Case Law Details
Bashir Ahmed Abdurrahman Matte Vs PCIT (ITAT Bangalore)
ITAT Bangalore held that revisionary power u/s 263 cannot be invoked when the order passed by AO is neither erroneous nor prejudicial to the interest of revenue.
Facts-
Assessee, Shri Bashir Ahmed Matte, is an Orthopaedic Surgeon in Gokak and survey u/s 133A was conducted on 06/09/2012. He admitted the additional income of Rs.70,76,000/- and offered for tax and AO made some other additions and determined the income at Rs.1,03,68,608/- by adding Rs.2,79,088/- of the assessment order.
The assessee did not file appeal and paid the tax accordingly as per the advice of CA. Later on the Pr.CIT on 27/02/2017 issued a show cause notice to the assessee. Aggrieved by the order of Pr. CIT, the assessee filed appeal before ITAT.
Conclusion-
Held that we do not find any substance in the order of the ld.Pr.CIT that the AO passed the order in a hurry without waiting for the DVO report. The DVO submitted report on 25/04/2018 u/s 142A of the Act after 6 months from the receipt of reference, therefore, the DVO report has no value in the eye of law as per sec. 142A(6) of the Act. Therefore, the AO will not get any benefit of extended period of 60 days as per sec. 153 of the Act. The ld.Pr.CIT is also not justified for reckoning the period for completion of assessment by the AO, which as per the limitation is also wrong.
We set aside the order passed by the ld.Pr.CIT for exercising his power u/s 263 of the Act. Hence, the order passed by the AO cannot be revised us/ 263 of the Act. Therefore, the order passed by the AO is neither erroneous nor prejudicial to the interest of revenue.
FULL TEXT OF THE ORDER OF ITAT DELHI
These 2 appeals filed by the assessee are directed against the order passed by the ld.Pr.CIT dated 22/03/2017 and 19.03.2020 for the assessment year 2013-14 respectively on the following grounds of appeal.
“1. The order of the learned Principal Commissioner of Income-tax Belagavi, passed under section 263 of the Act in so far as it is against the Appellant is opposed to law, weight of evidence, natural justice, probabilities, facts and circumstances of the Appellant’s case.
2. The notice issued for initiation of proceedings under section 263 of the Act, was bad in law.
3. The learned CIT is not justified in law in invoking the jurisdiction under section 263 of the Act and setting aside the order of the AO, as being “erroneous and prejudicial to the interest of the revenue”, which is contrary to fact, on the facts and circumstances of the case.
4. The order passed under section 263 of the Act, was required to be set aside as void ab initio, since the initiation of 263 proceedings was on a borrowed satisfaction of the assessing officer and hence bad in law, on the facts and circumstances of the case.
5. The learned CIT is not justified in law in holding that the order passed by the Assessing officer is bad in law, without appreciating that there was no error in the order passed, much less prejudicial to the interest of revenue, on the facts and circumstances of the case.
6. The learned CIT failed to appreciate that the valuation of the building was accepted by the AU and hence there was no mention in the order passed, hence the AU has taken a possible view, thus there was no error in the order of assessment, on the facts of the case.
7. The learned CIT failed to appreciate that the requirement of referring to a valuation officer was not mandatory and optional, and the AU has chosen not to do the same, thereby has taken a conscious decision to accept the valuation as offered by the appellant, thus was beyond the scope of revision, on the facts and circumstances of the case.
8. The learned CIT was not justified in appreciating that the provision of section 263 of the Act shall be attracted only when the order is both erroneous and prejudicial to the interest of revenue and since the order passed under section 143(3) of the Act was not erroneous, much less prejudicial, the invoking of section 263 was not warranted, on the facts and circumstances of the case.
9. The Appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal.
10. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered.”
2. The Registry has pointed out that in ITA No.6/Bang/2021 there is a delay by 1322 days. In this regard the AR of the assessee has filed Affidavit and has justified for delay in filing the appeal and he has also filed an Affidavit from the concerned CA having membership No.210927, The relevant part is as under:-
“3. Thereafter, an order of revision, under section 263 of the Act was passed on:22/03/2017 by the learned Principal Commissioner of Income Tax, Belagavi (“PCIT”), which was received by the Appellant on:31/03/2017.”
“1. That I am a practising Chartered Accountant having Membership No. 210927 and I am the statutory auditor for the aforestated Appellant and handle all his income tax related matters an conversant with the facts of the present case leading to this affidavit.
2. That the Appellant’s case was selected for scrutiny for the impugned Assessment Year and an assessment order under section 143(3) of the Income Tax Act, 1961 (“the Act”) dated 30.03.2015 was passed assessing the total income at Rs. 1,03,68,608/- as against the returned income at Rs. 1,00,89,520/ thereby making an addition of Rs. 2,79,088/-. The said assessment order was rectified under section 154 of the Act vide order dated 17.07.2015 and the assessed income was revised to Rs. 1,05,98,639/-.
3. That thereafter, the said assessment order dated 30.03.2015 was subjected to revision by the Principal Commissioner of Income Tax, Belagavi, under section 263 of the Act and the assessment order dated 30.03.2015 was set aside vide revision order passed under section 263 of the Act dated 22.03.2017 directing the Assessing Officer to bring to tax a sum of Rs. 1,67,580/- being difference in opening capital balance and to verify and ascertain the cost of construction of building by taking assistance of the Department Valuation Officer (“DVO”).
4. That pursuant to the revision order passed under section 263 of the Act, the Appellant sought my advice as regard to the next course of action / remedy available against the revision order passed under section 263 of the Act dated 22.03.2017. Thereafter, I made enquiries with my fellow practicing colleagues and was advised that since the contingent additions would not be substantial, it was prudent not to prefer an appeal and buy peace with the department and avoid protracted litigation which would affect the Appellant’s hectic professional life as a surgeon.
That the Appellant had obtained 3 valuation reports and considered the report which ascertained the cost of construction at Rs. 1,12,46,510/-, i.e. highest amongst the three valuations, and consequently, the contingent addition would likely not exceed Rs. 4,80,295/- being difference between the cost adopted by the Appellant and the cost as per the highest valuation report.
That thereafter, the Appellant chose not to contest the revision order passed dated 22.03.2017 passed under section 263 of the Act under a bonafide belief that not contesting would result in finality.
That pursuant to the assessment order being set aside, the Assessing Officer made a reference to the DVO for ascertaining the valuation of the construction. However, the report from the DVO was not received in time and subsequently, the Assessing Officer concluded the assessment proceedings by adopting the valuation as per the report of a registered Valuer and assessed the total income at Rs. 1,12,46,510/-, thereby making an addition of Rs. 1,67,580/- being difference in opening capital balance and Rs. 4,80,295/- being difference in construction cost as per Appellant and the Registered Valuer’s Report vide order dated 27.12.2017 passed under section 143(3) r.w.s. 263 of the Act.
8. That when the consequential assessment order dated 27.12.2017 passed under section 143(3) r.w.s. 263 of the Act was once again subjected to revision under section 263 of the Act, Itook instructions from the Appellant and approached the present tax counsels at Bengaluru, who then advised us to file an appeal against the first revision order dated 22.03.2017 and the second revision order dated 27.05.2020, both passed under section 263 of the Act.
9. That thereafter, the Appellant engaged the present tax counsel at Bangalore to prefer an appeal against the aforestated revision orders dated 22.03.2017 and 27.05.2020 passed under section 263 of the Act by the Principal Commissioner of Income Tax, Belagavi, before this Hon’ble Tribunal.
10. That the advise given by me to the Appellant, i.e.not to prefer an appeal against the first revision order dated 22.03.2017 passed under section 263 of the Act, was in good faith to the best of my understanding and knowledge and considering the prevailing facts and circumstances.
ii. That what is stated in Para 1 to 10 of the present affidavit is true and correct to the best of my knowledge, information and belief.”
3. Having gone through the Affidavits, the reason for filing the delay has duly been explained in the Affidavit. We rely on the following judgment to condone the delay.
1. Hon’ble Apex Court in the case of Collector, Land Acquisition Vs. MST. Katiji and Others (198) 167 ITR 471
2. Concord of India Insurance Co. Ltd., Vs. Smt. Nirmala Devi and Others 118 ITR 507
3. Radha Krishna Rai Vs. Allahabad Bank & Others [2009] 9 Supreme Court cases 733.
3.1 We accordingly condone the delay in filing the appeal after relying on the judgment of Hon’ble Supreme Court in the case of Collector, Land Acquisition Vs. MST. Katiji and Others cited Supra.
4. The brief facts of the case are that the assessee filed return of income on 29/09/2013 declaring income of Rs.1,00,89,520/-. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee Shri Bashir Ahmed Matte is an Orthopaedic Surgeon in Gokak and survey u/s 133A was conducted on 06/09/2012. He admitted the additional income of Rs.70,76,000/- and offered for tax and AO made some other additions and determined the income at Rs.1,03,68,608/- by adding Rs.2,79,088/- as discussed in para Nos.4,5,6,7 of the assessment order.
5. The assessee did not file appeal and paid the tax accordingly as per the advice of CA. Later on the ld.Pr.CIT on 27/02/2017 issued a show cause notice to the assessee on the following 3 grounds:
“(i) Capital to the tune of Rs.53,77,264/- has been introduced by you during the F Yr 2012-2013, the sources for which is not inquired by the AO during the assessment proceedings. Thus there is a lack of verification by the AO on this issue.
(ii) The AO has not verified the correct value of investment in construction of the building. In absence of any valuation report or other guiding factors the action of the AO in accepting the value of investment in construction of building at Rs.1,11,01,622/- as on 3103-2013 is found to be without any verification or enquiry and as such the order passed by the AO is erroneous as well as prejudicial to the interest of Revenue.
(iii) A survey under Section 133A of the Act was carried out, during which the assessee has admitted additional income of Rs.65.73 Lacs on account of unexplained investment in construction of hospital building and Rs.5,03,505/- as unexplained cash, which should have been taxed by the AU under the provisions of Sections 69 and 69A of the Act r.w.s. II 5BBE. However, the AU has not made any verification or inquiry about this while completing the assessment and as such the order passed by the AO is erroneous as well as prejudicial to the interest of Revenue.”
6. Against the show cause notice, the assessee filed reply before the ld.Pr.CIT and he after considering the submission of the assessee on the above 3 grounds, partly accepted issue No.1 and issue No.2 was completely accepted and in respect of issue No.3 regarding valuation of the property by the Departmental Valuation Officer (DVO), which was not got it done by the AO. The ld.Pr.CIT observed that the AO while passing the assessment order dated 30/032015 has not referred the matter to the DVO for the determination of the cost of construction of the hospital building which was part of survey u/s 133A. Accordingly, he observed that the AO has not carried out proper enquiry while passing the assessment order. Accordingly he issued show cause notice to the assessee and reply was furnished by the assessee after considering the entire material available before him, he observed that the order passed by the AO is erroneous and prejudicial to the interest of the revenue and the ld.Pr.CIT has directed the AO to pass a fresh assessment order.
7. Aggrieved form the order of the ld.Pr.CIT, the assessee filed appeal before the ITAT.
8. The ld.AR reiterated the submission made before the ld.Pr.CIT and he further submitted that the AO has called the details as per notice issued by him, which were submitted before the AO and only after satisfying, he has passed the assessment order. The order passed by the AO is not erroneous and prejudicial to the interest of the revenue. The assessee has declared the relevant facts which were necessary for completion of the assessment. He riled on the following judgments:-
9. On the other hand, the ld.DR relied on the order of the ld.Pr.CIT and he objected for the condonation of delay. The ld.Pr.CIT has pointed out that the AO has ignored the issue which was the subject matter of the survey carried out u/s 133A of the Act and the AO should have examined in detail with regard to the valuation of the cost of construction carried out by the assessee for hospital building. The matter for the purpose of valuation of the building should have been referred to the DVO, which was not done by the AO and he merely accepted the documents /submissions made by the assessee during the course of scrutiny proceedings. Therefore, the order passed by the AO is erroneous and prejudicial to the interest of the Revenue. The case law relied on by the ld.AR is not applicable in the present set of facts.
10. After hearing both the sides and pursing the entire material on record and also on examining the order of the lower authorities, we observe that the survey us/ 133A of the Act was carried out in the premises of the assessee and during the course of survey, the assessee had admitted additional income of Rs.65.73 lakhs on account of unexplained investment in construction of hospital building. This fact was available before the AO while passing the assessment order. The assessee had offered additional income during the course of survey of Rs.70,76,000/- which was offered by the assessee as additional income, which could have been offered for tax u/s 69/69A of the Act. The AO did not make further enquiry and merely accepted the declaration made with regard to the investment in the property. WE found substance on the observation of the ld.Pr.CIT as per his order dated 22/03/2017 and the ld.DR also argued the case very well and we found substance in the argument of the ld.DR also. All the facts were available before the AO, he should have referred to the cost of the construction of the building, which was the subject matter of the survey u/s 133A of the Act. The AO completely brushed aside the survey statements/documents and merely accepted the submissions of the assessee. Therefore, as per explanation u/s 263, the AO did not discharge his liability fully. First the AO is an investigating officer thereafter he is an adjudicating officer. Considering the entire facts on the order passed by the AO, which is erroneous and prejudicial to the interest of the revenue, we uphold the action of the ld.Pr.CIT and dismissed the appeal of the assessee.
11. In the result, the appeal filed by the assessee is dismissed.
ITA No.07/Bang/2021
12. The brief facts of the case are that the assessment order was passed on 27/12/2017 u/s 143(3) r.w.s 263 of the Act, as per direction of the ld.Pr.CIT vide order dated 22/03/2017, that the AO has not referred the matter to DVO in the original proceedings us/ 143(3) of the Act. After receipt of the order from the ld.Pr.CIT, the AO issued notice u/s 142(1) on 11/04/2017 and it was brought to the notices of the assessee that the assessee has not furnished any valuation report from the approved valuer in support of his claim up to 31/03/2013 and investment for sum of Rs.1,12,40,299/- and other details were also called for from the assessee which was submitted by the assessee, thereafter a reference to the DVO, IT, Department, Bengaluru was made vide letter dated 04/05/2017 for determination of cost of construction of hospital building as on 31/03/2013.
13. The authorized representative of the assessee on 12/12/2017 furnished a copy of valuation report in respect of cost of construction of the building shown and construction cost was determined at Rs.1,17,20,594/- but the assessee declared Rs.1,12,40,299/-. The AO did not receive the DVO report within the specified period as per the sec. 142A(6) of the Act. The case was getting time barred on 03/12/2017, therefore, the assessment was completed after adding amount of difference in cost of construction as reported by the approved valuer at Rs.4,80,295/- (in Rs.117,20,594 – Rs.112,40,299) and he also added difference of opening balance in the capital account at Rs.1,67,580/- and computed the assessment on 27/12/2017. Later on, the ld.Pr.CIT issued show cause notice to the assessee on 09/09/2019 proposing to exercise his power u/s 263 of the Act and details of show cause notice which is placed at page Nos.126 to 128 of the paper book.
14. After receiving the show cause notice the assessee submitted detailed written submissions and considering the reply of the assessee, the ld.Pr.CIT passed order as under:-
“3. I have gone through the submissions of the assessee and also case record. In this case, survey was conducted on the premises of the assessee on 06.09.2012 and the assessee was admitted additional income of Rs.70,76,000 which was adhered to by way of inclusion in the return of income filed. The assessment was completed under section 143(3) on 30.03.2015 determining total income at Rs. 1,03,68,608. Subsequently, the revision proceedings were initiated under section 263 by the Pr.CIT, Belagavi in regard to cost of construction and examination of capital introduction. Consequent to directions of the Pr.CIT in his order under section 263 setting aside the above issues, the AO made reference to the Valuation Officer on 04.05.2017. Since no report estimating cost of construction was received from the Valuation Cell, the AO finalized the assessment under section 143(3) r.w.s. 263 on 27.12.2017 determining the total income at Rs.1,12,46,514, making addition of Rs.1,67,580 and Rs.4,80,295 on account of difference in opening capital balance and addition on account of difference in cost of construction respectively. In the note, not to the assessee, the AO stated tat since the matter is getting barred by limitation by 31.12.2017, the assessment was concluded keeping aside the issue relating to cost of construction of the hospital building which was referred to the Valuation Cell. Thus, he stated that in case of any adverse finding by Valuation Officer, necessary remedial action to be taken. In view of the above, the present revision proceedings are initiated. In view of the provisions of clause-(iv) of Explanation-1 to section 153, prior to its substitution w.e.f. 1.6.2016, the period commencing from the date on which the AO makes a reference to the Valuation Officer under section 142A(1) and ending with the date on which the report of the Valuation Officer is received by the AO, shall be excluded for the purpose of computation of limitation period. As the time barring date was not expiring on 31.12.2017, the AO ought to have extended the time barring date as discussed above. By not examining the due date for passing assessment order in view of Explanation-1 to section 153, the AO has committed error of law as a result, the unexplained investment on the basis of estimation of cost of construction remained escaped. Therefore, the order of the AO is not only erroneous but also prejudicial to the interests of revenue. Therefore, the contention of the assessee that the order is not erroneous is rejected.
3.2 As regards contention of the assessee that prior to amendment to section 142A with effect from 1.10.2014, the AO was not empowered to refer the issue of cost of construction to the Valuation Officer, unless he found discrepancies in accounts and the books of accounts are rejected, it is seen from the record that the survey was conducted under section 133A on 06.09.2012 when the books are not closed as the accounting year was not yet closed. During the course of survey, the assessee has stated that he had invested a sum of Rs.1,27,00,000 as on 6.09.2012. As regards sources of investment, the assessee was not able to substantiate the sources of investment, the assessee was not able to substantiate the sources of investment and based on the sources recorded in the books of account, the difference of Rs.65,73,000 was arrived. Similarly, cash of Rs.5,03,5050 was found excessive not recorded in the books of account. Thus, the claim of the assessee that there were discrepancies in the books of account is incorrect. In fact, during the course of survey huge difference of sources in investment as well as excess cash found clearly go on to show that the books of account were not depicted the true investment and as such, reference to Valuation Cell is the proper way to estimate cost of construction and as such, the AO not referring to the valuation cell made an error of law which require to be corrected by way of remedial action i.e. by revisionary proceedings under section 263 of the I.T. Act, 1961. Therefore, the ratio of the decision relied upon by the assessee, with due respect, does not apply to the case of the assessee since there were discrepancies and under-valuation of investment as per the books of account maintained. Similarly, it is also observed from the audited Capital account as on 31.3.2012 that the assessee has shown a sum of Rs.52,09,684 as closing capital balance whereas, the opening capital balance was shown at Rs.53,77,264, thereby excess opening capital of Rs.1,67,580 which remains unexplained. Therefore, the claim of the assessee that the AO has not found any discrepancy in the audited books maintained is incorrect and accordingly, rejected.
3.3 As observed from the record that the Valuation Officer has estimated the cost of construction of the hospital building at Rs.1,74,56,150 as against estimated by the approved valuer at on the basis of above findings after providing opportunity of being heard to the assessee.”
15. The ld.AR submitted that the ld.Pr.CIT is not justified in exercising his power us/ 263 of the Act because the valuation report was submitted within the due date as prescribed u/s 142A(6) of the Act. During the course of assessment proceedings, the AO referred to the DVO for the determination of the cost of construction in the hospital building and DVO did not submit the report within the time, therefore, he was bound to complete the assessment within the due time. The valuation report received from the DVO dated 25/04/2018 has no value. The ld.Pr.CIT has also not justified under the provision of clause (iv) to Explanation – 1 of sec. 153 of the Act. If the report from the DVO is not received within the period of 6 months as prescribed in the Act, the AO will not get the benefit for extended period as per sec. 153.
15.1 He further submitted that the AO had already framed the opinion and the same cannot be exercised again by change of opinion of the ld.Pr.CIT. Once the AO has taken a plausible view, the same cannot be revised by the ld.Pr.CIT u/s 263 of the Act.
16. On the other hand, the ld.DR relied on the order of the ld.Pr.CIT.
17. After hearing both the sides and pursuing the entire material on record and examining the order of the lower authorities, we do not find any substance on the order of the ld.Pr.CIT that the AO passed order in a hurry without waiting for the DVO report. The DVO submitted report on 25/04/2018 u/s 142A of the Act after 6 months from the receipt of reference, therefore, the DVO report has no value in the eye of law as per sec. 142A(6) of the Act. In support of our view, we rely on the decision of Kolkata Bench in the case of Narula Educational Trust in ITA No. 126 com 158 (Kolkata – Trib.) vide order dated 05/02/2020. Therefore, the AO will not get any benefit of extended period of 60 days as per sec. 153 of the Act. The ld.Pr.CIT is also not justified for reckoning the period for completion of assessment by the AO as per the limitation is also wrong. Considering the totality of facts and circumstances of the case, we set aside the order passed by the ld.Pr.CIT for exercising his power u/s 263 of the Act. Hence, the order passed by the AO cannot be revised us/ 263 of the Act. Therefore, the order passed by the AO is neither erroneous nor prejudicial to the interest of revenue
18. In the result, the appeal of the assessee is allowed. A copy of common order be placed on the respective case files.
Order pronounced in court on 21st day of September, 2022
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