2022 (11) TMI 973 - AT - Income Tax

Revision u/s 263 - as per CIT, assessee has not disclosed the sale transactions of two properties - HELD THAT - It is also settled proposition of law that both the conditions should be satisfied in order to initiate revision proceedings, i.e., the order is not only erroneous, but it should also be prejudicial to the interests of revenue. Merely because, the Ld. PCIT has initiated revision proceedings, he cannot set aside the assessment order for doing assessment de-nova on the issues on which the revision proceeding was initiated. As relying on NAGESH KNITWEARS P. LTD. AND ORIENT CRAFTS LTD. AND VOGUE SETTERS 2012 (6) TMI 65 - DELHI HIGH COURT it clear that the Ld. PCIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous and further the Ld. PCIT should have shown that the view taken by the AO is unsustainable in law. In the instant case as shown by the assessee that the properties belonged to a partnership firm, in which he is a partner. It was also shown that relevant sale transactions have been duly disclosed in the returns of income filed by the partnership firm, which has also been accepted by the assessing officer of the partnership firm. It is well settled proposition of law that the tax can be levied in right hands only as held by Hon'ble Supreme Court in the case of ITO vs. Ch Atchiah 1995 (12) TMI 1 - SUPREME COURT as held tax the right person and the right person alone. Here right person means the person who is liable to be taxed according to law, which respect to a particular income. Since the two properties referred by Ld. PCIT belonged to the partnership firm, the profit on sale of those properties cannot be assessed in the hands of the assessee. When there is no revenue leakage in the hands of the assessee, the impugned assessment order cannot be termed as erroneous and prejudicial to the interests of revenue in respect of this issue. Unsecured loan - We notice that the impugned assessment order has been passed u/s. 143(3) r.w.s 153A of the Act and the instant assessment year falls under the category of unabated assessment. It has been held in the case of Kabul Chawla 2015 (9) TMI 80 - DELHI HIGH COURT that the addition in case of unabated assessment years could be made only on the basis of incriminating material, if any, found during the course of search. When the AO is disabled to make any addition, in our view, the Ld. PCIT also cannot probe on that issue. On merits, the assessee has submitted that it has taken fresh loan from five parties only during the year under consideration. Other loans are brought forward from earlier year. It is submitted that the assessee has furnished the details of five parties along with their confirmation letters, which also contained PAN number. Leaving aside the question as to whether the enquiry so made by the AO on merits in respect of sundry creditors is adequate or not, we are of the view that the revision order passed by Ld. PCIT on this issue is liable to be quashed on the basis of legal proposition discussed above. Accordingly, we hold that the impugned revision order is not sustainable on this issue also. Deduction of cost of improvement made in the land sold by the assessee by way of construction of compound wall - assessee had sold a land and while computing capital gain, he claimed cost of improvement of land, which consisted of construction cost of compound wall - As per PCIT that the AO has not examined this claim - HELD THAT - We notice that the Ld. PCIT could not state how the assessment order is erroneous and prejudicial to the interests of revenue with regard to the claim of compound wall expenses. In the absence of such a finding, the assessment order cannot be held to be erroneous and hence there is no scope for proceeding further with the proceeding initiated by Ld. PCIT u/s. 263 of the Act. However, we notice that the Ld. PCIT has proceeded further and directed the AO to verify the claim, which is not warranted at all. Accordingly, we are of the view that the impugned revision order passed by Ld. PCIT could not be sustained. Accordingly, we quash the impugned revision order passed by Ld. PCIT. Appeals filed by the assessee are allowed.

Summary

Issues:
- Validity of revision orders passed by Ld. PCIT for assessment years 2012-13 and 2013-14.
- Sale of properties and unsecured loan issues raised by Ld. PCIT.
- Examination of submissions by the assessee regarding sale of properties and unsecured loans.
- Legal interpretation of the revision proceedings under section 263 of the IT Act.
- Analysis of the assessment orders and the directions given by Ld. PCIT.

Analysis:
1. The appeal challenged revision orders passed by Ld. PCIT for assessment years 2012-13 and 2013-14. The revision proceedings were initiated as the assessing officer was deemed to have not conducted proper inquiries while passing the assessment orders after a search operation on the assessee.

2. The issues raised by Ld. PCIT for AY 2012-13 included the sale of properties and unsecured loans not reported by the assessee. The assessee clarified that the properties belonged to a partnership firm and the loans were from known parties, which were duly recorded and disclosed.

3. The legal position on revision proceedings under section 263 of the IT Act was discussed, emphasizing the need for the Ld. PCIT to establish that the assessment order is both erroneous and prejudicial to the revenue's interests. The Ld. PCIT cannot set aside the order for reassessment without proving these conditions.

4. Regarding the sale of properties issue, it was clarified that the profit from the sale of partnership firm properties cannot be assessed in the individual's hands. The right person principle was highlighted, stating that tax should be levied on the correct entity as per law.

5. The unsecured loan matter was analyzed, noting that in the absence of incriminating material found during the search, no addition could be made by the AO. The Ld. PCIT's direction to probe further on this issue was deemed unwarranted.

6. For AY 2013-14, the Ld. PCIT questioned the deduction claimed for the cost of improvement on land sold. The assessee contended that the claim was duly examined by the AO, and the Ld. PCIT's direction for reassessment lacked a clear basis for finding the assessment order erroneous.

7. The judgment concluded that the revision orders by Ld. PCIT for both years were not sustainable as they failed to establish the assessment orders as erroneous and prejudicial to revenue. The directions given were considered unnecessary, leading to the quashing of the revision orders and allowing the appeals filed by the assessee.

This detailed analysis covers the key issues involved in the legal judgment, providing a comprehensive understanding of the case and the legal principles applied by the Tribunal.