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TMI Blog2022 (10) TMI 1095X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has not claimed any expenditure in its return of income. Accordingly, there is no scope of allegedly applying Section 10(14A) and disallowing any expenditure and, therefore, the assessment order cannot in any way said to be erroneous or prejudicial to the interest of revenue on this issue. We took into consideration the assessment order, order u/s 263 of the Act as well written submission of the assessee and the arguments made by the ld. AR of the assessee. It is a fact that in the show cause notice CIT mentioned as to whether those firms have filed their returns and paid due taxes from whom exempt income is received by the assessee by way of partner in those firms. However, on being satisfied by the explanation and details furnished by the ld. AR before the ld. Pr. CIT, she changed the issue and observed that the AO has not examined the disallowance to be made u/s 10(14A) of the Act without appreciating the fact that the issue is an individual and moreover in its computation of income, the assessee has not at all claimed any expenditure against any taxable income. Therefore, there is no any scope of making any disallowance u/s 10(14A) out of the expenditure as no expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion that provision of Section 14A are applicable to assessee in respect of investment in partnership firm whereas assessee is an individual and no expenses is claimed whatsoever thus question of application of Section 14A does not arise. 3. On the facts and in the circumstances of the case and in law the ld. PCIT has grossly erred in holding the order passed u/s 143(3) as erroneous and prejudicial to the interest of the Revenue on the issue of lack of enquiry in respect of cash deposit of Rs.10,00,000/- made by assessee during demonetization. Appellant prays that due enquiries were made by the AO before passing the assessment and all the necessary evidences are available on record, therefore, Revision order passed u/s 263 is not in accordance with law and deserves to be quashed.'' 2.1 Brief facts of the case are that the assessee filed the return of income online on 15-03-2018 declaring total income of Rs.10,37,950/-. The case of the assessee was selected under CASS. The AO issued notice u/s 143(2) of the Act to the assessee 13-08-2018 and questionnaire was issued with notice u/s 142(1) on 20-02- 2019. In compliance of notices issued u/s 143(2) and 142(1), the AR of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will have to take assistance from the provisions contained in the Partnership Act for filling the vacuum under the tax law. [K. Kulakutty]. In so far as the issue before us is concerned, a firm and its partners are assessable separately on their total income in their names, notwithstanding the position of law under the Partnership Act that a firm is compendium or the collective name of the partners. Thus, in so far as the taxation is concerned, the firm is not a pass through vehicle. It is a translucent vehicle, as only the salary and interest paid to the partners are taxable under Section 28(v) as business income. It has been so provided because there cannot be really be a relationship of employer and employee or debtor or creditor between the firm on one hand and the partners on the other hand. Even earlier, the salary and interest allocated to the partners were taxable as business income. The real change in the scheme of taxation is that the firm is taxed at a flat rate of income after deduction of interest and salary paid to the partners, and interest and salary are taxed in the hands of the partners as business income. Thus, it is clear that the amount taxed in the hands of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and need further enquiry/verification. 4. It also need to be verified that whether the aforesaid amount of 10,00,000 as claimed to be withdrawn from his capital account with DS & company was in old currency or in new currency. Therefore, in view of the above facts the issue of cash deposits of Rs. 10 Lakhs remains unverified and the same requires further enquiry and verification. M 6. The assessment order u/s 143(3) of the I.T. Act for the A.Y. 2017-18 dated 31.05.2019was passed by the Assessing Officer in this case, without making necessary enquiries and proper verification of the issue of cash deposit during demonetization by the assessee during the year as discussed in preceding paras. Hence, assessment order u/s 143(3) of the I.T. Act for the A.Y. 2017-18 dated 31.05.2019 has thus been rendered erroneous and prejudicial to interest of revenue on the above issues. The order of the assessing officer is, therefore, liable to revision under the explanation (2) clause (b) and clause (a) of section 263 of the Income-tax Act. The same is therefore set-aside and restored back to the file of AO on these issues with the direction to conduct proper verification and enquiries b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. Also, the AO has failed to verify the denomination of the currency withdrawn and deposited in bank, which was crucial for completion of assessment in your case as the assessment has been completed on returned income only. It has also not been verified by the AO as to whether the above amount of Rs. 10,00,000/- as claimed to be withdrawn from your capital account with D.S. & Company was in old currency or in new currency. This aspect is crucial in view of the fact that after 08.11.2016 it was not legally permitted to make financial transactions in old currency. This issue has not been examined by the AO." In this regard, it is submitted that assessee claimed exempt income received in the shape of share in the profits from partnership firms wherein he is one of the partner and the firm has already suffered tax for which the assessee has provided the PAN of the firms to the ld. AO alongwith the certified copies of the capital account of the assessee as appearing in the books of accounts of those firms. Even if the ld. AO has not asked for the financial statements, this has not changed the character of income which remained exempt in view of section 10(2A) of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Finance Act, 2015, w.e.f. 01.06.2015, which has widened the powers of CIT to revise the already completed assessment which reads as under: Explanation 2 For the purposes of this section, it hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far for as it is prejudicial to the interests of the revenue, it in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim: (c) the order has not been passed in accordance with any order, direction instruction issued by the Board under section 119 or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other persn] A perusal of above clarifies that order passed by assessing officer shall be "deemed to be erroneous and prejudicial to the interest of the revenue if AO has passed such order without making inquiries or verification which should have been made; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry made by AO while passing order us 143(3) of the Act However, we find that proper and sufficient enquiries were conducted by the AO at the time of assessment an evident from the order of 40 Therefore it cannot be concluded that no proper enquiry has been conducted by the AO at the time of assessment proceedings The 40 has taken conscious view after considering the facts and circumstances of the case and giving proper opportunity to the assessee. Thus, the view expressed by AO in the form in his assessment order cannot be replaced with the view of Ld. CIT w's 263 of the Act in holding so we find support and guidance from the judgment of Hon'ble jurisdictional High Court In the case of CIT vs. Ms. JL Morrison (India) Ltd (ITA No 168 of 2011) in GA No 1541 of 2012 dated 15.05.2014, wherein it was held as under "By Sections 3 and 4. the Indian Income-tax Act, 1922. imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter under section 263 and hearing assessee-CIT directing ITO to re-hear matter-Order not valid-Income-tax Act, 1961, s 263. It has also been held by the Court that section 263 does not arm the CIT to trespass into this peculiar jurisdiction of the Assessing Officer so as to direct him to exercise this discretion with a bent of mind conforming to the CIT's opinion or in other words, towards generation of some extra revenue. It is a well established law by now that section 263 does not contemplate mere substitution of the opinion of AO with that of CIT. It has been held in the case of CIT v. Max India Ltd. reported in 295 ITR 282 (SC) (Case law compilation page 1) that 'every loss of revenue cannot be said to be prejudicial to the interests of revenue', however in the present case interestingly, there has been no loss at all to the revenue nor has been pointed out by the Id. PCIT accordingly , it cannot be said that the action of Ed AO was prejudicial to the interest of revenue. Thus no action as 263 is called for. This submission of assessee is fortified from the observations of Hon'ble Supreme Court in the case of CIT Vs. Max India (supra) wherein it was field ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 51 TW (IV) 186 It is no longer res-integra that the revisional jurisdiction available to a Commissioner u/s 263 of the Act, is essentially circumscribed by the determinant that the order of the Assessing Officer is erroneous so much so that it is prejudicial to the interest of the revenue. This statutory enjoinment carves out an extremely constricted ambit of such discretionary jurisdiction. The word 'considers' applied in the statutory provision involved, signifies a genuine satisfaction of that authority that the order of the Assessing Officer is erroneous and that the interest of revenue is prejudicing thereby. Any exercise of the revisional jurisdiction, bereft of such satisfaction and/or finding that the order of the Assessing Officer is erroneous and that it is prejudicial to the interest of the revenue and that too, basal on tangible materials on record, is impermissible rendering the resultant order void A CIT Vs. Green World Corporation 314 ITR 81 (SC) The Income-tax Officer, while passing an order of assessment perform a judicial function. A revision application lies before the Commissioner. It is trite that the jurisdiction exercised by the revisional authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ership deed, ITR Computation of Income and Audit Report of the above referred three firm have not been called for by the 40, so as to verify the genuineness of exempted income claimed by you as share of profit from these firms. Because of lack of these enquiries , the assessment order of the 10 for AT 2017-18 is found to be rose in so far as it is prejudicial to the interest of revenue In response to such queries, it was submitted that all the tree firms from whom assessee had received exempt income, have filed their Income tax returns for AY 2017-18 and has paid die taxes on the total income. Copies of such ITRs acknowledgement, computation of total income and Balance Sheet set of these throe firms were furnished before ld. PCIT Also, it was submitted that during the course of assessment proceedings their PANs were provided to the id AO (APR 3- 11). In view of this, it is submitted that exempt income has been rightly claimed by the assessee and assessed by the ld. AO and the order of Ld. AO is neither erroneous nor in any manner prejudicial to the interest of revenue on this issue In fact, Id. PCIT, though issued show cause to verify genuineness of exempt income received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiated by ld. CIT, again assessee furnished complete details in the shape of Capital account of assessee with partnership firm and the confirmation of the firm (APB 19 & 27). It is submitted that assessee withdrew his own capital from the partnership firm which he owned legally and immediately after withdrawal the same has been deposited in his bank account and as such the flow of the cash is also visible. However, in the order passed w's 263, id.CIT has raised concerns that Id. AO failed to verify as to whether cash withdrawn by assessee from firm, D.S. & Company was in old currency or new currency. In this regard, it is submitted that whether sum withdrawn from capital account was in old or new currency, would not make any concerns so far as Income Tax law is concerned in view of the fact that Specified Bank notes were permitted to be deposited in banks till 31.12.2016.Kind attention of hon ble bench is invited to Section 3 of The Specified Bank Notes (Cessation of Liabilities) Act, 2017. which states that the Specified bank notes shall cease to be liabilities of the Reserve Bank of India under section 14 and shall scarc have the guarantee of the Central Government under suh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividual filed the return of income declaring total income of Rs.10,37,950/- and also declared share of profit from partnership firm totaling to Rs.91,16,554/- being exempt u/s 10(2A) of I.T. Act, 1961. After verification of facts, the scrutiny assessment was completed u/s 143(3) vide order dated 31-05-2019 accepting the income declared by the assessee. Subsequently, the ld. Pr. CIT, Udipur issued show cause notice u/s 263 of the I.T. Act, 1961, in response to which, details and information was provided by the ld. AR of the assessee. However, the ld. Pr.CIT passed order u/s 263 directing to make enquiry in respect of applicability of Section 14A on share of profit received from partnership firm and also to verify source of cash deposit of Rs.10 lacs made by the assessee during demonetization period. The ld. AR of the assessee has taken three grounds of appeal against the order u/s 263 ground of appeal No. 1broadly is on legality of action u/s 263 and next two grounds taken by the assessee are on merits submitting that neither on legal ground nor on facts the order u/s 263 is valid and therefore, same deserves to be quashed. Coming to the first issue regarding exemption income, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over in its computation of income, the assessee has not at all claimed any expenditure against any taxable income. Therefore, there is no any scope of making any disallowance u/s 10(14A) out of the expenditure as no expenditure was claimed as deduction. Thus on this issue, we full concur on the arguments of the ld. AR of the assessee and observe that this issue lacks merit for the purpose of invoking provisions of Section and passing order u/s 263 of the Act. 2.6 Now coming to the another issue raised by the ld. Pr. CIT in its order u/s 263 of the Act regarding no enquiry being made in respect of cash deposit of Rs.10 lacs made by the assessee in its bank account during demonetization period. Firstly, it was argued by the ld. AR that as mentioned in the assessment order the case was selected for limited scrutiny for examining the large exempt income shown' and thereafter the Id. AO travelled beyond his jurisdiction and examined the issue of cash deposit in the bank, without apparently taking any permission from the appropriate authority for conversion of the case from limited scrutiny to full scrutiny. It was further submitted that even without prejudice to the aforesaid legal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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