld. AO while carrying out the assessment / reassessment to have dealt with such a broad issue supra elaborately particularly so when case was under section 147/148. Hence Ld. PCIT is right in holding that Ld. AO ought to have made the necessary inquiries on rates as provided for in Registered valuer's report and in event of non exercise of such power by him ought to have at least accepted the DVO report; non consideration of DVO report due to failure in examining the rates given by Registered Valuer has caused erroneousness in order of Ld. AO as it depicts non application of mind, arbitrary exercise of power rendering such AO order prejudicial to the interest of Revenue. 19. We hold that Delhi High Court judgment in case reported in Gee Vee Enterprises Vs. Add. CIT and Ors....
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.... while exercising powers in terms of procedures under section 263 by the PCIT. We also hold that no decision on merits of the case has been given nor any opinion or manner in which assessment is to be done in next round of assessment is expressed while exercising the power under section 263 of the Act by Ld. PCIT. The PCIT has held AO's order as erroneous and prejudicial by applying his mind to the factual aspect of the case before him and was not guided by any extraneous consideration whatsoever save and except the records of the case. Simultaneously he while passing the order under section 263 has not taken into consideration any material not forming the part of the records of the case. Further none is as such brought to our notice. Further it is not expressly contended before us that in depth analysis of books of accounts respective appropriation etc. was done. It is not contended that the matter was inquired into deeply and extensive verification and / or cross verification were done by the Ld. AO at the material time and place with regard to core issue of valuation of cost of constructed property. What is contended before us is that all queries, replies, submission etc. we....
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....the case and its records. The word "record" includes and shall always deemed to have included all records relating to any proceedings under the Act which is available at the time of examination by PCIT. The Ld. AO without inquiry on the material placed before him i.e; Report of Registered Private Valuer which gave valuation of the cost of constructed property had summarily accepted the claim of the assesse perse and subjectively that too under section 147/148 proceedigs. Therefore it is crystal clear that the assessment order was passed without making any inquiry which should have been made and / or ought to have been made but not made on rates basis which Private Registered Valuer had prepared its Valuation Report on cost of construction. Hence as per explanation 2(a) to Section 263 of the Act the PCIT has rightly reviewed the order under section 263 as erroneous and prejudicial. 19.4 We thus, in terms of our observation as aforesaid finds no reason to dislodge the well reasoned order of PCIT who specifically referring to explanation 2 to Section 263 of the Act has held that the order passed by AO under section 143(3) r.w.s 147/148 dt. 31/12/2019 to be erroneous in so far as it....
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.... PCIT that reply is devoid of merits. 22. We are in agreement with the following view of the PCIT which are as under: 6. The Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd V/s CIT in 243 ITR 83(SC) has held that a bare reading of section 263 of the Act, makes it clear that the pre-requisite to exercise of jurisdiction by the CIT suo-moto under it is that the order of the ITO is erroneous in so far as it is prejudicial to the interest of revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of AO sought to be revised is erroneous and (ii) it is prejudicial to the interest of revenue. If one of them is absent i.e. if the order of the ITO is erroneous but is not prejudicial to the interest of the revenue or if it is not erroneous but is prejudicial to the interest of revenue, recourse cannot be taken u/s 263 of the Act. It has also held that there can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous that the section shall be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the req....
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....n. 8. Further, it has been held in the case of Venkatakrishna Rice Co. V. CIT (1987) 163 ITR 129 (Mad) it has been held by the Hon'ble Court that the expression prejudicial to the interest of the revenue must be regarded as involving a conception of facts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the ITO which might set a bad trend or pattern for similar assessment which on a broad reckoning the Commissioner might think to be prejudicial to the interest of revenue administration. The scope of the interference under section 263 is not to set aside merely unfavourable orders and bring to tax some more money into the treasury. Nor is the section meant to get at sheer escapement of revenue. The prejudice must be prejudice to the revenue administration. 9. Also in CIT v. Pushpa Devi (1987) 164 ITR 639 (Part), it has been held that enquiry into the source of the initial capital is crucial for the ITO, if that is not done, the assessment is bound to be erroneous and hence prejudicial to the revenue than some other procedure, the order passed by the ITO would obviously be prejudicial to th....