Akash Deep Singhla vs PCIT

This appeal by the assessee is preferred against the order of the PCIT Delhi-7, dated 22.12.2017 framed u/s. 263 of the Act.

The sum and substance of the grievance of the assessee is that the PCIT wrongly assumed jurisdiction u/s. 263 of the Act and erred in holding that the assessment order dated Nil framed u/s. 143 (3) of the Act is not only erroneous but also pre judicial to the interest of the revenue.

The representatives of both the sides were heard at length. Case records carefully perused and with the assistance of the Counsel we have considered the relevant documentary evidences brought on record in the light of Rule 18 (vi) of the ITAT Rules.

Briefly stated the facts of the case are that for the assessment year under consideration the assessee filed his return of income on 28.08.2015 declaring income of Rs.64,71,190/-. This return was revised on 02.09.2015 declaring income of Rs.64,71,190/-. This return was selected for scrutiny assessment. The case was selected for limited scrutiny under CASS on the following reasons :-

Sales consideration of property in ITR is less than sales consideration reported in Form 26QB.

Tax credit claimed in ITR is less than tax credit available in 26AS.

Large difference in opening stock of current year and closing stock of previous year shown in P & L account as per Return of income.

Mismatch in sales turnover reported in Audit Report and ITR

The assessee filed detailed reply giving explanation point wise in respect of each and every reason for scrutiny selection. Such detailed reply are available in the paper book from pages 50 to 51 alongwith supporting evidences in the form of copies of ledger account, copies of computation of income and copies of financial statement of account.

After carefully perusing the reply and the documentary evidences the assessment was completed u/s. 143(3) of the Act at an assessed income of Rs.65,04,660/-.

Assuming jurisdiction conferred upon him by the provisions of section 263 of the Act the PCIT issued a show cause notice which is reproduced as under :-

This show cause notice is reproduced as under:

"On examination of the assessment records in your case for the AY 2015-16, it appears that the assessment order passed u/s143(3) on 22.12.2017 by the ITO, Ward 19(2), New Delhi is erroneous in so far as it is prejudicial to the interests of revenue due to the following reason:

In this case, assessment u/s 143(3) of the Income Tax Act, 1961 was completed on 22.12.2017 at the total income of Rs.65,04,660/-.

Thereafter, following observations have been noted:

a. That you have been paid interest of Rs.8,368/- u/s 244A on income tax refund issued for the A.Y.2012-13 during the F.Y.2014-15 relevant to A.Y.2015-16 which has not been offered for taxation.

b. That you have claimed exempt income of Rs. 6,82,500/- u/s 10(38) on the sale of 1000 shares of M/s Flander Green Flied Pvt. Ltd. However, the exemption u/s 10(38) is available only when transaction is chargeable to STT. As M/s Flander Green Flied Pvt. Ltd. is a private limited company so the same is not listed on recognized Indian Stock Exchange and accordingly the transaction is chargeable to STT. Therefore, the income earned on such transaction is not exempt u/s 10(38) of the Act.

c. That you have declared sale of eight properties during the year under consideration to M/s P.P. Syntex Pvt. Ltd. for a total consideration of Rs.13,18,00,000/- and stated the cost of these properties at Rs. 13,00,73,969/- and furnished only agreement to sale in support of sale not the registered sale deed. As the registered sale deed is not available it cannot be ascertained that whether the properties were sold at circle rate or less than circle rate and the applicability of Section 43CA on this issue as one of the reasons for selection of case for scrutiny was "sale consideration of property in ITR is less than sale consideration reported in Form-26QB"

d. That you have shown opening stock of Rs. 15,06,23,223. Besides as per the bank book, the opening bank balance as on 01.04.2014 has been shown at Rs.23,24,975/-. Further you haveshown the opening capital of Rs.2,22,93,301/-. However, in your return of income furnished for the preceding year you have not shown any such capital. As one of the reasons for selection of case under limited scrutiny was substantial income in capital, the issue remained unattended.

In this background, you are given an opportunity to show cause as to why an order u/s 263 of the Income Tax Act, 1961 should not be passed to set right the above omission. In case you intend to furnish submission, then you are accorded an opportunity to submit the same. Your case is fixed for hearing on 11.03.2020 at 4.00 PM in Room No. 215. C.R. Building. I. P. Estate, New Delhi. Please note that in case of failure to make any submission by this date, the case will be decided on the and the evidences available on record and no further submission will be entertained.

Assessee filed a point wise reply to each and every issue raised by the PCIT and the reply has been exhibited in the body of the order of the PCIT from pages- 3 to 7.

A detailed reply of the assessee did not find any favour with the PCIT who after referring to various judicial decisions concluded that the assessment order framed u/s.143 (3) of the Act is not only erroneous but also prejudicial to the interest of the revenue.

We have given a thoughtful consideration to the order of the PCIT. The first issue relating to interest of Rs.8,368/- u/s. 244 A of the Act has been dropped by the PCIT himself.

The second issue relates to claim of exempt income u/s. 10(38) of the Act which is, firstly, factually incorrect as infact the assessee has shown longterm capital loss of Rs.920658/- and secondly and most importantly as mentioned elsewhere the return was selected for limited scrutiny and the reasons are mentioned elsewhere and the claim of exemption is not one of the reasons for scrutiny selection of the return, therefore, this point is beyond the jurisdiction of PCIT as the AO could not have made any enquiry in respect of this issue as the same was not part of the limited scrutiny.

The next issue relates to the sale of 8 properties during the year under consideration to M/s. P.P. Syntex Pvt. Ltd. It has been categorically explained that the circle rate is not applicable on rights in the property without title as all the cost in flat in question were in the nature of booking amount for flats and the developer did not register the title in the flats of the assessee.

It is also made very clear that these properties need not have been registered as they were mere rights in the property without title, and there is no designated registering authority for these at the time of sale and purchase of these properties.

These facts have not been controverted by the PCIT and it is settled proposition of law that for assumption of jurisdiction u/s. 263 of the Act the impugned assessment order should not only be erroneous but also pre judicial to the interest of the revenue.

The error can be of facts or of law. On the given facts discussed here in above there is no error in facts and there is no error in law also.

The next issue relates to the variation in the opening stock, opening bank balance, opening capital as according to the PCIT in the return of income furnished by the assessee for the preceding year the assessee has not shown any such capital and the AO has neither verified the genuineness and source of the opening capital nor reconciled the opening stock which were the reasons for selection or case under limited scrutiny.

This view of the PCIT is erroneous in as much as vide reply dated 16.10.2017 the assessee has given a detailed explanation in respect of stock valuation, sales turnover mismatch, mismatch in income/ capital gain/ on sale of land or building, increase in capital, tax credit mismatch alongwith copies of ledger accounts which have been duly examined by the AO before framing the Assessment Order u/s. 143 (3) of the Act. Exhibit 50 to 56 of the paper book clearly show that to the specific querry of the AO specific reply was furnished by the assessee.

The Hon’ble Delhi High Court in the case of DLF Limited 350 ITR 555 has held as under :-

• It is not mere prejudice to the revenue, or a mere erroneous view which can be revised under section 263. There should be the added element of 'unsustainability' in the order of the Assessing Officer, which clothes the Commissioner with jurisdiction to issue notice and proceed to make appropriate orders. [Para 10]

• In this case, the record reveals that the Assessing Officer had issued notice, and held proceedings on several dates (of hearing) before proceeding to frame the assessment. The Commissioner took the view that the assessment order disclosed an error, in that the deduction under section 14A had not been made. While the statutory direction to the Assessing Officer to calculate, proportionately, the expenditure which an assessee may incur to obtain dividend income, for purposes of disallowance, cannot be lost sight of, equally, such a requirement has to be viewed in the context and circumstances of each given case.

• In the present case, it was repeatedly emphasized that the assessee's dividend income was confined to what it received from investment made in a sister concern, and that only one dividend warrant was received.

Equally, there is no material to say that apart from that single dividend warrant, any other dividend income was received or that the assessee had to expend effort, or specially allocate resources to keep track of its investments, especially dividend yielding ones. In these circumstances, it can be said that whether the deduction under section 14A was warranted, was a debatable fact. In any event, even if it were not debatable, the error by the Assessing Officer is not 'unsustainable'. Possibly he could have taken another view; yet, that he did not do so, would not render his opinion an unsustainable one, warranting exercise of section 263.

Similarly the Hon’ble Delhi High Court in the case of Brahma Centre Development (P) Ltd. 437 ITR 285 observed and held as under :-

An assessment order can be revised under section 263 of the Income-tax Act, 1961 if two conditions are met, i. e., that the order is erroneous and it is prejudicial to the interests of the Revenue. The error should be one that is not debatable or a plausible view. Section 263 of the Act invests a power of revision in a superior officer and therefore, by the very nature of the power, it does not allow for supplanting or substituting the view of the Assessing Officer. The appreciation of material placed before the Assessing Officer is exclusively within his domain which cannot be interdicted by a superior officer while exercising powers under section 263 of the Act only on the ground that if he had appraised the same material, he would have come to a different conclusion.

The assessee was engaged, inter alia, in the business of promotion, construction and development of commercial projects. The assessee had undertaken construction and development of a project allotted to it by the Haryana State Industrial and Infrastructure Development Corporation. The Principal Commissioner set aside the orders of assessment of the assessee for the assessment years 2012-13 and 2013-14 on the ground that interest earned by the assessee against fixed deposits was adjusted, i. e., deducted from the value of the inventory and not credited to the profit and loss account and that the orders of assessment had been passed without making any enquiries as to whether the interest earned by the assessee had any nexus with the real estate project, the construction of which was undertaken by the assessee. Thus, according to the Principal Commissioner the assessment orders were erroneous in so far as they were prejudicial to the interests of the Revenue. The Tribunal held that the order of revisions was not valid. On appeal:

Held, dismissing the appeal, that the Assessing Officer having received a response to his query about the adjustment of interest against inventory, in the assessment years in question, concluded that there was a nexus between the receipt of funds from investors located abroad and the real estate project, which upon being invested generated interest. Thus, it could not be said that the conclusion arrived by the Assessing Officer, that such adjustment was permissible in law, was erroneous. The order of revision was not valid.

In the light of the finding given by the PCIT it would be appropriate to refer to the decision of Hon’ble Delhi High court in the case of DG Housing Projects Limited 343 ITR 329 which is very pertinent to the facts of the case in hand.

The relevant facts and the finding read as under :-

“A distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry ; as lack of enquiry by itself renders the order erroneous and prejudicial to the interests of the Revenue and cases where the Assessing Officer conducts an enquiry but the finding recorded is erroneous and which is also prejudicial to the interests of the Revenue. In the latter cases, the Commissioner has to examine the order or the decision taken by the Assessing Officer on the merits and then form an opinion on the merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. In the second set of cases, the Commissioner cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.

The assessee-company for the assessment year 2004-05 filed a return on declaring taxable income of Rs. 3,54,712. The assessee sold an immovable property during the relevant year and had claimed long-term capital loss of Rs. 35.71 lakhs after indexation. This property was purchased by the assessee in 1997 for Rs. 69.63 lakhs and was sold in 2003 for Rs. 70 lakhs. The property was yielding monthly rent of Rs. 2.05 lakhs per month and was sold to the tenant in occupation. The Assessing Officer examined the sale transaction and in the assessment order accepted the computation of the assessee. An addition of Rs. 7,500 was made to cover possible leakages. The Commissioner thereafter invoking section 263 of the Act held that there was an apparent understatement of the sale price of the property sold and the assessment order was erroneous and prejudicial to the interests of the Revenue. The Tribunal set aside the order observing that the Commissioner had not come to the conclusion or given a finding that the actual receipt of consideration was more than what was declared in the return. He had not recorded any finding that the sale consideration of the property was higher. The Commissioner could not have made any addition under section 50C as the stamp duty had not been enhanced by the registering authority and the sale deed was registered. It was not the case of the Commissioner that any extra stamp duty over and above the transaction value was payable because of the circle rates. On appeal:

Held, dismissing the appeal, that the findings recorded by the Tribunal were correct as the Commissioner had[ not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the Commissioner was that “order passed by the Assessing Officer may be erroneous”. The Commissioner had doubts about the valuation and sale consideration received but he should have examined this aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined this aspect and accepted the computation figures but he had reservations. The Commissioner in the order had recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and, therefore, the assessment order was “erroneous”. This finding would be correct, if he had examined and verified the transaction himself and given a finding on the merits. The Commissioner was patently wrong in stating that Schedule III to the Wealth-tax Act, 1957, was not applicable but the Assessing Officer should have adopted the formula/method. This reasoning could not be accepted and did not show or establish that the assessment order was erroneous.

Considering the facts of the case in totality in the light of the judicial decisions discussed here in above we did not find any merit in the order of the PCIT. We, therefore, set aside the same and restore that of the AO framed u/s. 143 (3) of the Act.

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