CIT cannot initiate proceedings with a view to start fishing & roving enquiries

Dhanraj Chhipa Vs PCIT (ITAT Jodhpur)

CIT cannot invoke his powers of revision under section 263 if the Assessing Officer has conducted enquiries and applied his mind and has taken a possible view of the matter. If there was any enquiry and a possible view is taken, it would not give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. Possible view shall mean a issue, which is debatable and there could be more than one possible views. The consideration of the Commissioner as to whether an order is erroneous in so far it is prejudicial to the interests of Revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded. Since the AO has already examined the case and made complete enquiry wherein no infirmity appears then in that case, the Ld PCIT was not justified in passing the impugned revision order. Accordingly, we quash the same and restore the assessment order dated 15-07-2019 framed u/s 144 of the Act.

FULL TEXT OF THE ORDER OF ITAT JODHPUR

This is an appeal filed by the assessee against the order of the ld. Pr.CIT, Udaipur dated 26-03-2022 for the assessment year 2017-18 raising therein following grounds of appeal.

‘’1. The ld. PCIT, Udaipur erred in law as well as on the facts of the case in taking the impugned action 263 which is bad in law without jurisdiction and being void ab-initio, the same may kindly be quashed.

2. The ld. PCIT seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Ac without recording a specific and categorical finding that the subjected assessment order passed u/s 144 dated 15-07-2019 is erroneous and prejudicial to the interest of the revenue, in absence of which the entire proceedings u/s 263 is vitiated. Therefore, the impugned order dated 26­03-2022 u/s 263 of the Act kindly be quashed.

3. The assumption of jurisdiction u/s 263 and the impugned direction, being contrary to the provisions of law and facts on record, hence the proceedings initiated u/s 263 of the Act and the impugned order dated 26-03-2022 deserves to be quashed.

4. The ld. PCIT seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly making Explanation 2 to Section 263 as if the same conferred unbridled power upon the CIT even thought eh facts ad circumstances of the case did not justify the application of the said Explanation.

5. The ld. PCIT erred in law as well as on the facts of the case in wrongly setting aside the assessment order dated 15-07-2019 despite there being complete application of mind by the AO on the subjected issue and it was nothing but a case of change of opinion and /or suspicion, based on which, assumption of jurisdiction u/s 263 is not permissible. The impugned order dated 26-03­2022 therefore lacks valid jurisdiction u/s 263 of the Act and hence, the same kindly be quashed.

6.1 The ld PCIT seriously erred in law and on facts of the case in holding that the source of cash deposit of Rs.17,86,000/- during the demonetization period could not be explained by the appellant which being completely contrary to the provision of law and facts available on record, such finding and the decision of the PCIT deserves to be quashed and set aside.

6.2 That alternatively and without prejudice to above, in case the impugned action and order passed by ld.PCIT is upheld, a clear direction may kindly be given to the AO not to be influenced by the unjustified and invalid finding recorded by the ld. PCIT in para 5 of the impugned order.”

2.1 During the course of hearing, the Bench noted that there is delay of 9 days in filing the appeal by the assessee for which the ld. AR of the assessee prayed that the assessee had sent the appeal through Speed Post on 30-05-2022 to the Assistant Registrar office but it was received in the Assistant Registrar Office on 03-06-2022. He further submitted that this delay was not intentional but it is because of postal delay and the assessee and deposited the requisite appeal filing fee on 23-05-2022. Thus the delay in filing the appeal took place because of postal delay which should be condoned. To this effect, the assessee has filed an affidavit.

2.2 On the other hand, the ld. DR objected to such delay but prayed that the Court may decide the issue as deem it fit and proper in the case .

2.3 We have heard both the parties and perused the materials available record. The Bench noted that the delay of 9 days took place in filing the appeal by the assessee because of postal authority and the assessee had already deposited the requisite appeal filing fee on 23­05-2022 which does not indicate that there is deliberate delay on the part of the assessee. Hence keeping in mind the decision of Hon’ble Supreme Court in the case of Collector, Land & Acquisition vs Mst. Katiji & Others (1987) 167 ITR 472, the delay is condoned.

3.1 Apropos Grounds of appeal of the assessee, the AO while making assessment noted that the reply of the assessee was considered and the cash deposited at Rs.17,86,000/- in the bank account pertains out of loan taken from the F.D. and accumulated saving and retirements and thus as per the above facts the source of deposit is explained by the assessee and no addition is made in this account. The AO further noted that on going through the details, it is found that the assessee was in Govt. Service and he has received pension from the Bank at Rs.2,85,099/- and he has also received interest on fixed deposits at Rs.1,67,462/- from which he reduced the amount of interest paid by him on bank loan of Rs.86,411/-. According to the AO, the rebate of Rs.85,411/- is not allowable. In nut shell, the AO did not make the addition as to the amount of Rs.17,86,000/- because the source of deposit was explained by the assessee before him.

3.2 However, the ld. PCIT vide notice of hearing dated 24-02-2022 noted that the assessment order passed by the AO in assessee’s case for the A.Y. 2017-18 is found to be erroneous to the interest of Revenue. The ld. PCIT proposed to modify the assessment order under the power vested to him u/s 263 of the Act and thus he allowed an opportunity to the assessee to show cause as to why the order passed u/s 143(3) on 15-07-2019 by the AO may not be revised u/s 263 of the Act in a suitable manner. The written submission filed by the assessee had been examined and duly considered by the ld. PCIT. The ld. PCIT noted that the assessee could not reasonably explain the source of cash deposit of Rs.17,86,000/- as made by him during the demonetization period in his three bank accounts. Thus the ld. PCIT found that the assessment order passed u/s 144 of the Act for the A 2017-18 dated 15-07-2019 by the AO without making proper enquiries or conducting any verification on the issue and thus the ld. PCIT noted that the assessment order dated 15-07-2019 had thus been rendered erroneous and prejudicial to the interest of revenue and the ld. PCIT conclusively set aside the assessment order and restored back to the file of the AO with the direction to pass the assessment order afresh by providing an opportunity of being heard to the assessee.

3.3 Being aggrieved by the order of the ld. PCIT, the assessee carried the matter before this Bench praying therein that the issue of cash deposit of Rs.17,86,000/- was duly examined by the AO while making assessment and he did not find any infirmity in the submission of the assessee.

3.4 On the other hand, the ld. DR supported the order of the ld.PCIT.

3.5 We have heard both the parties and perused the materials available on record. The scope of revision proceedings initiated under section 263 of the Act was examined by Hon’ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon’ble Supreme Court. The relevant observations are extracted below:

“Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the 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, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) :

“The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. 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 Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two 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.”

The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.”

The principles laid down by the courts are that the Learned CIT cannot invoke his powers of revision under section 263 if the Assessing Officer has conducted enquiries and applied his mind and has taken a possible view of the matter. If there was any enquiry and a possible view is taken, it would not give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. Possible view shall mean a issue, which is debatable and there could be more than one possible views. The consideration of the Commissioner as to whether an order is erroneous in so far it is prejudicial to the interests of Revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded. Since the AO has already examined the case and made complete enquiry wherein no infirmity appears then in that case, the Ld PCIT was not justified in passing the impugned revision order. Accordingly, we quash the same and restore the assessment order dated 15-07-2019 framed u/s 144 of the Act.

4.0 In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 20 /03/2023.