Om Prakash Agarwal Vs PCIT (ITAT Jaipur)
ITAT held that the prerequisite exercise of jurisdiction by the learned Principal CIT under section 263 of the Act is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The Principal CIT has to be satisfied of twin conditions, namely (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If any one of them is absent i.e., if the assessment order is not erroneous but it is prejudicial to the Revenue, provision of section 263 cannot be invoked. This 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 as also prejudicial to Revenue’s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase ‘prejudicial to the interest of the Revenue has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. It is pertinent to mention that if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the Pr. CIT does not agree, it cannot be treated as an erroneous order and it is prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. In this process even the AO has no power to revie his own order taking the route of proceeding under section 263 of the Act.
ITAT held that one of the pre-requisite before invoking S. 263 and the allegation of the Ld. Pr. CIT is that there has been incorrect assumption of fact and law by the Assessing Officer. However, despite our deep and careful consideration of the material on record including the finding recorded in the subjected Assessment order dated 03.07.2019 and in the findings recorded in the order under challenge, we do not find any incorrectness and incompleteness in the appreciation of facts made by the AO. In the light of these observations, we do not agree on this aspect to this extent with Ld. Pr. CIT. However, we now proceed to consider whether the AO has also incorrectly appreciated and assumed the law while making the subjected assessment to be termed, as erroneous and prejudicial to the interest of the revenue. The facts are not disputed that the assessee has submitted the books of accounts and documents related there upon and has been verified by the AO. The AO has recorded his satisfaction in the assessment order that he has verified the books of account and other records produced before him and the same is verified in the light of the reasons for selection of the case under CASS. This itself shows that the AO has applied his mind on the reasons and has verified the records produced before him by the assessee and the assessee has filed a detailed submission in this proceeding that the AO has verified each and every aspect of the issue on hand and looking the facts of the case on hand the exercise of the power under section 263 via AO is nothing but a change of opinion which is not permitted in the eyes of the law. We have precisely gone through the para of the judgement relied upon by the ld. DR that the AO has power to refer the matter to PCIT where he establishes that there is an error apparent on record where in this case merely the AO has agreed to review the order in his proposal which is not permitted under the law and therefore, the facts relied upon by the ld. DR are factually different and with the fact of this case and thus, based on our detailed observations and relying on the decision of co ordinate bench of Pune ITAT in the case of Alfa Laval Lund AB in ITA no. 1287/PUN/2017 where in the bench in para 5 observed as under:-
“5. It is trite that a power which vests exclusively in one authority, can‟t be invoked or cause to be invoked by another, either directly or indirectly. Section 263 of the Act confers power on the CIT to revise an assessment order, subject to certain conditions. Instantly, we are confronted with a situation in which the revision was initiated on the basis of the AO sending a proposal to the CIT and not on the CIT suo motu calling for and examining the record of the assessment proceedings and thereafter considering the assessment order erroneous and prejudicial to the interests of the revenue. The AO recommending a revision to the CIT has no statutory sanction and is a course of action unknown to the law. If AO, after passing an assessment order, finds something amiss in it to the detriment of the Revenue, he has ample power to either reassess the earlier assessment in terms of section 147 or carry out rectification u/s 154 of the Act. He can‟t usurp the power of the CIT and recommend a revision. No overlapping of powers of the authorities under the Act can be permitted. As the revision proceedings in this case have triggered with the AO sending a proposal to the ld. CIT and then the latter passing the order u/s 263 of the Act on the basis of such a proposal, we hold that it became a case of jurisdiction deficit resulting into vitiating the impugned order. Without going into the merits of the case, we quash the impugned order on this legal issue itself.
In the result, the appeal is allowed.”
11.5 Being consistent with the finding given by a co ordinate bench and the detailed finding given by us we allow the additional ground raised by the assessee. Since we have allowed the appeal of the assessee on technical ground the other grounds need not to be adjudicated upon.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This is an appeal filed by the assessee against the order of Learned Principal Commissioner of Income Tax)-1, Jaipur (hereinafter referred to as (Ld. Pr. CIT)] dated 26.03.2022 for the assessment year 2017-18 which in turns arise from the order of the assessment passed by the Income Tax Officer, Ward 1(4), Jaipur on 03.07.2019.
2. Aggrieved from the above order of the ld. Pr. CIT the assessee has marched this appeal before us. In this appeal the assessee has raised the following grounds of appeal:-
“1. a) On the facts and circumstances of the case, the order passed by Ld. PCIT u/s 263 of the Income Tax Act is unsustainable as power to revise can be invoked in the case of lack of enquiry, not in the case of inadequate enquiry. Ld. PCIT has held that the AO failed to enquire the ‘cash deposited in bank’ thoroughly, while all the aspects related to ‘Cash deposited during the year including demonetization period’, were enquired by the AO in the assessment proceedings and Section 131 proceedings.
b) On the facts and circumstances of the case, the Ld. PCIT has erred both on facts and in law in ignoring the fact that the issue raised by her in notice u/s 263 was before the AO and as such the jurisdiction on this issue under section 263 cannot be assumed by her.
c) On the facts and circumstances of the case, the Ld. PCIT has erred both on facts and in law assuming jurisdiction u/s 263 in the absence of twin conditions of the order passed by the A.O. being erroneous as well as prejudicial to the interest of the Revenue, being satisfied.
d) On the facts and circumstances of the case, the Ld. PCIT has erred both on facts and in law in ignoring the fact that the proceedings u/s 263 cannot be used for sustaining opinion of the A.O. by that of the PCIT.
e) On the facts and circumstances of the case, the Ld. PCIT has erred both on facts and in law in setting aside the matter to the file of the AO without giving a finding as to the error and prejudice caused to the revenue by the assessment order, and as such the order passed is bad in law and liable to be quashed.
2. That the appellant craves leave to reserve to itself the right to add, alter, amend, substitute, withdraw and/or any ground(s) of appeal at or before the time of hearing”
3. The assessee has raised the following additional ground vide application dated 22.06.2022 which is reproduced as under:-
“That the Learned Pr. Commissioner of Income Tax, Jaipur-1 invoked revision proceedings u/s 263 exclusively based on the proposal/suggestion made by the Assessing Officer & thereby failed to apply her mind independently, which causes the entire revision proceedings illegal/illegitimate and needs to be quashed.”
4. Brief facts of the case are that the assessee earned income from trading in Ghee, Vansapati Oil and Edible oil. The return declaring total income at Rs. 8,90,270/- was e-filed on 31.10.2017, which was processed u/s 143(1) of the Income Tax Act, 1961[ here in after referred to as Act]. The case was selected for scrutiny under CASS. Notice U/s 143(2) was issued on 29.09.2018, which was duly served upon the assessee. Thereafter, notice u/s 142(1) was issued on 05.02.2019 and 03.05.2019 requiring certain details from the assessee. It is seen that in the year under reference cash of Rs. 1,47,45,000/- has been deposited in the two bank accounts of the assessee. The ld. Pr. CIT, exercising her revisionary powers under section 263, issued a SCN dated 16.02.2022 for clarifying the assessee as to why the assessment should not be held erroneous in so far as it is prejudicial to the interest of Revenue. Assessee submitted a detail reply to the SCN on 28.02.2022, which did not find favour with the Ld. Pr. CIT and an order under section 263 of the Act was passed on 26.03.2022.
5. The ld. AR of the assessee prayed that the additional ground, being pure legal ground, it is raised for the first time as the assessee got the information late under Right to Information and came to know about the legal issue and therefore, raised the same now in this appeal as additional ground.
5.1 On the other hand revenue objected for the additional ground raised by the assessee and submitted that the information relied upon is merely department internal communication cannot be considered and thus, he submitted not to accept the additional ground at this stage.
5.2 We have heard rival contentions and perused the material brought on record in the prayer petition filed by the assessee for raising the additional ground before us. The bench of the view that since, the additional ground being technical and legal ground be admitted in the interest of justice and the same is thus admitted as it does not involve any factual issue for this additional ground.
6. Since, the additional ground raised by the assessee is purely on the legal issue challenging the jurisdiction of the ld. Pr. CIT and as the controversy goes to the root of the case we are inclined to entertain this ground first. The foremost controversy raised by the Assessee relates to initiation of proceeding based on the report of the AO is validly initiated proceeding u/s. 263 of the Act, or not?
7. On this legal ground the ld. AR for assessee submitted a detailed written submissions which is reiterated here in below :-
“2.1 Section 263 reads as follows:
(1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.(Emphasis supplied).
2.1.1 The provisions of section 263 require the PCIT to himself call for and examine the records of any proceedings under the Act. He is, as per the provisions in the Section, neither empowered nor expected to assign the task of reviewing the proceedings/order passed under the Act to any subordinate officer viz the AO or the Additional CIT.
2.1.2 Revision proceedings under appeal, are bad in law as the Pr. Commissioner of Income Tax without applying her independent mind initiated the proceedings u/s 263 on the proposal initiated by the Assessing Officer.
2.1.3 Appellant takes the liberty to draw the valued attention of the bench towards the following extracts in the letter addressed by the AO to Ld. PCIT vide Letter No. ITO/W-1(4)/JPR/2020-21/124 dated 10/06/2020:
Paragraph 1 of the Page No.1 of the letter (Please see attachment No. 3)
“The case was reviewed by the Additional CIT and following comments have been made-….. ”
Paragraph No. 2 of the page No. 4 of the letter (Please see attachment No. 6)
“The assessment record was examined and comments given by the Addl. CIT was gone through with reference to issues raised in the review, are agreed. “
Paragraph No. 3 of the page No. 4 of the letter (Please see attachment No. 6)
“Perusal of the observations/comments given by the Addl. CIT as mentioned above and on examination of assessment record it reveals that assessment order is erroneous and prejudicial to the interest of revenue therefore, proposal u/s 263 of the Income Tax Act, 19671 is being submitted to you for revision of the assessment order passed by the AO u/s 143(3) taking under consideration of all the points raised in the review. Time limitation is getting barred on 31/03/2022 for initiating of the action u/s 263 of the I. T. Act, 1961”
Yours faithfully
(PK Kalyania)
Income Tax Officer, Ward 1(4),Jaipur
Above letter from AO to Ld. PCIT clearly brings out that AO, who completed the assessment proceedings and passed an order u/s 143(3) is revealing to Ld. PCIT that his order is erroneous and prejudicial to the interest of revenue.
2.1.4 Office of the Ld. PCIT-1, Jaipur has reverted back to the Addl. CIT with the following reply vide letter No. 22 dated 24/06/2020 (Please see attachment No. 3)
3)
No. : Pr. CIT-1/ITO(T&J)/JPR/2020-21/122 Dated 24/06/2020
The Addl. Commissioner of Income Tax,
Range-1,
Jaipur
Sir,
Subject: Approval for taking remedial action in the case of Om Prakash Agarwal-ABWPA2846D AY 2017-18 reg
Kindly refer to your proposal for approval for taking remedial action u/s 263 of the IT Act vide letter No. 324 dated 11/06/2020
In this regard, I am directed to convey that after due consideration, the PCIT has prima facie agreed to take remedial action u/s 263 of the IT Act, 1961 in this case. You are therefore, required to submit detailed proposal for the same at the earliest. The assessment record is being returned back herewith.
Yours faithfully
(P K JOSHI)
Income Tax Officer (T&J)
For Pr. Commissioner of Income Tax, Jaipur-1, Jaipur
Above letter from Ld. PCIT to Addl. CIT conclusively proves that no independent application of mind was made by the Ld. PCIT and lower authorities were in de facto exercising the powers u/s 263 of PCIT.
2.1.5 It is a well-settled law that for invoking the provisions of section 263 the Commissioner of Income Tax has to apply his independent mind after examining the records and has to form his independent opinion that the order passed by the Assessing Officer is erroneous and prejudicial to the revenue. The provisions of section 263 cannot be invoked merely on asking of Assessing Officer or proposals initiated by the Assessing Officer to substitute his original opinion. In the instant case, it is found that the Assessing Officer initiated the proposal for invoking the provisions of section 263 merely under the pressure of the Addl. CIT. The proposal of the AO is solely based on the views/opinion of his superior i.e. Addl. CIT. The provisions of section 263 cannot be allowed to be misused by the Assessing Officer to super-impose his opinion different from the one taken at the time of assessment proceedings.
2.1.6 As is evident from the documents on the record being submitted as Annexures 1 to 6 to this submission, the provisions of section 263 of the Act have been invoked in blatant abuse for revisional jurisdiction.
In the present situation, the revision was initiated on the basis of AO sending a proposal to the PCIT and not on the PCIT suo motu calling for and examining the record of the assessment proceedings and thereafter considering the assessment order erroneous and prejudicial to the interest of the revenue. AO and Addl. CIT recommending a revision to the PCIT has no statutory sanction and is a course of action unknown to the law. AO can not usurp the power of PCIT and recommend a revision.
2.1.7 Appellant places reliance on the following judgements
(Please see attachment No. 7 to 12)
iii) Rajesh Chandrakant Shah (HUF) Vs. PCIT-6, Pune AY 2011-12 ITA No. 1028/PUN/2016 pronounced on 06/02/2019
iv) Hindustan Lever Ltd. Vs. CIT, Kol-II, High court of Calcutta ITA No. 193 of 2002 judgement on 04/02/2011
(Please see attachment No. 13 to 16)
2.1.8 The fact remains that a notice such as the one issued in the above case is ultra vires the provisions of the Income-tax Act 1961, and also does violence to the mandate of the Supreme Court in the case of Bhavnagar University v. Palitana Sugar Mill (P.) Ltd. [Appeal (Civil) 8003 of 2002, dated 3-12-2002]. “….It is well settled that when a statutory authority is required to do a thing in a particular manner, the same must be done in that manner or not at all. The State and other authorities while acting under the said Act are only creatures of statute. They must act within the four corners thereof.” In other words, statutory power can only be exercised by the authority on whom it is conferred and by no one else.
2.1.9 It is fairly settled that the substantive power enshrined in the Act cannot be held hostage to procedural requirements, yet it bears a recall that the procedure delineated in section 263 is a substantive provision and meets the mandate of principles of natural justice, an abiding characteristic of any administrative or quasi-judicial action. It is more particularly so when revision unsettles a settled assessment. Lord Radcliffe and Lord Reid called the restraints of the statute as an alternative safeguard to rules of natural justice where the function is administrative.
2.1.10 If the AO were permitted by the Income-tax Act 1961, to “review” his own orders, for enabling him to send a proposal on an order being found erroneous, the AO shall be found bestowed with the power of the constitutional courts – that of reviewing their own orders; which power is not available even to the Hon’ble Tribunal benches, let alone the authorities under the Act.
As the revision proceedings, in this case, have triggered with the AO sending a proposal to the Ld. PCIT and then the later passing the order u/s 263 of the Act on the basis of such a proposal, it becomes a case of jurisdictional deficit resulting in vitiating the impugned order.”
8. In addition to the above written submission on legal ground the ld. AR of the assessee drawn our attention page 3 of his paper book where in the assessing officer has forwarded a proposal u/s. 263. Thus, the ld. AR submitted the AO cannot exercise such power of review thought the proceeding under section 263 of the Act. Section 263 nowhere provide that AO will assist to the PCIT in the proceeding it is the PCIT review the orders and invoke the provision of section 263 of the Act. For driving home to this contention, the ld. AR of the assessee relied upon the judgement of Honourable Calcutta High Court in the case of Hindustan Lever Ltd. Vs. CIT-Kol-II and decision of the co-ordinate bench of Pune ITAT in the case of Alfa Laval Lund AB Vs. CIT – Pune. The relied upon part of Calcutta High Court judgement is extracted here in below for the sake of brevity :
“We, therefore, find that there was no justification of invoking Section 263 of the Income Tax Act for reopening of the assessment on the basis of a proposal given by the assessing officer himself after passing of the order of the assessment on the basis of the precedent of Gauhati High Court which has not been approved by a Division Bench of our High Court.
We, therefore, set aside the order passed by the Commissioner of Income Tax under section 263 of the Act which has been affirmed by the Tribunal below and direct the assessing officer to act accordingly. The appeal is, thus, allowed.”
9. Per contra, the ld. DR relied on the orders of the lower authorities and submitted that review of the case was done by JCIT and not AO. Based on the JCIT review the AO send a proposal as this is administrative process to review the work done by the subordinate officer. The finding is of the JCIT and AO has followed the direction given by the higher officer and he has not his own done the review. Merely based on the proposal the proceeding u/s. 263 is not completed. The proposal received by him is duly considered and the Pr. CIT as per provision of the section 263 of the evaluate the order of the lower authorities and after that the Pr. CIT issues the show cause notice to the assessee. Based on the reply of the show cause notice the Pr. CIT decide the case. To initiate the proceeding u/s. 263 source is not material and in this case the proposal has been moved at the instance of JCIT. The ld. DR explained the difference between the proceeding u/s. 263 & 264. In section 264 the application can be moved by the assessee or own its own motion the proceeding can be initiated. This own motion is missing in the 263 section and thus, the proceeding validly initiated. The ld. DR also read the meaning of record given in the 263 section which include the records of the review of the JCIT and thus the proposal is already part of the record. The ld. DR further argued that if the view is so adopted then the provision of section 263 become redundant and therefore, the additional ground raised by the assessee shall be rejected. The decision relied upon by the ld. AR of the assessee are on different in facts and in law. The ld. DR has relied upon the following decision:
