PCIT Vs Prakhar Developers Private Limited (Madhya Pradesh High Court)
Summary: The Madhya Pradesh High Court, Indore Bench, in Pr. CIT Vs Prakhar Developers Private Limited, dismissed the Revenue’s appeal under Section 260A of the Income-tax Act, 1961 challenging the Income Tax Appellate Tribunal’s order dated 05.01.2023. The dispute concerned the Principal Commissioner’s exercise of revisionary powers under Section 263 against an assessment completed under Section 143(3) read with Section 153A after obtaining prior approval under Section 153D. The assessee, engaged in the real estate business, had filed a return declaring nil income for Assessment Year 2012-13. Following a search and seizure operation conducted on 12.07.2016 in the Jain & Dixit Group, Indore, the assessee was subjected to search assessment proceedings. The Assessing Officer completed the assessment on 19.12.2018 and accepted the returned income. Subsequently, the Principal Commissioner initiated revisionary proceedings on the ground that the Assessing Officer had failed to disallow cash payments made for land purchases under Section 40A(3), thereby rendering the assessment erroneous and prejudicial to the interests of the Revenue.
The assessee challenged the revisionary order before the ITAT, Indore, contending that the original search assessment had been completed after obtaining mandatory approval from the competent superior authority under Section 153D. Consequently, the Principal Commissioner could not invoke Section 263 to revise an assessment already approved through the statutory supervisory mechanism. The Tribunal accepted the assessee’s contention and set aside the revisionary order for want of jurisdiction. In reaching this conclusion, the ITAT relied upon the Pune Bench decision in Shri Ramamoorthy Vasudevan Vs PCIT, which had followed several coordinate Bench decisions and judicial authorities concerning the relationship between Section 153D approval and Section 263 revision. The Revenue thereafter approached the High Court, arguing that the Tribunal had wrongly invalidated the revision without examining the merits of the alleged cash-payment violation.
Before the High Court, the Revenue submitted that cash payments made for purchasing land held as stock-in-trade violated Section 40A(3) read with Rule 6DD(g), causing prejudice to the Revenue. It also questioned the Tribunal’s interpretation that revisionary jurisdiction under Section 263 could not be exercised where the assessment had been completed with prior approval under Section 153D. The Revenue relied upon the Supreme Court’s decision in Orissa State Warehousing Corporation Vs CIT to emphasise that statutory provisions must be interpreted according to their ordinary meaning. The Court, however, noted that the Revenue’s counsel could not identify any High Court or Supreme Court decision overturning the reasoning adopted in Shri Ramamoorthy Vasudevan. That decision had relied upon several consistent Tribunal rulings, including Dhariwal Industries Limited Vs CIT, Mehtab Alam Vs ACIT, CH. Krishna Murthy Vs ACIT, Trinity Infra Ventures Limited Vs DCIT, and the Allahabad High Court decision in CIT Vs Dr. Ashok Kumar.
The High Court observed that the consistent judicial approach recognised the jurisdictional significance of prior approval obtained under Section 153D before completing an assessment under Sections 143(3) and 153A. Once the competent authority had approved the assessment and the Assessing Officer had accepted the returned income, the Court held that the same authority could not exercise revisionary powers under Section 263 to reverse the assessment. The Court therefore found no error of law in the ITAT’s decision to follow the established coordinate Bench view. The Court also considered the monetary threshold applicable to departmental appeals, observing that the tax effect involved was below Rs.1 crore. Although the Revenue had invoked Clause 10(c) of CBDT Circular No. 3/2018 dated 11.07.2018, the High Court nevertheless found no ground warranting interference with the Tribunal’s order.
Accordingly, the Madhya Pradesh High Court dismissed Income Tax Appeal No. 182 of 2023 and upheld the ITAT’s decision setting aside the revisionary order under Section 263. The ruling affirms, on the facts considered by the Court, that an assessment completed after obtaining statutory approval under Section 153D cannot subsequently be reversed through Section 263 by the same approving authority. The Court also declined to interfere in view of the tax effect being below Rs.1 crore. The judgment is significant for search assessment proceedings because it addresses the interaction between statutory prior approval, supervisory assessment procedures and the scope of revisionary jurisdiction.
Cases Discussed
1. Shri Ramamoorthy Vasudevan Vs PCIT (ITAT Pune); ITA Nos. 967 & 968/Pun/2016. The principal precedent relied upon by the ITAT, Indore. It was followed for the proposition that revisionary jurisdiction under Section 263 cannot be invoked against an assessment completed under Sections 143(3) and 153A after obtaining prior approval under Section 153D. The High Court found that the Revenue had not demonstrated that this view had been overturned by a superior court.
2. Dhariwal Industries Limited Vs CIT (ITAT Pune); ITA Nos. 1108 to 1113/PUN/2014. Referred to as one of the coordinate Bench authorities considered in Shri Ramamoorthy Vasudevan concerning the effect of Section 153D approval on subsequent revisionary proceedings.
3. Mehtab Alam Vs ACIT (ITAT Lucknow); ITA Nos. 288 to 294/Lkw/2014. Referred to among the decisions supporting the jurisdictional limitation on revisionary proceedings following approval of a search assessment.
4. CH. Krishna Murthy Vs ACIT (ITAT Hyderabad); ITA No. 766/Hyd/2012. Referred to as a supporting authority in the line of Tribunal decisions concerning revisionary jurisdiction and prior approval of search assessments.
5. CIT Vs Dr. Ashok Kumar (Allahabad High Court); ITA No. 192 of 2000. Referred to as a High Court authority considered in the precedents relied upon by the ITAT concerning the legal significance of statutory approval.
6. Trinity Infra Ventures Limited Vs DCIT (ITAT Hyderabad); ITA No. 584/H/2015. Referred to among the decisions consistently supporting the proposition that an assessment completed after Section 153D approval cannot be revised under Section 263 in the circumstances considered.
7. Orissa State Warehousing Corporation Vs CIT (Supreme Court); 237 ITR 589. Cited by the Revenue in its proposed substantial question of law to support the principle that statutory provisions should be interpreted according to their natural and ordinary meaning without substituting judicial impressions for legislative intent.
FULL TEXT OF THE ORDER OF MADHYA PRADESH HIGH COURT
The Principal Commissioner of Income Tax (in short ‘PCIT’), Indore has filed this appeal under Section 260A of the Income Tax Act, 1961 (in short ‘the Act’) against the order dated 05.01.2023 passed by the Income Tax Appellate Tribunal (in short ‘ITAT’), Bench Indore in IT(SS)A No.110/Ind/2021 in an appeal filed by the respondent / assessee, whereby the order passed by PCIT (Central), Bhopal dated 27.03.2021 has been set aside.
02. Heard on I.A. No.1729/2024, which is an application under Section 5 of the Limitation Act for condonation of delay in filing the present appeal. As per contents of the application, this appeal is barred by 107 days.
03. Keeping in view the reasons assigned in the application which is duly supported by an affidavit, I.A. No.1729/2024 stands allowed. Delay in filing the appeal is hereby condoned.
04. Facts of the case in short are as under:-
4.1. The respondent / assessee, a company engaged in the business of Real Estate, filed the return of income under Section 139(1) of the Act for the Assessment Year – 2012 – 13 on 19.09.2011 declaration total income of rupees ‘NIL’.
4.2. A search and seizure operation under Section 132 of the Act was carried out on 12.07.2016 at various premises of Jain & Dixit Group Indore. In the said search, the assessee was also covered under Section 132 of the Act. Accordingly, notices under Section 153A were issued to the assessee for the Assessment Years – 2011 – 12 to 2016 – 17 on 09.10.2017 under Section 143(2) of the Act. A notice under Section 143(2) of the Act was also issued on 02.08.2018 for the Assessment Year – 2017 – 18. Since common issues / facts were involved in case of the assessee for all the concerned Assessment Year, a common order for Assessment Years – 2011 – 12 to 2016 – 17 under Section 143(3) r/w section 153A and for Assessment Year – 2017 – 18 under Section 143(3) of the Act was passed.
4.3. After hearing the assessee, the assessment under Section 143(3) r/w section 153A of the Act was completed on 19.12.2018 by the Assessing Officer accepting the return of income of the assessee for the Assessment Year – 2012 – 13 i.e. ‘NIL’.
4.4. The PCIT (Central), Bhopal on perusal of the record observed that the Assessing Officer did not disallow the cash payment made by the assessee 40A(3) of the Act for the Assessment Year – 2011 – 12 & 2012 – 13, hence, found erroneous so far it is prejudicial to the interest of the Revenue, accordingly, the proceedings under Section 263 of the Act were suo motu initiated against the assessee. The assessee was given opportunity of hearing and vide order dated 19.12.2018, assessment order of the AY – 2011 – 12 to 2017 – 18 was set aside and remanded the matter to the Assessing Officer for fresh examination after giving due opportunity of hearing to the assessee.
4.5. Being aggrieved by the aforesaid order, the respondent / assessee preferred an appeal before the ITAT, Bench Indore. In the said appeal, the respondent / assessee challenged the authority of PCIT (Central), Bhopal under Section 263 of the Act on the ground that the assessment order was passed under Section 143(3) r/w section 153A of the Act upon taking prior approval from the Assistant Commissioner, Income Tax (Central) – 1, Indore under Section 153D of the Act.
4.6. Learned ITAT by placing reliance on a judgment passed by the Co-ordinate Bench of Pune in the case of Shri Ramamoorthy Vasudevan v/s PCIT (ITA Nos.967 & 968/Pun/2016) has held that the order passed by the PCIT is unsustainable due to lack of jurisdiction in invoking Section 263 of the Act and accordingly, set aside the order. Hence, this appeal is before this Court under Section 260A of the Act.
05. In this appeal, the tax effect is below than Rs.1,00,00,000/-. The Income Tax Authority has placed reliance upon Clause 10(c) of Circular No.3/2018 dated 11.07.2018 proposing following substantial questions of law:-
(1) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in allowing the appeal of the assessee without considering the merits of the case ?
(2) Whether on the facts and circumstances of the case, the ITAT was justified in law in quashing the Order U/s 263 passed by Pr. CIT (Central), Bhopal considering the assessment order passed by the AO U/s 143(3) r.w.s. 153A dated 19.12.2018 as erroneous in so far as prejudices to the interest of revenue as assessee had made cash payment for purchase of land in violation of Rule 6DD(g) r.w.s. 40A(3) of the Income Tax Act, 1961, as the land was held by the assessee as stock in trade for the company ?
(3) Whether on the facts and circumstances of the case, the ITAT was justified in law in passing the perverse order that revisionary proceedings U/s 263 of the Act cannot be assumed in the instant case unless any revision directions are issued by the JCIT since the impugned assessment order sought to be revised U/s 263 was passed after obtaining the approval of the JCIT U/s 153D without appreciating the fact that no such statutory obligation is entailed in letter and the sprite of either Section 153D or Section 263 of the Act and accordingly, the ITAT ignored the dictum of law laid down in Orissa State Warehousing v/s CIT 237 ITR 589 (SC) wherein it has been held that-
“The Court is to ascribe natural and ordinary meaning of the words used by the legislature and the Court ought not, under any circumstances, substitute its own impression and ideas in place of legislative intent as is available from a plain reading of the statutory provisions ?
06. Ms. Veena Mandlik, learned counsel for the appellant submits that the assessee made a cash payment for purchase of the land in violation of Rule 6DD(g) r/w 40A(3) of the Act as the land was held by him as stock in trade for the company, therefore, there was a prejudice to the interest of the Revenue. Hence, this appeal is liable to be admitted on the aforesaid proposed substantial questions of law.
07. Learned counsel for the appellant failed to answer the query made by this Court whether order passed by the Pune Bench in the case of Ramamoorthy Vasudevan (supra) was challenged before the High Court or Supreme Court on the issue of jurisdiction under Section 263 of the Act. Learned counsel submits that she could not lay her hands any order / judgment passed by the High Court as well as by the Supreme Court on this issue. In the case of Ramamoorthy Vasudevan (supra), in a similar facts and circumstances, reliance has been placed on judgments delivered by the Pune Bench of Tribunal in the case of Dhariwal Industries Limited v/s CIT (ITA No.1108 to 1113/PUN/2014), Lucknow Bench in the case of Mehtab Alam v/s ACIT (ITA Nos.288 to 294/Lkw/2014), Hyderabad Bench of the Tribunal in the case of CH. Krishna Murthy v/s ACIT (ITA No.766/Hyd/2012) and one of the judgment passed by the High Court of Judicature at Allahabad in the case of CIT v/s Dr. Ashok Kumar (ITA No.192 of 2000) and Hyderabad Bench of Tribunal in the case of M/s Trinity Infra Ventures Limited v/s DCIT (ITA No.584/H/2015) and consistently held that once the order under Section 143(3) r/w section 153A of the Act has been passed after taking prior approval of the ACIT under Section 153D of the Act, then the jurisdiction under Section 263 of the Act cannot be invoked. Therefore, the view taken by the Co-ordinate Bench of the Appellate Tribunal had attained finality. Hence, the ITAT, Indore has not committed any error of law by following the same view.
08. Even otherwise, as per Section 263 of the Act, the Principal 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 prejudical to the interests of the Revenue, he may make enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. For passing any order under Sections 143(3) & 153A of the Act, prior approval of Joint Commissioner is required under Section 153A of the Act, or Principal Commissioner or Commissioner as the case may be. Therefore, once prior approval had already been taken by the Assessing Officer and accepted the return submitted by the assessee, then the same authority cannot exercise the power under Section 263 of the Act to reverse the order of Assessing Officer.
09. Even otherwise, the total tax effect of this appeal is less than Rs.1,00,00,000/-, therefore, we do not find any ground to interfere with the order passed by the Income Tax Appellate Tribunal, Indore.
10. In view of the above, Income Tax Appeal stands dismissed.
