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TMI Blog2019 (12) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be made therefore, order passed by the AO is not erroneous. Since, the assessment which is not pending before the AO is an unabated proceeding and the Assessing Officer is empowered to make any addition only based on incriminating materials found/unearthed during search. This is a settled position of law and is no longer res integra. In this case, no any incriminating material unearthed by search team therefore Assessing Officer s order is not erroneous. Therefore, we are of the view that the order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue. Hence, we quash the order u/s 263 - Appeal of the assessee is allowed. - ITA No. 1073/Kol/2018 - - - Dated:- 9-12-2019 - SHRI S.S.GODARA, JM And DR. A.L.SAINI, AM For the Appellant : Shri Miraj D. Shah, AR For the Respondent : Shri Radhey Shyam, CIT DR ORDER Per Dr. A. L. Saini: The captioned appeal filed by the Assessee, pertaining to assessment year 2011-12, is directed against the order passed by the Pr. Commissioner of Income Tax, Kolkata, under section 263 of the Income Tax Act, 1961 (in short the Act ) dated 23.03.2018 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hence the same be quashed. 8. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal. 3. Brief facts qua the issue are that in the assessee`s case under consideration the AO framed the assessment under section 143(3) of the Income Tax Act, 1961, for A.Y. 2011-12 vide order dated 31.03.2016 determining assessed income at ₹ 3,80,22,150/- as against the returned income of ₹ 2,86,69,913/- after making two additions viz: one of unexplained cash credit u/s 68 of ₹ 55,13,750/- and second addition of ₹ 38,38,484/- u/s 14A r.w. Rule 8D of the Rules. Later on, Ld Principal Commissioner of Income Tax (PCIT) has exercised his jurisdiction under section 263 of the Act. The ld PCIT noticed that the A.O has allowed deduction for interest paid by JKS Infrastructures Pvt. Ltd. u/s 24(b) at ₹ 3,51,12,845/- after disallowing the interest of ₹ 38,38,484/- u/s 14A of the Income Tax Act out of total interest amount of ₹ 3,89,51,333/- claimed by the assessee u/s 24(b) while computing the income under the head Income From House Property on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s JKS Infrastructures Pvt. Ltd which was mentioned in the form 3CD as 'Construction' and 'Development'. In view of the above error committed by the A.O due to not making requisite investigation and enquiries in respect of M/s JKS Infrastructures Pvt. Ltd's business and also not examining the nature of interest claimed by JKS Infrastructures Pvt. Ltd, excess deduction of ₹ 7,90,69,892/- has been allowed to JKS Infrastructures Pvt. Ltd consisting of Standard deduction by ₹ 4,39,57,047/- u/s 24(a) and deduction for interest on borrowed capital u/s 24(b) of ₹ 3,51,12,845/-. Because of the above error committed by the A.O in the above mentioned assessment order dated 31.03.2016, it has become erroneous as prejudicial to the interest of revenue. Therefore, ld PCIT issued a show cause notice under section 263 of the Act to the assessee company asking it to explain as to why a revisionary order under section 263 should not be passed to correct the error as discussed above. 4. In response to the notice u/s 263 of the Act, the assessee filed written submission before the ld PCIT, which is reproduced below: 5. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and amount of bank loans taken for constructing this project. Then, find out as to how much part of this Panvel Project is completed during the year under consideration and how this completed part was utilized by the assessee for earning of rental income. Then find out as to out of total interest paid, how much amount of interest was paid pertaining to the part of Panvel Project completed during the year under consideration and utilized for earning of rental income. As directed above, after collecting the details and determining the amount of interest paid for part of Panvel Project completed during the year and used for earning of rental income, the A.O shall allow only that part of interest u/s 24(b) that was paid relating to loan utilized for completed part of Panvel Project and also used earning of rental income during the year under consideration. Therefore, the assessment order passed u/s 153A read with section 143(3) dated 31.03.2016 is set aside and restored to the file of the A.O to pass a fresh assessment order to the extent of deciding the allowability of deduction of interest u/s 24(b) against the House Property Income from Ware Housing rental income as per my dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visional jurisdiction is there existing before the Pr. CIT to exercise his power. For that, we have to examine as to whether in the first place the order of the Assessing Officer found fault by the Principal CIT is erroneous as well as prejudicial to the interest of the Revenue. For that, let us take the guidance of judicial precedence laid down by the Hon ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer s order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er passed by the AO is not erroneous. For that we rely of the judgment of the Coordinate Bench of ITAT Kolkata,in the case of M/s Indian Roadways Corporation Ltd. in ITA No.787/Kol/2018, for A.Y.2009-10, wherein the coordinate Bench held as follows: 19. We have given a careful consideration to the rival submissions and perused the material available on record, we note that the law with regard to exercise of jurisdiction u/s.263 of the Act on the ground that the AO failed to make enquiries which he ought to have made in the given circumstances of a case is well settled. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return and he should examine the disallowance made in the original assessment passed under section 143(3) of the Act. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 2009-10, was passed by ld AO on 27/12/2011. Subsequently, a search seizure operation was conducted at different locations of the assessee company on 13/03/2014. Therefore, admittedly the assessment year 2009-10 is an unabated assessment, as the original assessment order u/s. 143(3) of the Act, in relation to assessment year 2009-10, was passed by ld AO on 27/12/2011 which is much prior to the search seizure operation conducted on the assessee company on 13/03/2014. It is a settled position of law that addition in case of unabated assessment can be made only based on the incriminating material/documents unearthed during the search and seizure. 21. Based on the facts narrated above, let us analyze whether the requisite jurisdiction necessary to assume revisional jurisdiction u/s 263 of the Act is existing before the Ld. Pr. CIT to exercise his power, in the assessee`s case under consideration. First of all, it is worthwhile to go through the provisions of section 263 of the Income Tax Act, 1961 which reads as follows: 263. Revision of orders prejudicial to revenue-(1) The Commissioner may call for and examine the record of any proceeding unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. 22. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is to be examined, one has to understand that what is prejudicial to the interest of the revenue. The Hon ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal income of the aforementioned six years in separate will be only one assessment order in respect of each of the six `AYs in which both the disclosed and the undisclosed income would be brought to tax . iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with AO which can be related to the evidence found, it does not mean that the assessment can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material. v) In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word `assess in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word `reassess to completed assessment proceedings. vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debit balances being in the nature of loan and advances written off and fixed assets written off , of ₹ 13,68,447/- and for other two balances of ₹ 1,27,033/- and ₹ 4,200/-, nature of sundry balances written off , were available before the assessing officer when he was making assessment under section 143 (3) of the Act on 27.12.2011. Therefore, during the search and seizure on dated 13.03.2014, the search team did not find any incrementing material or new documents. The ldPr.CIT exercised his jurisdiction based on the information/documents already available on record during the assessment under section 143(3) of the Act, dated 27.12.2011. Moreover, the amount of ₹ 10 lakh, was disallowed in the original assessment order u/s 143(3) dated 27.12.2011. However, the said amount of ₹ 10 lakh, had not been disallowed by the assessing officer while making assessment order under section 153A/143(3), dated 31.03.2016. Therefore, the information/documentary evidence about the amount of ₹ 10 lakh was available during the original assessment U/s 143(3) of the Act on 27.12.2011. During the search and seizure, the search team did not find any i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, 1961 to assess income for six assessment years has to be confined to the undisclosed income unearthed during search and cannot include items which are disclosed in the original assessment proceedings. Items of regular assessment cannot be added back in the proceedings u/s 153A when no incriminating documents were found in respect of the disallowed amounts in the search proceedings. A search assessment under section 153A should be evidence based. Therefore, we are of the view that assessment order passed by the AO u/s 153A/143(3) dated 31.03.2016 is neither erroneous nor prejudicial to the interest of the Revenue and therefore, ld. Pr. CIT erred in exercising his revisional jurisdiction u/s 263 of the Act and therefore, we quash the impugned order of ld. Pr. CIT passed under section 263 of the Act. Since, the assessment which is not pending before the Assessing Officer is an unabated proceeding and the Assessing Officer is empowered to make any addition only based on incriminating materials found/unearthed during search. This is a settled position of law and is no longer res integra. In this case, no any incriminating material unearthed by search team t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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