Case Law Details
Rajesh Choudhary Vs ACIT (ITAT Jaipur)
ITAT Jaipur held that invocation of revisionary proceedings u/s. 263 of the Income Tax Act not sustainable since AO duly verified investment and payment of ESI/PF. Accordingly, revision is merely on the basis of assumption and presumption and doesn’t indicate that order is prejudicial to the interest of revenue.
Facts- Post completion of assessment proceeding, PCIT called for the assessment records in accordance with the provision of section 263 of the Act. While examining the assessment record ld. PCIT observed that during the survey proceedings, the assessee had surrendered a sum of Rs.22,62,143/- on account of unexplained investment. He further noted that out of this Rs.22,62,143/-, the assessee had disclosed Rs.22,50,000/- in his return of income. Therefore, the remaining amount was to be added to the total income of the assessee. PCIT further noted in his order that the assessee had made late payment of ESI for the month of May, July, November and January which should have been disallowed and added to the income of the assessee u/s 36(1)(va) r.w.s. 2(24(x) of the Income Tax Act. This amount comes to Rs.17,298/- and the AO failed to add this sum of Rs.17,298/- to the total income of the assessee. Thus PCIT observed that in view of the above facts the order passed by the AO u/s 143(3) dated 20-09-2021 is erroneous and prejudicial to the interest of the Revenue.
Conclusively, PCIT set aside the matter and restored to the file of the AO to verify the applicability of provisions of Section 69 and Section 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act.
Conclusion- Held that that the ld. PCIT had made wrong calculation of Rs.17,298/-instead of actual amount Rs.9,819/-. It is noted from the records that the disallowance of late payment of ESI/PF cannot be made and the same is verified by the AO during assessment proceedings for which the assessee has relied upon above mentioned decisions on the issue of ESI/PF.Thus the order of the AO in this issue is not erroneous and prejudicial to the interest of the Revenue. As regards the invocation of provision of Section 115BBE of the Act, it is noted that source of the investments were explained by the assessee which had been verified by the AO during the course of assessment proceedings. It is noted that the year of investment is not identified and even the quantum is also not identified and thus it is not prejudicial to the interest of revenue. We also found that the show cause notice issued and consequential revenue order passed u/s 263 of the Act passed by the ld.PCIT is based on assumption and presumption which does not indicate that the order is prejudicial to the interest of the Revenue.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
By way of the present appeal, the above-named assessee challenges the order of the Principle Commissioner of Income Tax, (Central), Jaipur [ for short PCIT], which was passed on 20-03-2024. This order relates to the assessment year 2019-20, which was passed because ld. PCIT while exercising the power vested upon her u/s. 263 of the Income Tax Act, 1961 [ for short Act ]while examining the assessment records of the assessee which made upon the assessee by an order dated 20-09-2021passed by the DCIT, Central Circle, Alwar [ for short AO].
2. The present appeal is filed on the following grounds:
1. that on the facts and in the circumstances of the case and in law, the learned Principal Commissioner of Income Tax [PCIT], Central, Jaipur erred in initiating proceedings u/s.263 of the Income Tax Act, 1961.
2. That on the facts and in the circumstances of the case and in law, the appellant prays that the order of the learned PCIT passed u/s. 263 of the Income Tax Act, 1961 needs to be cancelled being void ab-initio and bad in law.
3. That on the facts and in the circumstances of the case and in law, learned Principal Commissioner of Income Tax (Central), Jaipur erred in holding that assessment order dated 20.09.2021 passed by the Assessing Officer u/s 143(3) of the Act was erroneous and prejudicial to the interest of the revenue, as all the issues raised during assessment proceeding were duly considered by the learned Assessing Officer while framing the assessment u/s 143(3) of the Act.
4. That on the facts and in the circumstances of the case and in law, the learned PCIT erred in not himself conducting necessary/proper enquiry and verification of issues mentioned in the notice issued u/s. 263 of the Act and setting aside the assessment order for a de-novo adjudication on issues mentioned therein which is wrong and contrary to the provisions of the Act, and the Rules made thereunder.”
5. The brief facts of the case of are that a survey action u/s 133A of the Act was carried out on 28-08-2018 at the business premises of the assessee firm M/s. Bharat Ultrasounds Prop. Rajesh Choudhary, situated at Bardrinath,115, Jalvayu Tower, Sector-56, Haryana. The assessee firm e-filed its return of income u/s 139 of the Act on 30-10-2019 declaring income of Rs.78,98,350/-. The case of the assessee was selected for compulsory scrutiny being a survey case, as per prevalent CBDT guidelines for selection of cases under Compulsory Scrutiny. It is noted that proceedings of assessment of income were initiated by issuing of notice u/s 143(2) of the Act on 23-09-2020 through computer system which was served electronically on the E-Mail of the assessee firm. Thereafter, in view of the CBDT Circular vide letter dated 17-09-2022, the jurisdiction over the case had been assigned to Central Circle, Alwar by the Pr. CIT-1,Jaipur by means of an order u/s 127 of the Act vide order dated 0-7-012021. Thereafter, notice u/s 142(1) dated 29-01-2021 along with questionnaire was issued to the assessee. The notices were sent to the assessee from time to time and the documents reply were furnished by the ld. AR of the assessee. It is noticed that the assessee is running an Ultrasound Center in Bhiwadiand also having branches of ‘’Bharat Ultrasounds” in Manesar and Nuh. The reply of the assesseealong with supporting documents were examined by the AO on test check basis and the impounded documents were also examined by the AO. Further, the AO during survey proceedings noted that the cash of Rs.3,98,900/- was found on physical verification whereas as per books of accounts the cash in hands was Rs.8,25,774/- on the date of survey. Thus, the cash was found short of Rs.4,26,874/- on the date of survey. While survey proceedings, the statements of Shri Rajesh Choudhary were recorded who in response to question no. 13 stated that the amount of Rs.3.00 lacs were at home and the remaining were spent on household expenses, but the assessee did not produce the documents in support of his claim. It is also noted that the AO vide notice u/s 142(1) dated 29-01-2021 asked the assessee to give the explanation about short cash with supporting documents for which the assessee vide written submission dated 22-02-2021 adduced the following submission.
‘’Cash found short at the time of survey was brought back and utilized as per entries in cash book produced before your good self, thus whole cash was properly accounted for. The annual accounts have been finished on the basis of entries therein.”
The AO considered the reply of the assessee carefully who perused the cash book furnished by the ld.AR of the assessee and thus noticed that the amount of Rs.1,26,874/- was shown on a/c of drawing account and the corresponding entry was not found mentioned in the capital account of the assessee. Thus according to the AO, the justification made by the assessee with regard to expenses of Rs.1,26,874/- was not found satisfactory and the AO held that the amount of Rs.1,26,874/- was unexplained expenditure in terms of provisions of Section 69C of the Act and thus added this amount of Rs.1,26,874/- to the income of the assessee and the Tax will be charged as per provisions of Section 115BBE of the Act.
4. On culmination of the assessment proceeding ld. PCIT called for the assessment records in accordance with the provision of section 263 of the Act. While examining the assessment record ld. PCIT observed that during the survey proceedings, the assessee had surrendered a sum of Rs.22,62,143/- on account of unexplained investment. He further noted that out of this Rs.22,62,143/-, the assessee had disclosed Rs.22,50,000/- in his return of income. Therefore, the remaining amount was to be added to the total income of the assessee. The ld.PCIT further noted in his order that the assessee had made late payment of ESI for the month of May, July, November and January which should have been disallowed and added to the income of the assessee u/s 36(1)(va) r.w.s. 2(24(x) of the Income Tax Act. This amount comes to Rs.17,298/- and the AO failed to add this sum of Rs.17,298/- to the total income of the assessee. Thus the ld. PCIT observed that in view of the above facts the order passed by the AO u/s 143(3) dated 20-09-2021 is erroneous and prejudicial to the interest of the Revenue. Accordingly, a show cause notice u/s 263 of the Act on the issue to the assessee on 08-03-2024 for which Shri Vinod Agarwal, CA appeared and furnished his submissions and the same were placed on records. The ld. PCIT perused the submissions of the assessee and observed that the assessee did not have any explanation in respect of the amount of Rs.22,62,143/- on account of unexplained investment and the same was surrendered during the survey proceedings. He noted that the assessee had shown in his return of income Rs.22,50,000/- as undisclosed investment which means that the assessee had made investment out of books of accounts, using unexplained funds and when the Department detected it during the survey proceedings and the same was surrendered and declared in his return of income. It is noted from the order of the ld. PCIT that the assessee has surrendered the amount of unexplained investment found during the course of survey proceedings which was covered u/s 69 of the Act. Further, the same would not have been detected if the survey was not conducted in the case of the assessee. Accordingly, the same was required to be taxed as per the provision of Section 115BBE of the Act whereas tax was charged at normal rates in the assessment order dated 20-09-2021. As regards the issue of short surrender of Rs.12,143/- and payment of ESI of Rs.17,298/- which are to be added to the total income of the assessee, the AO had already passed rectification Order on 23-02-2024 wherein no discussion was required by the ld.PCIT. The ld. PCIT noted that the AO had not made query in regard to the source of the investment found during the survey proceedings. Neither the assessee had given an iota of evidences that the investment was made from the undisclosed income of the assessee from business. Conclusively, the ld PCIT set aside the matter and restored to the file of the AO to verify the applicability of provisions of Section 69 and Section 36(1)(va) r.w.s. 2(24)(x) of the Income Tax Act by observing as under:-
‘’09. Considering all the facts and circumstances of the case and for the reasons discussed above, the assessment order dated 20.09.2021for A.Y. 201920 passed by the AO is held to be erroneous in so far as it is prejudicial to the interest of the revenue for the purpose of section 263 of the Act. The said order has been passed by the AO in a routine and casual manner without applying the applicable sections of the Act. The AO has not verified the details which were required to be verified under the scope of scrutiny. The order of the AO is, therefore, liable to revision under the explanation (2) clause (b) and clause (a) of section 263 of the Act. The assessment order is set aside to be made afresh in the light of the observation made in this order. The AO is required to make necessary verification in respect of the observations made in this order after allowing reasonable opportunity to the assessee.
I wish to make it clear that I am not disturbing the assessment that has already been made. I am only passing an order whereas applicability of the provisions of section 69 and section 36(1)(va) r.w.s. 2(24)(x) for late payment of ESI are considered. The order of the AO is, therefore, liable to revision under the explanation (2) clause (a) of section 263 of the Act. The assessment order is set aside and restored to the file of Assessing officer to verifying applicability of provisions of section 69 and section 36(1)(va) r.w.s. 2(24)(x)of the Income tax Act.”
5. Aggrieved with that order of the ld. PCIT, assessee preferred the present appeal where the assessee in support of the grounds so raised filed following detailed written submission praying therein that the order passed by the ld.PCIT u/s 263 of the Act is not justified and the same is required to be quashed:
‘’Brief Facts of the Case:
1. Assessee is an individual and by profession he is a doctor & running business of Diagnostic centre in the name of M/s. Bharat Ultrasounds Prop. Rajesh Choudhary, situated at 115, Jalvayu Tower, Sector 56, Gurgaon, Haryana-122001.
2. That a Survey u/s. 133A of the I.T. Act, 1961 was carried out by Income Tax Department officials on 28.08.2018 at the business premises of assessee.
3. That the statement of appellant is recorded 2 times. 1st statement was recorded on 28.08.2018 (i.e. during survey) and second statement was recorded on 04.09.2018 (i.e. Post Survey).
(i). That during the survey proceeding statement of Shri Rajesh Choudhary was recorded on 28.08.2018 and assessee provided all information & explanation to Ld. ITO during the survey proceeding regarding questions made by Ld. ITO.
(ii). That during the survey proceeding Ld. A.O. asked question regarding the construction of building and amount of investment in construction in QUESTION No. 4 of Statement.
(iii). That in response to above question, assessee submitted detailed reply regarding the construction & finishing (the term renovation used for finishing) of building. The relevant part of statement is as follows:-
(a) Construction started in F.Y. 2013-14
(b) Construction completed in F.Y. 2016-17.
(c) Finishing (i.e. renovation word used) in 2017-18 (i.e. upto March, 2018)
(d) Estimated cost of construction including finishing was approx Rs. 1 Crore.
(e) First year expenses was Rs. 35 Lakh to Rs. 40 Lakhs.
(f) In Year 2016 expenses was around Rs. 20 Lakhs to Rs. 25 Lakhs.
(e). Year 2017 and 2018, Rs. 20 Lakh each
(iv). That further, Ld. A.O. asked question regarding the sources of construction of building in QUESTION No. 5 of Statement.
(v). That in response to above question No. 5, assessee submitted detailed reply regarding the sources of construction of building (i.e. Rs. 25 Lakhs & Rs. 35 Lakhs personal loan from ICICI Bank & HDFC Bank and the sources of remaining investent was out of daily income/earning. Hence, assessee explained sources of investment in building expressly, concisely and clearly.
(vi) That in QUESTION No. 6, the Ld. A.O. asked question regarding the annual income from M/s. Bharat Ultrasounds.
(vii) That in response to above question No. 6, assessee submitted detailed statement regarding the annual income from M/s. Bharat Ultrasounds.
(viii) That further, in QUESTION No. 15, the Ld. A.O. made detailed query regarding the total area of construction and made baseless & vague estimation of construction of building which is amounting to Rs. 1,54,84,500/- (i.e. Rs. 1,500/- per sq. feet).
(ix) That in response to the above question, assessee submitted that the construction had started 4 years ago and at that time the cost of construction is very low as compared to current value. Therefore, the estimation made by Ld. O. at that time was totally incorrect and purely guess work without any concrete documentary proof.
4. That on 31.08.2018 assessee obtained a valuation report of the construction at Plot no. 1/58 & 1/57, Sector -1, Rajasthan Housing Board Colony, Bhiwadi, Alwar-301019 from an Approved valuer Mr. Vivek Kumar Jindal for estimate the value of the construction.
The total valuation of building was made by the valuer amounting to Rs. 92,27,000/- as on 31.08.2018 as per the valuation report of Approved valuer.
5. (i). That after valuation from the approved valuer, on 04.09.2018, another statement of assessee was recorded by Ld. ITO and assessee provided all information to Ld. ITO regarding questions made by Ld. ITO.
(ii) That in QUESTION No. 3 & 4, the Ld. A.O. had agreed with the valuation report and the total cost of construction was accepted only Rs. 92,27,000/-(instead of Rs. 1,54,84,500/- calculated by Ld. A.O. on the date of survey).
(iii) That in QUESTION No. 4, the Ld. A.O. asked clarification on difference of cost of construction of Rs. 22,62,143/- (I.e. Total Cost of construction Rs. 92,27,000 – Amount recorded in Books of accounts Rs. 69,64,857/-).
(iv) That in response to the above question, assessee submitted that he does not have some bills/vouchers. Further, it is submitted that assessee had surrendered this amount of Rs. 22,62,143/- as Undisclosed Investment and assessee had also declared the amount of Rs. 22,50,000/- in his ITR for the year under consideration.
(v) That further, it is submitted that the amount of Rs. 22,62,143/- was Undisclosed Investment but same was from explained sources of income (i.e. from business of assessee) and Ld. A.O. was also agreed with the same during Survey proceeding and during Assessment proceedings also. This fact is admitted by the assessee in Reply of Question No. 5 of 1st Statement recorded on 28.08.2018.
The Ld. A.O. did not found any incrementing material regarding undisclosed sources of income and also did not made any adverse finding regarding the undisclosed sources of income during the survey .
So, it is crystal clear that the undeclared investment was from disclosed sources of income only.
6. That assessee had filed his return of income u/s. 139(1) of the I.T. Act, 1961 on 30.10.2019, declaring total income amounting to Rs. 78,98,350/- as per audited books of accounts and Rs. 22,50,000/- declared which was on account of undisclosed investment on the basis of valuation report & surrendered.
7. That proceeding of assessment was initiated and a notice u/s. 143(2) of the I.T. Act, 1961 were issued on 23.09.2020.
8. That further, assessee received notices u/s. 142(1) of the I.T. Act, 1961 on 29.01.2021 and on this query letter the Ld. A.O. made specific query No. 1 and 2 regarding disclosure of undisclosed income in ITR filed by assessee.
9. That assessee submitted proper reply along with the required documents/details/information and the same reply was considered by the Ld. A.O.
10. That the Ld. A.O. passed an assessment order on 20.09.2021 by making an addition of Rs. 1,26,874/- on account of unexplained expenditure (i.e. as cash found short).
11. That further, Revision proceedings were initiated by Ld. PCIT (Central), Jaipur and issued a Show Cause Notice for revision proceeding u/s. 263 of the I.T Act, 1961 on 08.03.2024 and the relevant Point No. 3 of SCN is as follows:-
“3. Upon examination of assessment record, it is revealed that the assessee had surrendered a sum of Rs. 22,62,143/- on account of unexplained investment however the assessee had offered a sum of Rs. 22,50,000/- only in return of income, hence the balance sum of Rs. 12,143/- was left out and the A.O. should have added this sum while finalizing the assessment order. Further, it is also clear that the sum of Rs. 22,62,143/- was the undisclosed investment and was to be taken under Section 69 and tax computed u/s. 115BBE of the I.T. Act, 1961 and could not be taxed at normal rate. The Assessing Officer has erred by not taxing the sum of Rs. 22,62,143/- at special rate.”
12. That in response to the SCN, assessee submitted proper reply within the stipulated time period along with the required documents/details.
13. That the Ld. PCIT (Central), Jaipur passed an order u/s. 263 of the I.T. Act, 1961 on 20.03.2024 by stating that “Considering all the facts and circumstances of the case and for the reasons discussed above, the assessment order dated 20.09.2021for A.Y. 2019-20 passed by the AO is held to be erroneous in so far as it is prejudicial to the interest of the revenue for the purpose of section 263 of the Act. The said order has been passed by the AO in a routine and casual manner without applying the applicable sections of the Act. The AO has not verified the details which were required to be verified under the scope of scrutiny. The order of the AO is, therefore, liable to revision under the explanation (2) clause (b) and clause (a) of section 263 of the Act. The assessment order is set aside to be made afresh in the light of the observation made in this order. The AO is required to make necessary verification in respect of the observations made in this order after allowing reasonable opportunity to the assessee.
I wish to make it clear that I am not disturbing the assessment that has already been made. I am only passing an order whereas applicability of the provisions of section 69 and section 36(1)(va) r.w.s. 2(24)(x) for late payment of ESI are considered. The order of the AO is, therefore, liable to revision under the explanation (2) clause (a) of section 263 of the Act. The assessment order is set aside and restored to the file of Assessing officer to verifying applicability of provisions of section 69 and section 36(1)(va) r.w.s. 2(24)(x)of the Income tax Act.”
14. That the Ld. PCIT (Central), Jaipur has mentioned the incorrect facts while passing order u/s. 263 of the I.T. Act, 1961, which is as follows:-
(i). The assessee had surrendered Rs. 22,62,143/- on account of unexplained investment.
(ii) The assessee has shown in his return of income Rs. 22,50,000/- as unexplained investment.
(iii) The Ld. A.O. has not verified the details which were required to be verified under the scope of scrutiny.
(iv) The order has been passed by Ld. A.O. in a routine and casual manner without applying the applicable sections of the Act.
(v) Wrong calculation of difference in Valuation report & the amount recorded in books + the amount offered for tax Rs. 12,143/- instead of Rs. 59,343/-.
(vi) Wrong calculation of ESI late deposited Rs. 17,298/- for the month of May, July, November and January, whereas correct facts which are as follows:-
| May | – Rs. 2,479/- |
| July | – Rs. 2,366/- |
| November | – Rs. 2,419/- |
| January | – Rs. 2,555/- |
| Rs. 9,819/- |
Provisions of Income Tax Act, 1961:-
Section 263 – Revision of Orders Prejudice to Revenue
“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 [or the Transfer Pricing Officer, as the case may be,] 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,—
(i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or
(ii) an order modifying the order under section 92CA; or
(iii) an order cancelling the order under section 92CA and directing a fresh order under the said section].
Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,—
(a) an order passed on or before or after the 1st day of June, 1988] by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall include—
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer [or the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120;
[(iii) an order under section 92CA by the Transfer Pricing Officer;]
(b)“record” shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer 92[or the Transfer Pricing Officer, as the case may be,] had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the* Principal Commissioner or Commissioner under this subsection shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,—
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
[Explanation 3.—For the purposes of this section, “Transfer Pricing Officer” shall have the same meaning as assigned to it in the Explanation to section 92CA.]
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.
Explanation.—In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
Our Submission:-
1. Allegation:- Ld. A.O. has not done verification is incorrect.
Whether the Section 69 of the Act is applicable or not? It depends on the basis of following conditions:-
(i) Investment is not recorded in Books.
(ii) Assessee offers no explanations about the nature & sources of the investment or the explanation by him is not in the opinion of the A.O., satisfactory.
Hence the Ld. A.O. examined & verified both the 2 conditions. First condition satisfy that investment was not recorded in books, but second condition was not satisfied as the assessee explained sources of the investment in answer of Question No. 5 of 1st statement recorded during Survey on 28.08.2018.
Hence, the allegation of PCIT about non-verification of the required details is completely incorrect & based on surmises, assumption & presumption.
Moreover, the Ld. A.O. conduct survey & Ld. A.O. didn’t find any adverse material to contravent the explanation of assessee about the source of investment. Hence, the Ld. A.O. was satisfied by considering the reply of assessee, disclosure by assessee as well as material gathered by the Ld. A.O. as the time of survey.
2. Allegations made by PCIT are factually incorrect:-
(a). The difference amount in valuation report & the amount surrendered during the survey proceeding is Rs. 59,343/- whereas the PCIT took only Rs. 12,143/-.
Regarding difference of Rs. 12,143/-:-
(i) That there werewrong calculation of difference in Valuation report & the amount recorded in books and the amount offered for tax Rs. 12,143/-.
(ii) The Surrender was based on the valuer’s report. The valuation report is pure estimation.
(ii). There are many defects in Valuation report as this is valuation report, not actual cost of construction.
(iii) Addition can be made during the year of investment. Here, the construction work was completed in 4 years. So, there is no clear bifurcation that which year of investment is unrecorded.
(iv) The above issue was a very petty & explained before A.O. and discussed at the time of hearing during assessment proceeding & the Ld. A.O. satisfied on this difference, explained by the appellant.
(b). Calculation of disallowable contribution of employee of ESI is incorrect.
(i) That the Ld. PCIT (Central), Jaipur had stated that assessee had made late deposit of ESI amounting to Rs. 17,298/- for the month of May, July, November and January.
(ii) That the calculation done by Ld. PCIT was totally factually incorrect.
(iii) That the actual calculation of ESI late deposited for the month of May, July, November and January, which is as follows:-
| May | – Rs. 2,479/- |
| July | – Rs. 2,366/- |
| November | – Rs. 2,419/- |
| January | – Rs. 2,555/- |
| Rs. 9,819/- |
3. That the basis of addition/surrender on account of valuation report has many deficiency, which are as follows:-
(i) The purpose for which valuation was done ‘to assess Fair Market Value’ instead of ‘cost of construction’.
(ii) The year of commencement of construction was not mentioned in valuation report.
(iii) The area of building was measured in Sq. Meter in valuation report, which is totally vague & guess work.
(iv) That in valuation report, no where mentioned quality of construction, quality of construction material used viz. which stone, which flooring, which wood, quality of furnishing etc.
(v) That the year of investment cannot be identifiable from the valuation report.
4. ESI/PF:-
That for the year under consideration the Jurisdictional Rajasthan High Court and Jurisdictional ITAT grants relief to appellant, as if the payment was made before the due date of filing of return of income. Then, the disallowance of late payment of ESI/PF cannot be made and the same is verified by the Ld. A.O. during assessment proceeding.
Assessee is relying on the following Judgment of Jurisdictional Rajasthan High Court:-
Hon’ble Rajasthan High Court in CIT Vs. Rajasthan State Beverages Corporation Ltd. / Rajasthan State Ganganagar Sugar Mill (2017) 250 Taxman 32 (Raj), the Hon’ble High Court has once again held that the employees’ contributions to the PF, ESI, etc. made within the due date of filing the return u/s 139(1) shall be allowable as deduction. It was submitted that against the aforesaid decision of Hon’ble Rajasthan High Court, the SLP filed by the department before the Hon’ble Supreme Court has been dismissed on 04.07.2017 and therefore, the decision of Hon’ble Rajasthan High Court has attained finality.
Further, it is submitted that the Judgment of Hon’ble Supreme Court in case of Checkmate Services Pvt. Ltd. v. CIT, having Civil Appeal No. 2833 of 2016, order dated 12.10.2022 held that “the Deduction u/s 36(1)(va) in respect of delayed deposit of amount collected towards employees’ contribution to PF cannot be claimed when deposited within the due date of filing of return even when read with Section 43B of the Income-tax Act,1961.”
So, in view of the above it is submitted that:-
A. The Judgment of Hon’ble Supreme Court in case of Checkmate Services Pvt. Ltd. was pronounced on 12.10.2022 was came after the reassessment proceeding.
B. The Judgment of Rajasthan High Court in PCIT, Jaipur-2 vs. Rajasthan State Beverages Corporation Ltd., ITA No. 150/2016 was pronounced on 04.08.2016.
C. The Judgment Rajasthan High Court in case of Rajasthan State Beverages Corporation Ltd is applicable in case of assessee at the time of assessment proceedings.
D. So, the order passed by Ld. A.O. is not erroneous and prejudice to the interest of Revenue.
Moreover, assessee is also relying on the Judgment of Hon’ble ITAT, Jaipur Bench in case of Mahesh Kumar Saini v. PCIT (Central), Jaipur, having ITA No. 477 to 479/JP/2024, Date of Order 01.08.2024& the finding of the Hon’ble Court is as follows:-
“12. We have heard the rival contentions of both the parties and perused the materials available on record.
In this case, the assessment was framed u/s 143(3) of the Act on 22.09.2021. It has been held to be erroneous in so far prejudicial to the interest of revenue for the reason that the income surrendered during survey operation and the addition made thereupon in the assessment order was not verified as regards the provisions of section 68, 69 & 69A r.w.s. 115BBE of the Act.
The controversy arises whether there was any inquiry conducted by the ld. AO during the assessment proceeding qua the income offered by the assessee during the survey operation. On this aspect, we find that the Assessing Officer had asked the assessee to give details of the disclosure made by the assessee and get the same verified from the income tax return filed by the assessee.
The Assessing Officer not only verified the details of that amount disclosed by the assessee, but has also went on examining the correctness of the disclosure. There were three disclosure statements made by the assessee.
One is business receipt, regarding which the ld. AO made addition of Rs. 1,62,000/- in addition to the disclosure of Rs. 15 lac made by the assessee.
The assessee made disclosure of construction expenses which were also enhanced by a sum of Rs. 7 lac by the ld. AO.
So far as the excess stock found to the tune of Rs. 7,87,459/-, ld. AO converted it to Rs. 2,36,628/-. So, exchange of information by the assessee and verified by the Assessing Officer clearly appear in the body of the assessment order. Thus, it transpires that there was application of mind by the AO during the assessment proceedings. Accordingly, it cannot be said that the assessment has been framed by the AO without conducting inquiries.
As such, we hold that the AO framed the assessment after necessary inquiries with respect to the income surrendered by the assessee during the survey operation conducted u/s 133A of the Act.
14. In the order, Learned PCIT has referred to Explanation 2 to section 263 of the Act, in holding that the necessary inquiries were not carried out by the AO during the assessment proceedings.
However, we find that the Ld. PCIT in the notice issued u/s 263 of the Act [ page 28-30 of paper book ] did not make any reference to the Explanation 2 to section 263 of the Act. Therefore, we hold that the Ld. PCIT erred in holding assessment order as erroneous and prejudicial to the interest of Revenue after referring to Explanation 2 of section 263 of the Act.
16. From the above, it transpires that to tax any item of income/ expenditure, unaccounted investment at the specific rate r.w.s. 115BBE of the Act, it is necessary to classify the income under the relevant head provision under section 69, 68, 69B etc. as they are penal in nature.
In present case, the income surrendered was to be classified u/s 68, 69 & 69A of the Act. As per the direction of the Ld. PCIT, however, we find that the Ld. PCIT has nowhere pointed out that the income surrendered by the assessee falls within the provision of section 68, 69 & 69A of the Act. As such, the assessee was able to justify the source of income surrendered during survey operation. Therefore we are of the view that the same cannot be treated as deemed income. Once, the income goes out of the preview of the deeming provision, the provision of section 115BBE of the Act cannot be applied.
17. Thus, we note that the AO has taken one of the plausible view by treating the income offered during survey operation as income under the head of business and profession. The similar view has been taken by the co-ordinate bench of Delhi ITAT in the case of Hema Raman vs. PCIT in ITA No. 1012/DEL/20222 dated 12.05.2023.
18. So, we are of the considered view that ld. PCIT could not substitute the view taken by ld. AO as per his understanding of facts of the case. In view of the above, and after considering the facts in totality, we hold that the order passed u/s 263 of the Act is not sustainable. Accordingly, we quash the same. Hence, the solitary ground of appeal of the assessee is hereby allowed.
19. In the result, the appeal of the assessee is in ITA no. 477/JP/2024 stands allowed.
20. The facts of the case in ITA Nos. 478 & 479/JP/2024 are similar to the case in ITA No. 477/JP/2024.
In terms of these observations, three appeals of the assessee are allowed. Order pronounced in the open court on 01/08/2024.”
That the draconian provision of Section 115BBE cannot be invoked even Section 69 of the Act, cannot invoked:-
(i) The sources of investment are explained and the Ld. A.O. was also verified the same during assessment proceeding.
(ii) The year of investment is not identified.
(iii) Even quantum is also not identified. Hence, it is not prejudicial to the Interest of Revenue.
(iv) That the SCN issued and consequential Revenue order u/s. 263 of the I.T. Act, 1961 passed by Ld. PCIT (Central), Jaipur is based on assumption & presumption basis.
Therefore, in view of the above submission the order passed by Ld. PCIT (Central), Jaipur u/s. 263 of the I.T. Act, 1961 is void-ab-initio and totally incorrect & unlawful in the eyes of Law. Kindly quash the same.”
6. It is noted that the ld. AR of the assessee has filed the following paper book, whose index reproduced herein below, which was filed to support his submissions containing pages 1 to 87.
| S.N. | Particulars | Page No. |
| 1. | Copy of statement No.1 of assessee dated 2808-2018 & 29-08-2018 (During survey) | 1-10 |
| 2. | Copy of statement No. 2 of assesee dated 04-09-2018 (post survey) | 11-14 |
| 3. | Copy of Valuation report of Plot No. 1/58 & 1/57 RHB Bhiwadi, Alwar dated 31-08-2018 | 15-30 |
| 4. | Copy of audited accounts alongwith Audit Report | 31-57 |
| 5. | Copy of ITR Form declared Rs.22,50,000/- (i.e. surrender as not recorded transaction) | 58-63 |
| 6. | Copy of ITR-V and computation of total income | 64-70 |
| 7. | Copy of Show Cause Notice u/s 263 of the I.T. Act dated 8-03-2024 | 71-72 |
| 8. | Copies of query letter u/s 143(2) and 142(1) issued during assessment proceedings | 73-82 |
| 9. | Copy of reply submitted during assessment proceedings | 83-87 |
(documents listed at S. No. 1 to 9 were before the lower authorities during assessment proceedings and also during revision proceedings u/s 263 of the Act.)
7. Further the ld.AR of the assessee has relied upon the following decisions as to the case of PF & ESI
1. PCIT,Jaipur-2 vs Rajasthan State Beverages Corp. Ltd (DBIT No. 150/2016 dated 04-08-2016 0 Rajasthan High Court -Appeal dismissed.)
2. PCIT, Jaipur vs Rajasthan State Beverages Corp. Ltd.(Record of proceedings [Diary No. (s) 15041/2017 (SC) – Judgement dated 04-08-2016 arising out of ITA No. 150/2016 passed by the High Court of Judicature for Rajasthan Bench, at Jaipur]
3. Checkmate Services Pvt. Ltd vs CIT-1 (Civil Appeal No.2833 of2016 – Departmental appeals dismissed. Vide Order 12th Oct. 2022)
8. On the other hand, the ld. DR supported the order of the ld.PCIT.
9. We have heard both the parties and perused the materials available on record. In this case, it is noted that the ld. PCIT observed that the AO has not done verification. It may be noted that whether Section 69 of the Act is applicable or not which depends upon the following conditions.
(i) Investment is not recorded in the books.
(ii) Assessee offer no explanations about the nature and sources of the investment or the explanation made by him is not in the opinion of the AO, satisfactory
Thus, the AO examined and verified both the two conditions. First,
condition is to satisfy that investment was not recorded in the books but second condition was not satisfied as the assessee explained sources of the investment in answer to Question No. 5 of 1st statement recorded during survey on 28-8-2018. Thus the allegation of ld. PCIT about non-verification of required details is completely incorrect. The AO during survey did not find any adverse material controverting the explanation of assessee about the source of investment and thus the AO was satisfied by considering the reply of the assessee.
9.1 As regards the allegation by the ld. PCIT about the difference amount valuation report and the amount surrendered during the survey is Rs.59,343/- wherein the ld. PCIT took only Rs.12,143/-. It is noted that there were wrong calculation of difference in valuation report and the amount recorded in the books and thus the amount offered for tax is Rs.12,143/-. The surrender was based on the valuer’s report which is purely on estimate basis. This amount is a very petty amount and it can be understood that such petty expenses has no relevance which can be part and parcel of cost of construction work.
9.2 It is noted that ld. PCIT had noted that the assessee had made late deposit of ESI amounting to Rs.17,298/- for the month of May, July, November and January. However, it is found that the assessee made the late deposit of ESI amount for the following months:
| May | Rs.2479/- |
| July | Rs.2366/- |
| Novr. | Rs.2419/- |
| Jan. | Rs.2555/- |
| Rs.9819/- |
It is noted that the ld. PCIT had made wrong calculation of Rs.17,298/-instead of actual amount Rs.9,819/-. It is noted from the records that the disallowance of late payment of ESI/PF cannot be made and the same is verified by the AO during assessment proceedings for which the assessee has relied upon above mentioned decisions on the issue of ESI/PF.Thus the order of the AO in this issue is not erroneous and prejudicial to the interest of the Revenue.
9.3 As regards the invocation of provision of Section 115BBE of the Act, it is noted that source of the investments were explained by the assessee which had been verified by the AO during the course of assessment proceedings. It is noted that the year of investment is not identified and even the quantum is also not identified and thus it is not prejudicial to the interest of revenue. We also found that the show cause notice issued and consequential revenue order passed u/s 263 of the Act passed by the ld.PCIT is based on assumption and presumption which does not indicate that the order is prejudicial to the interest of the Revenue. Hence, in view of the entirety of the facts and circumstances of the case, we do not concur with the findings of the ld.PCIT. Thus, the appeal of the assessee is allowed.
10. Hence in view of these legal and factual submissions, and the binding judicial precedents, the impugned order passed u/s 263 deserves to be quashed.
11. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 01 /01/2025.
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