RESERVED INCOME TAX APPEAL No. 107 of 2015 Commissioner of Income Tax, Meerut Vs. Vam Resorts & Hotels Pvt. Ltd. Hon ble Bharati Sapru,J. Hon ble Rohit Ranjan Agarwal, J. (By Rohit Ranjan Agarwal,J.) 1. This appeal under Section 260-A of Income Tax Act, 1961 (hereinafter referred to as Act) has been filed assailing judgment and order dated 14.11.2014 passed by Income Tax Appellate Tribunal, Delhi Bench H , New Delhi. This appeal was admitted on 16.2.2017 on following questions of law: (1) Whether ITAT passed perverse order in setting aside order U/s 263 on grounds that A.O. had already conducted inquiry on issues on which order U/s 263 was passed when no such embargo has been put in language of Section, intention of legislature was never such so as to render revenue remediless against erroneous orders of A.O. nor make revenue suffer continuous wrong. (2) Whether ITAT erred in law in interpreting provisions of Section 263 which says Commissioner may call for and examine records of proceedings if he considers any order passed therein, by A.O. is erroneous in so far as prejudicial to interest of revenue hence view of ITAT in present case that A.O. had already conducted inquiry is unsustainable. (3) Whether ITAT erred in law in curbing power of CIT granted by legislature to examine and correct orders of A.O. especially when this is only remedy available with department to correct wrong of A.O. (4) Whether ITAT erred in law in deleting order U/s 263 on issue of development expenses when it was clear that only small portion of such development expenses was actually related to land development receipts. 2 (5) Whether ITAT erred in law in deleting order U/s 263 on issue of agricultural income when it was clear that assessee had only purchased land on which crops were shown and sale proceeds of such crops does not constitute agriculture income. (6) Whether ITAT erred in law in allowing appeal of assessee ignoring fact that there was difference between Gross Receipts as per 26AS and Gross Receipts declared by assessee when assessee did not furnish any reconciliation statement to explain difference. 2. case relates to assessment year 2008-09. assessee which is Company, filed return of income on 27.9.2008 declaring income at Rs.14,71,900/-. said return was processed under Section 143(1) of Act. case of Company was selected for scrutiny and notices under Section 143(2) and 142(1) were issued. assessee produced books of account and replied various queries raised by Assessing Officer. As assessee had shown development expenses of Rs.7,16,62,142/- in profit and loss account, A.O. found Rs.1,20,000/- as excessive and disallowed same, and added to income of assessee. Order under Section 143(3) of Act was passed by assessing officer on 18.11.2010. 3. assessee challenged assessment order passed under Section143(3) of Act by filing Appeal No.192/10 11 before CIT(A) under Section 250 of Act. On 5.6.2013, CIT(A) allowed appeal of assessee on ground that addition made by A.O. was without any basis, as word appear to be excessive was stated in order of A.O. and such addition made in cavalier and casual manner cannot be sustained. 4. During pendency of appeal Commissioner of 3 Income Tax, Meerut exercising power under Section 263 of Act, issued notice to assessee. notice was replied by assessee, and on 25.3.2013 Commissioner of Income Tax directed A.O. to look into applicability of Section 40-A(3) and Section 40(a)(ia) of Act. 5. After remand A.O. again issued notice under Section 142(3)/263 of Act to assessee. It appears that assessee did not appear before assessing authority and assessing officer passed assessment order on 7.3.2014 under Section 263/143(3) of Act on total income of Rs.17,47,323,650/-. 6. While remand proceedings were pending before assessing authority assessee approached Income Tax Appellate Tribunal, (Delhi Bench H ), New Delhi (hereinafter called as ITAT ) challenging order under Section 263 of Act passed by Commissioner of Income Tax, Meerut. ITAT allowed appeal of assessee setting aside order passed by CIT, Meerut under Section 263 of Act. 7. Sri Subham Agarwal defending order passed by Commissioner of Income Tax, Meerut under Section 263 of Act submitted that assessing officer has disallowed expenses of Rs.1,20,000/- only, without any inquiry and has accepted restb of amount as land development expenses in profit and loss account, as such, CIT had rightly remanded matter to assessing authority exercising revisional power as order of A.O. was erroneous and pre-judicial to interest of revenue. He further submitted that after remand order, A.O. 4 again has passed assessment order on 7.3.2014 and now addition of Rs.7,16,62,142/- on account of land development expenses had been made as assessee did not avail opportunity despite repeated reminders and failed to produce books of account and comply order of assessing authority. He contended that Tribunal has passed order impugned after assessment order has been passed by assessing authority after remand, and Tribunal should not have set aside same, but should have relegated matter to assessing authority directing assessee to appear before same and produce books of account to verify queries so raised. 8. Per contra, counsel for assessee submitted that assessment order dated 18.11.2010 was passed after notice under Sections 143(2) and 142(1) of Act was issued to assessee raising various queries and assessee had appeared before Assessing Officer number of times and furnished books of account and replied. Further, CIT in its show cause notice dated 6.2.2013 has accepted fact that on examination of record, assessment order was passed after inquiry which according to him was not proper. Thus, proceedings under Section 263 of Act cannot be invoked by CIT when there is no material to hold that order was erroneous and pre-judicial to interest of revenue and it would not be invoked to correct each and every type of mistake and error committed by A.O. He further relied upon paragraph nos.7 and 9 of judgment of Apex Court in case of Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, 243 ITR 83 (SC), which are extracted hereunder: 7. There can be no doubt that provision cannot be invoked 5 to correct each and every type of mistake or error committed by Assessing Officer; it is only when order is erroneous that section will be attracted. incorrect assumption of facts or incorrect application of law will satisfy requirement of order being erroneous. In same category fall orders passed without applying principles of natural justice or without application of mind. 9. phrase 'prejudicial to interests of revenue' has to be read in conjunction with erroneous order passed by Assessing Officer. Every loss of revenue as consequence of order of Assessing Officer cannot be treated as prejudicial to interests of revenue, for example, when ITO adopted one of courses permissible in law and it has resulted in loss of revenue; or where two views are possible and ITO has taken one view with which Commissioner does not agree, it cannot be treated as erroneous order prejudicial to interests of revenue unless view taken by ITO is unsustainable in law. 9. second limb of argument of counsel for assessee is that appeal before CIT(A) was pending, as such, CIT has no jurisdiction to revise order, in view of Clause (c) of Explanation-1 to Section 263 of Act, which provides that when appeal is pending before Commissioner, exercise of jurisdiction under Section 263 of Act is barred. He relied upon judgment in case of Smt. Renuka Philip vs. ITO (2018)409 ITR 567 (Mad), relevant paragraphs of which are extracted hereunder: 21. With regard to merits of case, learned counsel for assessee referred to decision of Division Bench of this Court in Dr.P.K.Vasanthi Rangarajan v. CIT [2012] 23 taxmann.com 299/209 Taxman 628 (Mad.), wherein, Hon'ble Division Bench held that there is no inhibition in assessee claiming benefit of investment made in four flats thereby gaining benefit under Section 54F of Act. Court took note of decision in TCA No. 656 of 2005 dated 04.01.2012. However, we are not examining merits of matter at this juncture since, we are only called upon to answer Substantial Question of Law with regard to 6 assumption of jurisdiction of Commissioner under Section 263 of Act. power under Section 263 of Act is not exercisable under certain circumstances. In this regard, we refer to Section 263(1) explanation 1(c), which reads as follows: Revision of orders prejudicial to revenue 263(1)... (a) to (b) (c)Where any order referred to in this sub-section and passed by Assessing Officer had been subject matter of any appeal [filed on or before or after 1st day of June, 1988], powers of Commissioner under this Sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. 22. above explanation makes it clear that when appeal is pending before Commissioner, exercise of jurisdiction under Section 263 of Act is barred. Commissioner in order dated 14.03.2012 states that appeal pertains to claim made by assessee under Section 54 of Act and it has got nothing to do with order passed by Assessing Officer under Section 54F of Act. said finding rendered by Commissioner is wholly unsustainable, since assessee went on appeal against re-assessment order dated 31.12.2009 stating that his claim for deduction under Section 54 of Act should be accepted. 10. It has also been contended that remand by CIT as far as non-deduction of TDS is concerned, was wrong, as payment was made by Company, i.e., ERA Land-mark Ltd., and as per Section 194(c) of Act TDS was deducted. 11. It was further submitted that all documents in evidence as proofs and queries so raised by assessing officer was submitted and replied by assessee and CIT wrongly invoked jurisdiction under Section 263. Reliance has been placed upon decision of this Court in case of CIT vs. 7 Krishna Capbox Ltd, (2015) 372 ITR 310, relevant paragraphs of which are extracted hereunder: 9. Tribunal further considered question whether discussion of queries and reply received from assessee, in assessment order, is necessary or not. Relying on two judgments of Delhi High Court in CIT Vs. Vikash Polymers [2012] 341 ITR 537/ [2010] 194 Taxman 57 and CIT v. Vodafone Essar South Ltd. [2012] 28 taxmann.com 273/ [2013] 212 Taxman 184 (Delhi), it held that once inquiry was made, mere non discussion or non- mention thereof in assessment order cannot lead to assumption that Assessing Officer did not apply his mind or that he has not made inquiry on subject and this would not justify interference by Commissioner by issuing notice under Section 263 of Act. 10. In Vikash Polymers (supra) relevant part of observations in this regard read as under (page 548 of 341 ITR): "This is for reason that if query was raised during course of scrutiny by Assessing Officer, which was answered to satisfaction of Assessing Officer, but neither query nor answer was reflected in assessment order, that would not, by itself, lead to conclusion that order of Assessing Officer called for interference and revision." 11. Further, relevant observation made in Vodafone Essar South Ltd. (supra) in this regard reads as under (page 531 of 1 ITR-OL): "The lack of any discussion on this cannot lead to assumption that Assessing Officer did not apply his mind." 12. Learned counsel for Department could not place any other authority before this Court wherein any otherwise view has been taken. On contrary, learned counsel for assessee has placed before us decision of Bombay High Court in Income Tax Appeal No.296 of 2013 (CIT v. Fine Jewellery (India) Ltd.) [2015] 372 ITR 303/230 Taxman 641/55 taxmann.xom 514 (Bom.) decided on February 3, 2015, wherein also Bombay High Court, following its earlier decision in Idea Cellular Ltd. Vs. Dy. CIT [2008] 301 ITR 407 (Bom.) has taken similar view and said as under (page 307 of 372 ITR): " ...if query is raised during assessment proceedings and responded to by assessee, mere fact that it is not dealt with in Assessment Order would not lead to 8 conclusion that no mind had been applied to it." 12. Similarly in case of CIT vs. Mahendra Kumar Bansal, 2008(297)ITR 99 (Alld), this Court held that merely because income tax officer had not written lengthy order, it would not establish that assessment order passed under Section 143(3)/ 148 of Act is erroneous and pre-judicial to interest of revenue. Relevant paragraph of which is extracted hereunder:- In case of Goyal Private Family Specific Trust [1988] 171 ITR 698, this court has held that order of Income- tax Officer may be brief and cryptic, but that by itself is not sufficient reason to brand assessment order as erroneous and prejudicial to interests of Revenue and it was for Commissioner to point out as to what error was committed by Income-tax Officer in having reached to its conclusion and in absence of which proceedings under Section 263 of Act is not warranted. In case of Belal Nisa [1988] 171 ITR 643 Patna High Court has held that where Income-tax Officer had not carried out necessary enquiry enjoined by section 143(1) of Act Commissioner is within his power in taking action in terms of Section 263(1) of Act. Similar view has been taken in by Patna High Court in case of Smt. Kaushalya Devi [1988] 171 ITR 686. principle laid down by Patna High Court in aforesaid two cases are not applicable to facts of present case in view of provisions of Section 143(1) of Act and as Central Board of Direct Taxes had already issued circular referred to above that action under Section 263 of Act is not warranted and this circular appears to have not been brought to notice of Patna High Court which is binding upon departmental authorities. As held by this Court in case of Goyal Private Family Specific Trust [1988] 171 ITR 698, we are of considered opinion that merely because Income- tax Officer had not written lengthy order it would not establish that assessment order passed under Section 143(3)/148 of Act is erroneous and prejudicial to interests of Revenue without bringing on record specific instances, which in present case, Commissioner of Income Tax has failed to do. 9 13. Lastly, counsel for assessee submitted that argument of counsel for Department relying upon fresh assessment order made by assessing officer under Section 263/143(3) of Act dated 7.3.2004 for purpose of Section 263 of Act is not sustainable, as according to him definition of expression record as per Clause (b) of Explanation to Section 263 of Act includes all records relating to Section 263 proceedings available at time of examination by CIT only, and not in subsequent order or fresh order passed thereafter under Section 263/143(3) of Act, which could justify proceedings under Section 263 carried out by CIT. 14. We heard Sri Shubham Agarwal, learned counsel for Department, Sri Suyash Agarwal, learned counsel for respondent-assessee and have perused record. 15. revenue in this appeal has tried to establish that ITAT was not correct in setting aside order passed by Commissioner under Section 263 of Act, on ground, that assessee had not furnished entire details regarding contracts, which was cancelled and also A.O. not looking into provisions of Section 40(a)(i-a) of Act whereby such expenses on which T.D.S. was liable to be deducted, but was not actually deducted were required to be disallowed and added back under said provisions of Act. 16. On other hand, contention of assessee that A.O. after considering entire books of account and reply furnished by assessee passed assessment order under Section 143(3) of Act. Further, from perusal of assessment 10 order dated 18.11.2010, it is clear that A.O. had considered all books of account and further on 13.5.2010 it had required assessee, entire information for relevant assessment years along with copy of bank statement, narration of debit and credit entries, and other details. 17. On 7.7.2010, assessee had replied said notice and made available all documents as required by A.O. Tribunal being last fact finding Court, in paragraph 7 of its judgment, had noted that details of documents produced before A.O. included computation of income along with return and details of TDS, copy of balance sheet, trading and profit and loss account, details of sundry debtors as well as copies of orders issued by debtors to assessee. 18. Thus, case in hand is not case where CIT found that assessment order was erroneous and it is prejudicial to interest of revenue, as A.O. after case of assessee was selected in scrutiny had required assessee to furnish all documents and only after production of said documents and his satisfaction assessment order was passed under Section 143(3) of Act. Apex Court in case of Malabar Industrial Co. Ltd. (supra) while considering pre- requisite for exercising power by Commissioner under Section 263 of Act, held as under: bare reading of Section 263 of Income Tax Act, 1961 makes it clear that prerequisite for exercise of jurisdiction by Commissioner suo moto under it, is that order of Income-tax Officer is erroneous insofar as it is prejudicial to interests of revenue. Commissioner has to be satisfied of twin conditions, namely, (i). order of Assessing Officer sought to be revised is 11 erroneous; and (ii) it is prejudicial to interests of revenue. If one of them is absent - if order of Income-tax Officer is erroneous but is not prejudicial to revenue or if it is not erroneous but is prejudicial to Revenue - recourse cannot be had to Section 263(1) of Act. provision cannot be invoked to correct each and every type of mistake or error committed by Assessing Officer; it is only when order is erroneous that section will be attracted. 19. Similar view has been taken by Bombay High Court in case of Commissioner of Income Tax vs. Development Credit Bank Ltd., 323 ITR 83(SC), relevant paragraph of same is extracted below: Held, dismissing appeal, that there was no basis or justification for Commissioner to invoke provisions of Section 263. Assessing Officer after making enquiry and eliciting response from assessee came to conclusion that assessee was entitled to depreciation on value of securities held on trading account. Commissioner could not have treated this findings to be erroneous or to be prejudicial to interests of Revenue. observation of Commissioner that Assessing Officer had arrived at finding without conducting enquiry was erroneous, since enquiry was specifically held with reference to which disclosure of details was called for by Assessing Officer and furnished by Assessing Officer and furnished by assessee. Tribunal was justified in holding that recourse to powers under Section 263 was not warranted in facts and circumstances of case. 20. In case of CIT vs. Arvind Jewellers, 259 ITR 502 (Gujrat), it was held that once A.O. after issuing notice had considered all material on record, there was no basis for invocation of jurisdiction under Section 263 of Act. Relevant paragraph of said judgment is extracted hereunder: Held, that finding of fact by Tribunal was that assessee had produced relevant material and offered explanation in pursuance of notices issued under Section 142(1) as well as section143(2) of Act and after considering material and explanations, Income-tax Officer had come to definite conclusion. Since material was there on record and said material was considered by 12 Income-tax Officer and particular view was taken, mere fact that different view can be taken should not be basis for action under Section 263. order of revision was not justified. 21. Bombay High Court in case of CIT vs. Gabriel India Ltd., 203 ITR 108 (Bombay), held that order of A.O. would not become erroneous simply because he did not make elaborate discussion. relevant paragraph of said judgment is extracted hereunder: Held, that Income-tax Officer in this case had made enquiries in regard to nature of expenditure incurred by assessee. assessee had given detailed explanation in that regard by letter in writing. All these were part of record of case. Evidently, claim was allowed by Income-tax Officer on being satisfied with explanation of assessee. This decision of Income-tax Officer could not be held to be "erroneous" simply because in his order he did not make elaborate discussion in that regard. Moreover, in instant case, Commissioner himself, even after initiating proceedings for revision and hearing assessee, could not say that allowance of claim of assessee was erroneous and that expenditure was not revenue expenditure but expenditure of capital nature. He simply asked Income-tax Officer to re-examine matter. That was not permissible. Tribunal was justified in setting aside order passed by Commissioner of Income-tax under Section 263. 22. Division Bench of this Court in case of J.P.Srivastava & Sons vs. CIT, 111 ITR 326 (Alld) had taken similar view. relevant paragraph is extracted hereunder: We are of opinion that approach of Commissioner is erroneous. failure of Income-tax Officer to deal with claim of assessee in assessment order may be error, but erroneous order by itself is not enough to give jurisdiction to Commissioner to revise it under Section 33B. It must further be shown that order was prejudicial to interests of revenue. It is not each and every order passed by Income-tax Officer which can be revised under Section 33B. 13 Section 33B contemplates notice to assessee. In response to notice assessee may show to Commissioner that order sought to be revised is not prejudicial to interests of revenue. In that event, Commissioner would have no jurisdiction to take any further action. He would be competent to take action only if he rejects plea of assessee. It thus becomes necessary for Commissioner to examine merits of objection raised by assessee. He cannot delegate that power to Income-tax Officer by setting aside assessment order and directing him to make fresh assessment after taking into consideration objection of assessee. 23. In present case, Tribunal rightly arrived at finding that all material in regard to land development expenses was before Assessing Officer who had required assessee to produce all documents in relation to same and after inquiring about details of contract and contract executed by assessee, bill submitted and payment schedule made, Assessing Officer accepted books of account and only disallowed Rs.1,20,000/- and added to income of assessee, which was also set aside by order of CIT(A) while exercising power under Section 263 of Act CIT did not have any material for invoking said provision and it merely did same on suspicion and presumption. Punjab and Haryana High Court in case of CIT vs. Ram Narain Goel, 224 ITR 180 (P & H) held that suspicion however drawn cannot take place on evidence or proof. This case was followed in case of CIT vs. Faqir Chaman Lal, 262 ITR 295 (P & H). 24. argument raised by counsel for revenue that Tribunal should have send back matter to assessing authority to decide afresh is fallacy, as CIT itself on 5.6.2013, while deciding appeal of assessee under Section 250 of Act set aside assessment order dated 18.11.2010 to 14 extent of addition of Rs.1,20,000/- made in assessment proceedings. Further, appeal before Tribunal emanated from order of Commissioner of Income Tax exercising power under Section 263 of Act, as such Tribunal was correct in limiting its scope to decide whether exercise of power made by Commissioner was in consonance with provision of Section 263 and relied upon decision of Malabar Industrial Co. Ltd. (supra). 25. As, Clause (c) of Explanation 1 to Section 263 of Act provides that when appeal is pending before Commissioner, exercise of jurisdiction under Section 263 of Act by CIT is barred. Thus, in present case, CIT wrongly exercised jurisdiction under Section 263 of Act by remanding back matter to assessing authority on 25.3.2013, while appeal was decided by CIT (A) on 5.6.2013. Thus, order passed by ITAT does not suffer from any irregularity and needs no interference. 26. As far as word record appearing in Clause (b) of Explanation-1 to Section 263 is concerned, it means record available at time of examination by Commissioner of Income Tax and not any material or record available subsequent to his examination or exercise of power under Section 263. Thus, any order passed by AO in assessment proceedings after remand by CIT cannot be looked upon and argument made by counsel for revenue for relying upon fresh assessment order made on 7.3.2004 under Section 263/143(3) of Act cannot be accepted in view of above provision of law. 15 27. In present case, Tribunal had recorded specific finding of fact that assessing authority had examined each and every aspect of case on which remand order hinges, as such remand order was not sustainable in eyes of law. 28. Considering facts and circumstances of case, we are of considered opinion, that revenue has failed to make any case for interference in order of ITAT, as CIT had proceeded to remand matter back to assessing authority while appeal of assessee was pending under Section 250 and power of exercise under Section 263 was barred by Clause (c) to Explanation 1 of Section 263 of Act. Further, remand order by CIT was based merely on suspicion and presumption. 29. appeal is devoid of merit and is hereby dismissed. question of law is, therefore, answered against revenue and in favour of assessee. Dated:- 20.8.2019 AKJ Commissioner of Income-tax, Meerut v. Vam Resorts & Hotels Pvt. Ltd