IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad A Bench, Hyderabad

IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad A Bench, Hyderabad Before Smt. P. Madhavi Devi, Judicial Member AND Shri S.Rifaur Rahman, Accountant Member Smt. Nama Chinnamma Hyderabad PAN: ABKPW 1887 D (Appellant) ITA Nos.1150 & 1151/Hyd/2015 (Assessment Years: 2006-07 & 2007-08) For Assessee : For Revenue : Vs Date of Hearing: 12.06 2017 Date of Pronouncement: 09.08.2017 Per Smt. P. Madhavi Devi, J M. Dy. Commissioner of Income Tax Central Circle 2 ( 1 ) Hyderabad (Respondent) Shri P. Murali Mohan Rao Shri P. Chandra Sekhar, DR O R D E R Both are assessee s appeals for the A.Ys 2006-07 and 2007-08 respectively Both the appeals are against the orders of the Principal Commissioner of Income Tax (Central), Hyderabad dated11.03.2015 passed u/s 263 of the I.T. Act. 2. Brief facts of the case are that there was a search & seizure operation u/s 132 of the I.T. Act in the case of M/s. Madhucom Projects Ltd and group on 4.2.2011. As a part of the said search operation, the residential premise of the assessee was also covered u/s 132 of the Act. Thereafter, a notice u/s 153C of the I.T. Act was issued. Page 1 of 11

3. In response to the notice issued to the assessee u/s 153C of the Act, the assessee filed her return of income declaring total income of Rs.22,22,275 for the A.Y 2006-07 and Rs.10,93,690 for the A.Y 2007-08. The AO called for certain information vide notices issued u/s 143(2) & 142(1) of the I.T. Act. The assessee appeared through her representative and filed the information called for. After verifying the said information, the AO completed the assessment accepting the returned income of the assessee. The AO also observed that before the said search, the group was subjected to a search operation u/s 132 of the Act on 20.10.2005. Thereafter, the Pr. CIT exercising his power u/s 263 of the I.T. Act, perused the assessment orders for the A.Ys 2006-07 and 2007-08 and observed that the assessee has declared the rental income at Rs.7,00,172 only for the A.Y 2006-07 whereas the TDS certificate reflects the gross rental receipt at Rs.9,36,383 and the corresponding TDS claim of the assessee was allowed by the AO. Similarly, for the A.Y 2007-08, the assessee had declared rental income at Rs 2,52,304 as against the gross rental income as observed from the TDS certificate at Rs.4,34,784 and the corresponding TDS claim of the assessee was allowed by the AO. Thus, according to the Pr. CIT, the additional amount of rent against which TDS claim was made but not declared by the assessee, was required to be brought to tax by the AO while completing the assessment. Since the AO failed to do the same, he was of the opinion that the assessment order is erroneous. He therefore, issued a show cause notice to the assessee u/s 263 of the Act. In response to the same, the assessee submitted as under which is reproduced at Para 5 of the CIT s order: Page 2 of 11

5. The assessment was completed after considering the fact that the assessee showed l/3 rd share of income from property situated at Khammam and whereas the TDS was claimed on the total rental income (being the income relating to 1/3 rd share of assessee, 1/3 rd share of Sri N. Nageswara Rao in Individual capacity and 1/3 rd in the capacity of HUF) by the assessee. Further, their share of income was admitted in their hands of Nama Chinnamma, Nama Nageswara Rao-Individual, N.Nageswara Rao-HUF. It is not out of place to mention that the admission of 1/3 rd share of income and in claiming of the entire TDS as per Form No.26AS by the assessee is not prejudicial to the interest of the Revenue as the rental income of the property situated at D.No.1-7- 70, Jubilipura, Khammamm, have been admitted according to their shares held in the property. 4. The Pr. CIT was not convinced with the above contentions of the assessee and held that since the assessee has claimed the TDS for the entire rental income in her hands, the entire rental income is also to be brought to tax in her hands only. Thus, holding that the assessment order is erroneous, the Pr. CIT directed the AO to re-examine the issue of joint ownership of the property as claimed by the assessee and also the taxability of the rental income as per the TDS certificate in accordance with the law and redo the assessment order after making detailed inquiries and investigation on the issues after giving the assessee a fair opportunity of hearing. Against these orders of the CIT for both the A.Ys 2006-07 & 2007-08, the assessee is in appeal before us. The assessee has raised the following grounds of appeal along with Form No.36: 1. The Ld. Pr.CIT (Central), has erred in passing the order u/s 263 on the ground that the assessment order passed u/s 143(3) rws 153C by the DCIT, Circle-2(1), Hyderabad for the A.Y Page 3 of 11

2006-07 is erroneous in so far as it is prejudicial to the interests of revenue. 2. The Ld. Pr. CIT (Central),erred in passing the order u/s 263 by forming mere change of opinion and without considering the fact that the original assessment had been completed u/s 143(3) rws 153C of the IT Act, 1961 after careful verification of all the information furnished. 3. The Ld. Pr. CIT (Central), ought to have properly appreciated that the assessment order should have been both erroneous and also there should have been loss to the Revenue in order to be able to revise the order u/ s 263 of the Act, but the CIT could not quantify as to what is the amount of loss to the revenue. 4. The Ld. Pr. CIT (Central), ought to have appreciated that even if the order is erroneous, it should have caused loss to the revenue by the AO's failure to apply the applicable law and not on failure to make lot of enquiries and investigations. 5. The Ld. Pro CIT (Central), ought to have appreciated the submissions of the assessee in the following judgment of Honorable Supreme Court of India in the case of MALABAR INDUSTRIAL CO. LTD. vs. COMMISSIONER OF INCOME TAX (2000)- 243-ITR -0083 -(SC). 6. The Ld, Commissioner of Income Tax(Central) ought to have appreciated that the Revisionary order u/ s 263 of the Act as well as the order passed u/s 143(3) r.w.s 153C of the Act would become invalid since the order u/s 143(3) r.w.s 153C of the Act has been passed without recording satisfaction by the present Assessing Officer as well as by the Assessing Officer having jurisdiction over the searched party in view of the judgment of A.P High Court in the case of CIT V s. Page 4 of 11

M/s Shettys Pharmaceuticals & Biologicals Ltd in ITTA No.662 of 2014 dated 26.11.2014. 7. The Ld. Commissioner of Income Tax(Central) ought to have appreciated that no addition can be made to the income of the assessee not only in the order passed u/s 143(3) r.w.s 153C of the Act but also in the revisionary order u/ s 263 of the Act dated 27-03-2015 without there being any incriminating material found during the course of search. 8. The Ld. Commissioner of Income Tax(Central) ought to have appreciated that since the additions made in the order u/ s 143(3) r.w.s 153C of the Act do not survive on the ground that there is no incriminating material found in the search, the additions made in the Revisionary order u/ s 263 of the Act, also would not survive. 9. The Ld. CIT (Central) ought to have appreciated the fact that an order passed with prior approval of ACIT u/s 153D cannot be subject to revisionary proceedings u/ s 263 of the Act. 10. The Ld. Pr. CIT (Central), erred in directing the AO to examine the taxability of rental receipts the issue of joint ownership of the p ope ty as claimed by the assessee and also as per TDS certificates. 11. The Ld. Pr.CIT (Central), ought to have appreciated the fact that AO has examined all the details vigilantly including ROI of the assessee and TDS claims at the time of assessment u/ s 143(3) rws 153C of the Act. 12. The Ld. Pro CIT (Central), ought to have properly appreciated the fact that the property was under the co-ownership of three entities, that the TDS was claimed by only one person; that all the assessee's have admitted their respective share of rents and thus there is no loss to the Page 5 of 11

revenue which is prejudicial to the interest of revenue. 13. The Ld. Pro CIT (Central), ought to have appreciated that the assessee has made the entire claim of TDS on the total rental receipts in her returns and the other joint owners have not claimed any amount of TDS on the said income in their return of income. Whereas the same issue was examined by the AO at the time of completing the assessment u/ s 143(3) rws153c. 14. The Ld.Pr.CIT (Central), has erred in ignoring the submissions made by the assessee in respect to the claim of other 2/3rd share of rental income in the returns filed by Nama Nageswara Rao in his individual and HUF capacity 15. The assessee may add, alter, or modify or substitute any other points to the Grounds of appeal at any time before or at the time of hearing of the appeal 5. Further, vide letter dated 22.01.2016, the assessee filed the following additional grounds of appeal: 16. The learned CIT (A) erred in revising the o der u/s 143(3) rws 153C dated 28.03.2013 instead of order passed u/s 143(3) rws 153B dated 31.12.2007, since the issue involved for revision is covered by the order dated 31.12.2007. 17. The appellant may add, alter or modify or substitute any other point to the grounds of appeal at any time before or after the time of hearing of the appeal 6. At the outset, it is noticed that the assessee is challenging the validity of the assessment completed u/s 143(3) rws 153C of the Act in Grounds 6 to 8 on the ground that there Page 6 of 11

was no incriminating material found during the course of search and also that the order u/s 143(3) rws 153C of the Act has been passed without recording of satisfaction by the AO of the assessee as well as the AO having jurisdiction over the searched party. Since the appeal before us is against the order u/s 263 and not against the assessment order itself, we are of the opinion that the validity of the assessment cannot be challenged in this appeal before us. Therefore, these grounds 6 to 8 are rejected as not maintainable. 7. Coming to the additional ground of appeal raised by the assessee, we find that this is a legal ground and goes to the root of the matter and therefore, we admit the same and proceed to dispose of the same first. From the assessment order dated 28.3.2013, it is seen that th re was a search in the case of M/s. Madhucon Projects Ltd group including the assessee on 20.10.2005. The copy of the assessment order pursuant to the said search u/s 143(3) rws 153B of the Act is placed at Page 54 of the paper book filed by the assessee. As seen therefrom, the search was conducted on 20.10.2005 which is covered by the previous year 2005-06 and therefore, the assessment was completed u/s 153B of the Act. The assessee had filed her return of income on 24.12.2007 admitting total income of Rs.22,22,275 and agricultural income of Rs.1,77,000, as also in response to the notice u/s 143(3) rws 153C of the Act pursuant to the search dated 4.12.2011. Thus, the income returned by the assessee in response to the notices under both the searches is one and the same. The AO, while completing the assessment u/s 143(3) rws 153B of the Act, had issued notices u/s 143(2) and 142(1) of the Page 7 of 11

Act and has accepted the returned income of the assessee and has also allowed the claim of TDS of Rs.1,57,517 from the rental income declared by her being her share of 1/3 rd of the total rent from the property. This assessment order has not been disturbed by any of the authorities below and has become final. The CIT u/s 263 of the Act is seeking to revise the assessment order passed u/s 143(3) rws 153C of the Act dated 28.03.2013, though no other incriminating material relating to the rental income or the TDS claim has been found during the relevant search If the order u/s 263 is allowed to be sustained, then there would be two assessment orders for the same A.Ys assessing two different quantum of income for the very same A.Y Therefore, we agree with the plea of the assessee that the CIT had erred in revising the order passed u/s 143(3) rws 153C of the Act dated 28.3.2013 instead of the order passed u/s 143(3) rws 153B dated 31.12.2007. 8. We have already observed that assessment order dated 31.12.2007 has already become final. Such being the position we agree with the contention of the assessee that the already settled facts cannot be disturbed by an order u/s 263 by revising a subsequent assessment order. Therefore, we allow the additional ground of appeal filed by the assessee. 9. Even otherwise, if it is to be held that the order which needs revision is the assessment order u/s 143 rws 153C of the Act dated 28.3.2013, even then, we find that the CIT has only held the assessment order to be erroneous without giving any Page 8 of 11

finding that the assessment has also resulted in prejudice to the Revenue. As held by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd vs. CIT reported in (2000) 243 ITR 0083, the CIT has to be satisfied with the twin conditions namely (i) the order of the AO sought to be revised is erroneous; and that (ii) it is prejudicial to the interests of the Revenue. In the case before us, the assessee had submitted before the CIT that the assessee has joint ownership of the property and therefore, is eligible to receive only 1/3 rd of the rental income and therefore, she has offered the said income in her return of income but since the TDS can be credited only to the account of one person, the assessee has been credited with the TDS and the assessee alone has claimed the TDS for the entire rental income in her hands. The learned Counsel for the assessee has also filed before us the returns of income of all the three owners of the property, i.e. the assessee, her husband Shri Nama Nageswara Rao, individual and HUF of Nama Nageswara Rao, to demonstrate that though their respective shares of rental income has been offered by all the three parties in their respective returns of income, the TDS has been claimed only by the assessee and submitted that there is no loss caused to the Revenue by allowing the entire TDS in the hands of the assessee. We find that all these documents were also filed before the CIT. However, the CIT has directed the AO to verify these documents and redo the assessment. The CIT ought to have gone through the documents to satisfy himself as to whether there was any prejudice caused to the Revenue. In view of the same, even on merits, the order of the CIT is not sustainable. However, in view of our allowing the additional ground of appeal, Page 9 of 11

the order u/s 263 is not sustainable both on the technical issues as well as on merits. ITA No.1151/Hyd/2015(A.Y 2007-08) 10. The issue is similar for the A.Y 2007-08 as well except that there are no additional grounds of appeal raised by the assessee for this A.Y and there was no assessment order passed u/s 143(3) rws 153B of the Act as the relevant A.Y was not covered by earlier search dated 20.10.2005. However, as discussed by us in the assessee s case for the A Y 2006-07, the CIT has not brought out as to how the assessment order was prejudicial to the interests of the Revenue. We have already held that on merit, the CIT has not verified the documents filed by the assessee and has not given any reasoning as to how prejudice is caused to the Revenue. In view of these detailed observations as above, we hold that the revision order u/s 263 is not sustainable. Thus, the assessee s appeals for both the A.Ys 2006-07 & 2007-08 are allowed. 11. In the result, appeals filed by the assessee are allowed. Order pronounced in the Open Court on 9 th August, 2017. Sd/- (S.Rifaur Rahman) Accountant Member Sd/- (P. Madhavi Devi) Judicial Member Hyderabad, dated 9 th August, 2017. Vinodan/sps Page 10 of 11

Copy to: 1 P. Murali & Co. CAs, 6-3-655/2/3, 1 st Floor, Somajiguda, Hyderabad 500082 2 DCIT, Central Circle 2(1) Hyderabad 3 Pr. CIT (Central) 3 rd Floor, Posnett Bhavan, Tilak Road, Ramkote Hyderabad 4 Addl. CIT Central Range 2 Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File By Order Page 11 of 11