Sipura Developers Pvt Ltd v. Pr. Commissioner Of Income Tax 7

$~83 *IN THE HIGH COURT OF DELHI AT NEW DELHI %Date of Decision : 21.10.2024 +ITA 532/2024 & CM APPL. 61048/2024 SIPURA DEVELOPERS PVT LTD .....AppellantThrough:Mr C S Aggarwal, Sr Advocate withMr Ravi Pratap Mall, Mr PushpaSharmaandMrUmaShankar,Advocates. versus PR. COMMISSIONER OF INCOME TAX 7 .....RespondentThrough:MrSunilAggarwal,SSC,MrShivanshBPanday,MrViplavAcharya,JSCsandMrUtkarshTiwari, Advocate. CORAM:HON'BLE MR. JUSTICE VIBHU BAKHRUHON'BLE MS. JUSTICE TARA VITASTA GANJU VIBHU BAKHRU, J. (ORAL) 1.The appellant (hereafter the assessee) has filed the present appealunder Section 260A of the Income Tax Act, 1961 (hereafter the Act)impugning an order dated 27.09.2024 (hereafter the impugned order) passedby the learned Income Tax Appellate Tribunal (hereafter the Tribunal) inITA No.2023/Del/2024. 2.The assessee had preferred the said appeal [ITA No.2023/Del/2024]under Section 253 of the Act assailing an order dated 28.03.2024 passed by ITA 532/2024 the Principal Commissioner of the Income Tax (hereafter the PCIT) underSection 263 of the Act in respect of the assessment year (AY) 2016-17. Thelearned Tribunal rejected the assessee’s appeal. 3.The assessee has projected several substantial questions of law.However, the substantial question that arises is set out below:- “Whether the Income Tax Appellate Tribunal iscorrect in law and on facts in upholding the orderdated 28.03.2024 passed u/s 263 of the Act bycompletelyignoringthejudgmentsofjurisdictional High Court of Delhi in the cases ofCIT vs. Software Consultants reported in 341 ITR240 and Ranbaxy Laboratories Ltd. vs. CITreported in 336 ITR 136?” 4.The present appeal is heard on the said question. 5.The assessee had filed its returns for income for the AY 2016-17 on11.10.2016 declaring a total income of ₹49,81,950/-. The said return was processed under Section 143(1) of the Act and in terms of the intimationdated 14.08.2017 sent under the said provision, an amount of ₹4,76,97,220/- was determined as refundable to the assessee. 6.The Assessing Officer (hereafter the AO) issued the notice dated30.03.2021 under Section 148 of the Act seeking to reopen the assessmentfor the relevant assessment year – AY 2016-17. Thereafter, a copy of thereasons recorded for the reopening of the assessment was furnished to theassessee. The assessee was informed that the assessment was reopened onthe basis of the information and its analysis received by the Department. Thereasons as recorded and disclosed for reopening of the assessment are set out below:- “Basic Details of the case: Theassesseeisacompanywhichwasincorporated on 15.01.2015 under the CompanyAct, 1956.The directors of the assessee company are AjayKumar Agarwal and Harvinder Singh. The assessee has filed the return of income for theyear under consideration. 1. Details of Information received Information was received through Insight Portal ofIncome Tax Department regarding High ValueTransactions undertaken by the assessee. It wasreported that in the DP account of assesseecompany maintained in Axis Rank, there was hugecredit during the FY 2015-16 of Rs. 95,44,00,462/-. It was further observed that within one month ofinceptionofaccount,assesseereceived4,00,99,000 shares of Feldon Developers Pvt Ltdfromthirdparty2,00,00,000/-sharesfromInformationTVPrivateLimited,2,00,99,000shares from INX News Private Limited. HighValue transaction with the above pattern givesprima facie belief of tax evasion in form purchaseof shares.1. Details of analysis of information received andmaterial collected Theaboveinformationhasbeencarefullyexamined and the same has also been verified fromthe IT'R filed by the Assessee. As reported to thebank, assessee was engaged into activity of realestatedeveloper,andsuchahugesharetransaction is not commensurate with the income profile of the assessee. Accordingly, it is primafacie apparent that amount of Rs. 95,44,00,462/-has escaped assessment. 1. IncomeChargeabletotaxescapingassessment Theaboveinformationhasbeencarefullyexamined and the same has also been verified fromthe IT'R filed by the Assessee. As reported to thebank, assessee was engaged into activity of realestatedeveloper,andsuchahugesharetransaction is not commensurate with the income profile of the assessee. Accordingly, it is primafacie apparent that amount of Rs. 95,44,00,462/-has escaped assessment. 1. IncomeChargeabletotaxescapingassessment In this case, not more than four years have elapsedfrom the end of the assessment year underconsideration and there had not been scrutinyassessmentcompletedfortheyearunderconsideration, I have reason to believe that there isnon-disclosure of true and complete facts on thepart of the assessee and income chargeable to taxhas escaped assessment. Since return of incomehas been filed for the assessment year underconsiderationi.e.AY2016-17andscrutinyassessmenthastakenplace,clause(b)ofExplanation2toSection147isapplicable.Accordingly, in this case, the requirement toinitiate proceedings u/s 147 is reason to believe asrecorded above. In view of the above stated facts, I am satisfied thatat least an income exceeding Rs. 1 lakh chargeableto tax has escaped assessment for the AY 2014-15,within the meaning of section 147 of the IncomeTax Act, 1961. In this case, four years have not elapsed from theend of the assessment year under consideration,necessary sanction to issue notice u/s 148 of theAct is being obtained from the Addl. Commissionerof Income Tax, Range-22, New Delhi under theprovisions of section 151(2) of the Income Tax Act,1961 read with the Taxation and other laws(relaxation and amendment for certain provisions)Act, 2020.” 7.Thereafter, notices were issued to the assessee under Section 142(1)of the Act for assessing the assessee’s income chargeable to tax. 8.The assessee filed its objections for initiation of the re-assessmentproceedings and also challenged the jurisdiction of the AO, who had issuedthe said notices on various grounds. Apart from the above, the assessee alsofurnished its explanation for the source of the funds used for making theinvestment in the shares of Feldon Developers Private Limited (hereafterFDPL). The assessee had explained that it availed the loans and advancesfor a sum of ₹99,49,00,000/- from M/s Aspire Promoters Private Limited (hereafter APPL) and had purchased the shares of FDPL from the said funds. 9.The assessee’s objections regarding the jurisdiction of the AO weredisposed of by an order dated 28.01.2022. Thereafter, the AO proceeded tore-assess the assessee’s income chargeable to tax for the relevant AY. 10.The AO issued the Show Cause Notice dated 27.03.2022 proposing toadd the sum of ₹99,49,00,000/- received by the assessee from APPL. The assessee responded to the proposed addition and furnished its explanationalong with the relevant documents. 11.The AO accepted the explanation regarding the receipt of loans andadvances from the APPL and the investment made by the assessee inacquiring 4,00,99,000 (four crores and ninety-nine thousand) number ofshares of FDPL from two entities (2,00,00,000 shares from Information TVPrivate Limited and 2,00,99,000 shares from INX News Private Limited).And, passed an order dated 30.03.2022 accepting the income as returned by the assessee. 12.The relevant extract of the assessment order dated 30.03.2022 whichclearly indicates that the AO was satisfied with the assessee’s explanationto the proposed addition under Section 68 of the Act, is set out below:- 11.The AO accepted the explanation regarding the receipt of loans andadvances from the APPL and the investment made by the assessee inacquiring 4,00,99,000 (four crores and ninety-nine thousand) number ofshares of FDPL from two entities (2,00,00,000 shares from Information TVPrivate Limited and 2,00,99,000 shares from INX News Private Limited).And, passed an order dated 30.03.2022 accepting the income as returned by the assessee. 12.The relevant extract of the assessment order dated 30.03.2022 whichclearly indicates that the AO was satisfied with the assessee’s explanationto the proposed addition under Section 68 of the Act, is set out below:- “3. Subsequently, in order to verify genuinenessof transaction this unit has issued notice u/s 133(6)to the above parties for cross checking. However,no details/information received from the abovethree parties. Therefore, this office has issuednotice u/s 142(1) of IT Act on 14/03/2022requesting assessee to collect information as calledvide notice U/s 133(6) from the above parties andupload the same immediately. Being aggrieved bythe settlement of objection raised, the assesseecompany filed submission for the disposal ofobjection raised against the proceeding u/s 147 ofthe IT Act. This office vide letter dated 17/03/2022again settled objection raised by the assessee.Subsequently, assessee company vide letter dated16/03/2022 filed application for adjournment tosubmit the details. Accordingly, adjournment hasbeen granted and requested the assessee to submitthe details by 21/03/2022. The assessee companyfiled reply on 21/03/2022 and submitted details ofshare purchase from INX News Pvt. Ltd. andinformation TV Pvt. Ltd., and also submitteddetailsofunsecuredloanreceivedofRs.99,49,00,000/- from M/s Aspire Promoters Pvt.Ltd. Further, assessee submitted notarized sharepurchase agreement made on E-stamp of Rs 100/-dated 03/02/2015 and copy of confirmation of M/sAspire Promoters Pvt. Ltd., INX News Pvt. Ltd.and Information TV Pvt. Ltd. along with bankstatements of respective parties reflecting thetransactions.Theassesseecompanydidnotsubmitted copy of return of income along with financialstatementofabovethreeparties.Therefore, in absence of financial statements, thecredit worthiness of M/s. Aspire Promoters Pvt.Ltd. could not be verified. 4. Accordingly, the Draft assessment order cumshow cause notice dated 27/03/2022 has beenissued and served upon the assessee through e-mail/ITBAformakingadditionofRs.99,49,00,000/- being unexplained cash credit U/s.68 of the IT Act. In response to the same, theassesseehassubmittedreplyon28/03/2022alongwith all required documents, which areverified and found in order.” [ emphasis added] 13.The learned PCIT was of the view that the said assessment order iserroneous insofar as it is prejudicial to the interest of the Revenue.Accordingly, the learned PCIT issued a notice dated 04.01.2024 underSection 263 of the Act. The assessee had received an amount of₹45,50,00,000/- from a company named “Vatika Limited” on which tax deducted at source (TDS) amounting to ₹4,55,00,000/- had been deducted. The learned PCIT reasoned that the assessee would have received an incomeof ₹4,55,00,000/- (commensurate with TDS) as interest chargeable to tax. However, the assessee had declared income of only ₹50,00,000/- (incorrectly mentioned by the learned PCIT as ₹5,00,000/-) as profit earned from sale of investment, in its return. 14.The reasons as set out by the learned PCIT for proposing to proceedunder Section 263 of the Act in the notice dated 04.01.2024 is set out below: “3. … It is noticed that the assessing officer did notraise any query related to this issue during the course of proceedings nor has the assessee givenany justification for claim of TDS without declaringthe corresponding interest income from securities.4. In light of the above facts, it appears to me thatthe assessment order passed by Assessing Officer iserroneous and is prejudicial to the interest ofrevenue.” 14.The reasons as set out by the learned PCIT for proposing to proceedunder Section 263 of the Act in the notice dated 04.01.2024 is set out below: “3. … It is noticed that the assessing officer did notraise any query related to this issue during the course of proceedings nor has the assessee givenany justification for claim of TDS without declaringthe corresponding interest income from securities.4. In light of the above facts, it appears to me thatthe assessment order passed by Assessing Officer iserroneous and is prejudicial to the interest ofrevenue.” 15.The assessee responded to the said notice and explained that it hadinvested a sum of ₹1,045.00 Crores in non-convertible debentures of Vatika Limited issued for ₹1,000.00 Crores (issue value). The said non-convertible debentures were redeemed by Vatika Limited on 31.03.2016 at a value of₹1,045.50 Crores. The assessee claimed that it had earned an income from capital gain of ₹50,00,000/- which was duly disclosed in its returns. However, Vatika Limited had deducted TDS at the rate of 10% on thedifference between the issue value and the value at with the said debentureswere redeemed being ₹45.50 Crores (₹1,045.50 Crores less ₹1,000.00 Crores). 16.The learned PCIT also issued the notice dated 18.03.2024 allegingthat the assessee had received a sum of ₹140,95,00,000/- from Vatika Limited and further paid a sum of ₹145,00,00,000/- to Antonious Developers Private Limited on the last date of the financial year i.e.31.03.2016.. 17.The assesee explained that its gains were limited to the differencebetween the value at which it had acquired the said debentures and the valueat which the same were redeemed by Vatika Limited. Thus, no income hadarisen in the hands of the assessee commensurate with the TDS deposited byVatika Limited. 18.However, the PCIT did not accept the assessee’s contention that therewas no income chargeable to tax commensurate to TDS, which was the basisof issuance of the notice under Section 263 of the Act. Accordingly, thelearned PCIT passed the order dated 28.03.2024 under Section 263 of theAct holding the assessment order passed by the AO as erroneous insofar as itis prejudicial to the interest of the Revenue. According to the learned PCIT,the AO should not have overlooked the said transaction. PCIT held that noenquiry was made by the AO in respect of the aforesaid transaction wherebythe asseesee had received a sum of ₹140,95,00,000/- from Vatika Limited and further paid a sum of ₹145,00,00,000/- to Antonious Developers Private Limited. And, the said amount was required to be added as an income underSection 68 of the Act.The learned PCIT directed the AO to frame anassessment making the aforesaid addition to the assessee’s income for therelevant assessment year. 19.The assessee filed an appeal before the Tribunal which was dismissedby the impugned order. 20.It is apparent from the above that the learned PCIT had sought tomake an addition under Section 68 of the Act on account of a transactionwhich was not the subject matter of the reasons recorded for reopening theassessee’s assessment for the relevant assessment year (AY 2016-17). 21.In the aforesaid context, the assessee contends that if the AO couldnot make any addition in respect of the income that the AO had reasons tobelieve had escaped assessment; it would not have the jurisdiction to makeany other addition to the assessed income in the reassessment proceedings. 22.There is no cavil that Section 147 of the Act, as was in force at thetime of issuance of the notice dated 30.03.2021 issued under Section 148 ofthe Act, is applicable. 23.It is relevant to refer to Section 147 of the Act, as was in force prior tobeing substituted with effect from 01.04.2021 by virtue of the Finance Act,2021. The main provision of Section 147 of the Act, as applicable at thematerial time, is set out below: 21.In the aforesaid context, the assessee contends that if the AO couldnot make any addition in respect of the income that the AO had reasons tobelieve had escaped assessment; it would not have the jurisdiction to makeany other addition to the assessed income in the reassessment proceedings. 22.There is no cavil that Section 147 of the Act, as was in force at thetime of issuance of the notice dated 30.03.2021 issued under Section 148 ofthe Act, is applicable. 23.It is relevant to refer to Section 147 of the Act, as was in force prior tobeing substituted with effect from 01.04.2021 by virtue of the Finance Act,2021. The main provision of Section 147 of the Act, as applicable at thematerial time, is set out below: “147. Income escaping assessment. – If the Assessing Officer hasreason to believe that any income chargeable to tax has escapedassessment for any assessment year, he may, subject to theprovisions of Section 148 to 153, assess or reassess such incomeand also any other income chargeable to tax which has escapedassessment and which comes to his notice subsequently in thecourse of the proceedings under this section, or recompute the lossor the depreciation allowance or any other allowance, as the casemay be, for the assessment year concerned (hereafter in thissection and in sections 148 to 153 referred to as the relevantassessment year):” [Emphasis added] 24.It is apparent from the plain language of Section 147 of the Act, asapplicable at the material time, that subject to the Assessing Officer havingreasons to believe that the assessee’s income had escaped assessment, hecould assess or reassess such income and also any other income chargeableto tax, which has escaped assessment. Once the assessment was reopenedon account of the AO having reasons to believe that the assessee’s incomehad escaped assessment his power was not confined to assessing only suchincome in respect of which he had reason to believe had escaped assessmentbut also extended to assessing / reassessing other income which, during thecourse of proceedings, he finds had escaped assessment. If the AO finds that the income which he had reason to believe had escaped assessment had notescaped assessment or such reasons could not fructify an assessment, theAO would have no jurisdiction to tax other income. The words “and alsoas” used in Section 147 of the Act, as applicable, clearly indicate that theassessment / reassessment of income other than income for which the AOhad reasons to believe had escaped assessment could only be assessed /reassessed if the income which the AO had reasons to believe had escapedassessment. However, if during the course of the proceedings, the AO wassatisfied that the income for which he had reasons to believe had escapedassessment had not escaped assessment, his jurisdiction to assess / reassessunder Section 147 of the Act would stand concluded. 25.The Rajasthan High Court in Commissioner of Income Tax v. ShriRam Singh:(2008) 306 ITR 343 (Raj) had interpreted the language used inSection 147 of the Act and held as under: “27…..It is only when, in proceedings under section 147 theAssessing Officer, assesses or reassesses any income chargeable totax, which has escaped assessment for any assessment year, withrespect to which he had “reason to believe” to be so, then only, inaddition, he can also put to tax, the other income, chargeable totax, which has escaped assessment, and which has come to hisnotice subsequently, in the course of proceedings under section147. 25.The Rajasthan High Court in Commissioner of Income Tax v. ShriRam Singh:(2008) 306 ITR 343 (Raj) had interpreted the language used inSection 147 of the Act and held as under: “27…..It is only when, in proceedings under section 147 theAssessing Officer, assesses or reassesses any income chargeable totax, which has escaped assessment for any assessment year, withrespect to which he had “reason to believe” to be so, then only, inaddition, he can also put to tax, the other income, chargeable totax, which has escaped assessment, and which has come to hisnotice subsequently, in the course of proceedings under section147. 28.To clarify it further, or to put it in other words, in our opinion,if in the course of proceedings under section 147, the AssessingOfficer were to come to the conclusion, that any incomechargeable to tax, which, according to his “reason to believe”, hadescaped assessment for any assessment year, did not escapeassessment, then, the mere fact that the Assessing Officerentertained a reason to believe, albeit even a genuine reason tobelieve, would not continue to vest him with the jurisdiction, tosubject to tax, any other income, chargeable to tax which theAssessing Officer may find to have escaped assessment, and which may come to his notice subsequently, in the course ofproceedings under section 147.” 26.The Bombay High Court in Commissioner of Income Tax v. JetAirways (I) Limited:(2011) 331 ITR 236 (Bom) had examined the import ofExplanation 3 that was introduced to Section 147 of the Act.The saidexplanation clarified that the power of the AO was not confined to assessingor reassessing such income for which he had reasons to believe had escapedassessment but also to other income which, during the course of theproceedings, were found to be chargeable to tax.However, the BombayHigh Court had held that introduction of Explanation 3 by virtue of Finance(No.2) Act of 2009 with retrospective effect from 1989 did not override ornegate the condition as contained in the substantive provision of Section 147of the Act.Thus, the income, other than the income which the AO hadreasons to believe had escaped assessment, could be assessed only if theincome which the AO had reasons to believe had escaped assessment wasfound to have escaped assessment. The relevant extract of the Bombay HighCourt’s decision is reproduced below: “22.Explanation 3 lifts the embargo, which was inserted byjudicialinterpretation,onthemakingofanassessmentofreassessment on grounds other than those on the basis of which anotice was issued under section 148. Setting out the reasons, for thebelief that income had escaped assessment. Those judicial decisionshad held that when the assessment was sought to be reopened on theground that income had escaped assessment on a certain issue, theAssessing Officer could not make an assessment or reassessment onanother issue which came to his notice during the proceedings. Thisinterpretation will no longer hold the field after the insertion ofExplanation 3 by the Finance (No. 2) Act of 2009. However,Explanation 3 does not and cannot override the necessity offulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explainits contents and cannot be construed to override it or render thesubstance and core nugatory. Section 147 has this effect that theAssessing Officer has to assess or reassess the income ("suchincome") which escaped assessment and which was the basis of theformation of belief and if he does so, he can also assess or reassessany other income which has escaped assessment and which comesto his notice during the course of the proceedings. However, if afterissuing a notice under section 148, he accepted the contention of theassessee and holds that the income which he has initially formed areason to believe had escaped assessment, has as a matter of fact notescaped assessment, it is not open to him independently to assesssome other income. If he intends to do so, a fresh notice undersection 148 would be necessary, the legality of which would betested in the event of a challenge by the assessee.” [Emphasis added] 27.In Ranbaxy Laboratories Ltd. v. Commissioner of Income Tax: 2011SCC OnLine Del 2612 a Coordinate Bench of this Court concurred with the aforesaid view and held as under: “18.We are in complete agreement with the reasoning of theDivision Bench of the Bombay High Court in the case of CIT v. JetAirways (I) Limited (2011) 331 ITR 236 (Bom). We may also notethat the heading of section 147 is "income escaping assessment"and that of section 148 "issue of notice where income escapedassessment". Sections 148 is supplementary and complimentary tosection 147. Sub-section (2) of section 148 mandates reasons forissuance of notice by the Assessing Officer and sub-section (1)thereof mandates service of notice to the assessee before theAssessing Officer proceeds to assess, reassess or recompute theescaped income. Section 147 mandates recording of reasons tobelieve by the Assessing Officer that the income chargeable to taxhas escaped assessment. All these conditions are required to befulfilled to assess or reassess the escaped income chargeable to tax.As per Explanation 3 if during the course of these proceedings theAssessing Officer comes to conclusion that some items haveescaped assessment, then notwithstanding that those items were notincluded in the reasons to believe as recorded for initiation of theproceedings and the notice, he would be competent to make assessment of those items. However, the Legislature could not bepresumed to have intended to give blanket powers to the AssessingOfficer that on assuming jurisdiction under section 147 regardingassessment or reassessment of the escaped income, he would keepon making roving inquiry and thereby including different items ofincome not connected or related with the reasons to believe, on thebasis of which he assumed jurisdiction. For every new issue comingbefore the Assessing Officer during the course of proceedings ofassessment or reassessment of escaped income, and which heintends to take into account, he would be required to issue a freshnotice under section 148. 19. In the present case, as is noted above, the Assessing Officer wassatisfied with the justifications given by the assessee regarding theitems, viz., club fees, gifts and presents and provision for leaveencashment, but, however, during the assessment proceedings, hefound the deduction under sections 80HH and 80-I as claimed bythe assessee to be not admissible. He consequently while notmaking additions on those items of club fees, gifts and presents,etc., proceeded to make deductions under sections 80HH and 80-Iand accordingly reduced the claim on these accounts. 19. In the present case, as is noted above, the Assessing Officer wassatisfied with the justifications given by the assessee regarding theitems, viz., club fees, gifts and presents and provision for leaveencashment, but, however, during the assessment proceedings, hefound the deduction under sections 80HH and 80-I as claimed bythe assessee to be not admissible. He consequently while notmaking additions on those items of club fees, gifts and presents,etc., proceeded to make deductions under sections 80HH and 80-Iand accordingly reduced the claim on these accounts. 20. The very basis of initiation of proceedings for which reasons tobelieve were recorded were income escaping assessment in respectof items of club fees, gifts and presents, etc., but the same havingnot been done, the Assessing Officer proceeded to reduce the claimof deduction under sections 80HH and 80-I which as per ourdiscussionwasnotpermissible.HadtheAssessingOfficerproceeded to make disallowance in respect of the items of club fees,gifts and presents, etc., then in view of our discussion as above, hewould have been justified as per Explanation 3 to reduce the claimof deduction under sections 80HH and 80-I as well. 21. In view of our above discussions, the Tribunal was right inholding that the Assessing Officer had the jurisdiction to reassessissues other than the issues in respect of which proceedings areinitiated but he was not so justified when the reasons for theinitiation of those proceedings ceased to survive. Consequently, weanswer the first part of question in the affirmative in favour of theRevenue and the second part of the question against the Revenue.” [Emphasis added] 28.The aforesaid decision was also subsequently followed by this Courtin Commissioner of Income Tax v. Software Consultants, (2012) 341 ITR240andCommissionerofIncomeTax(Exemption)v.MonarchEducational Society: 2016 SCC OnLine Del 6636.In Commissioner ofIncome Tax (Exemption) v. Monarch Educational Society (supra), thisCourt observed as under: “8.The issue urged by the Revenue stands covered in favour ofthe assessee by the decision of this court in Ranbaxy LaboratoriesLtd. v. CIT (2011) 336 ITR 136 (Delhi) which has been followed inCIT v. Software Consultants (2012) 341 ITR 240 (Delhi). In sum, ifno addition is made on the basis of the reasons to believe recordedby the Assessing Officer for reopening the assessment under section148 of the Act, resort cannot be had to Explanation 3 to section 147of the Act to make an addition on any other issue not included inthe reasons to believe for reopening the assessment. No substantialquestion of law arises. The appeal is dismissed.” 29.The issue involved in the present case is similar to the one involved inCommissioner of Income Tax v. Software Consultants (supra). In the saidcase, the assessee had not filed its return of income for the AY 1993-94.During the assessment proceedings relating to a subsequent assessment year(AY 1997-98), the AO noted that the Central Bureau of Investigation (CBI)had conducted a search in the premises of the assessee and had found FixedDeposit Receipts (FDRs) of a value of ₹20,00,000/- in the possession of a Director of the assessee company. The said Director claimed that althoughthe FDRs were in her name but the same belonged to the assessee company.This explanation was accepted by the Commissioner of Income Tax(Appeals) in an appeal filed by the said Director in her personal capacity. 29.The issue involved in the present case is similar to the one involved inCommissioner of Income Tax v. Software Consultants (supra). In the saidcase, the assessee had not filed its return of income for the AY 1993-94.During the assessment proceedings relating to a subsequent assessment year(AY 1997-98), the AO noted that the Central Bureau of Investigation (CBI)had conducted a search in the premises of the assessee and had found FixedDeposit Receipts (FDRs) of a value of ₹20,00,000/- in the possession of a Director of the assessee company. The said Director claimed that althoughthe FDRs were in her name but the same belonged to the assessee company.This explanation was accepted by the Commissioner of Income Tax(Appeals) in an appeal filed by the said Director in her personal capacity. 30.The FDRs in question pertained to the AY 1993-94. In view of thesaid information, the AO issued a notice under Section 148 of the Act. Inresponse to the said notice, the assessee filed its return declaring a loss of₹1,02,756/-. During the proceedings initiated pursuant to the reassessment notice issued under Section 148 of the Act, the assessee established itscapacity to invest ₹20,00,000/- and had also proved the source of the funds. The AO accepted the same and thus, made no addition in respect of theFDRs in question. During the course of the assessment proceedings, the AOalso noticed that there was an increase of ₹47,00,000/- in the share application money reflected by the assessee company in its books ofaccount. The share application money was received from several persons.The AO thus issued notice to one such person selected on a random basis.The said notice recorded his statement confirming the investment made inthe assessee company. 31.Thus, the AO did not make any addition on account of the increase inthe share application money during the relevant assessment year. 32.The Commissioner of Income Tax (CIT) was of the view that the AOought to have made further enquiries in respect of the share applicationmoney. Accordingly, the CIT passed an order under Section 263 of the Acton the basis that the AO’s order was erroneous and prejudicial to theinterests of the Revenue. 33.This Court, following the earlier decision in Ranbaxy LaboratoriesLtd. v. Commissioner of Income Tax (supra) found that CIT’s order underSection 263 of the Act was unsustainable. This is primarily on the groundthat since the assessee company’s explanation for investment in FDRs of the value of ₹20,00,000/- was accepted, no addition could have been made by the AO in respect of any other income.It will be apposite to refer toconclusion arrived at by the Court in the said case.The same is set outbelow: “14.For exercise of power under section 263 of the Act, it ismandatory that the order passed by the Assessing Officer should beerroneous and prejudicial to the interests of the Revenue. In thepresent case, the Assessing Officer did not make any addition forthe reasons recorded at the time of issue of notice under section 148of the Act. This position is not disputed and disturbed by theCommissioner of Income-tax in his order under section 263 of theAct. Sequitur is that the Assessing Officer could not have made anaddition on account of share application money in the assessmentproceedings under section 147/148. Accordingly, the assessmentorder is not erroneous. Thus, the Commissioner of Income-taxcould not have exercised jurisdiction under section 263 of the Act.” 34.In a recent decision in ATS Infrastructure Limited v. AssistantCommissioner of Income Tax: Neutral Citation: 2024:DHC:5474-DB, thisCourt took note of a number of decisions including inRanbaxyLaboratories Ltd. v. Commissioner of Income Tax (supra) and reiteratedthe proposition that in the event no addition is made in respect of incomewhich the AO had reason to believe had escaped assessment, no otherincome would be taxed as having escaped the assessment. 34.In a recent decision in ATS Infrastructure Limited v. AssistantCommissioner of Income Tax: Neutral Citation: 2024:DHC:5474-DB, thisCourt took note of a number of decisions including inRanbaxyLaboratories Ltd. v. Commissioner of Income Tax (supra) and reiteratedthe proposition that in the event no addition is made in respect of incomewhich the AO had reason to believe had escaped assessment, no otherincome would be taxed as having escaped the assessment. 35.Clearly, if the AO could not have made an addition in the taxableincome of the assessee for the relevant assessment year, on account ofinvestment made in FDPL shares – which was the AO’s reason to believethat the assessee’s income had escaped assessment – no addition in respectof any other amount could be made to the assessed taxable income of theassessee in proceedings initiated pursuant to the notice dated 30.03.2021 issued under Section 148 of the Act. It follows that the AO’s order dated30.03.2022 could not be held to be erroneous insofar as it is prejudicial tothe Revenue on account of not making any addition on account of incomefrom interest on non-convertible debentures of Vatika Limited.Thus, infact, the PCIT passed an order under Section 263 of the Act, which the AOcould not have been passed in the reassessment proceedings. 36.Mr Aggarwal, the learned counsel appearing for the Revenue hadsubmitted that the powers of the Commissioner under Section 263 of the Actare not abridged/restricted by any restriction/limitation in exercise of powersby the AO or on account of any action/inaction/wrong action on the part ofthe AO. He contends that in view of the above, it is not necessary to dealwith the principal contention of the assessee that absent any addition of theincome alleged to have escaped assessment in the reasons recorded by theAO, the AO did not have any jurisdiction to make any other addition underSection 147 of the Act. 37.The said contention is unmerited. The powers of the Commissionerunder Section 263 of the Act are in the nature of a review and an order underSection 263 of the Act could be passed only if the learned PCIT found that(i) the order passed by the AO is erroneous; and (ii) that it is prejudicial tothe interest of the Revenue. Once it is accepted that the AO could not havemade any addition to the assessee’s any other income if it was satisfied withthe assessee’s explanation regarding the transaction of purchase of shares ofFDPL; it would follow that the learned PCIT could not fault the AO for notmaking any such addition. 38.Clearly, once the AO accepted the assessee’s explanation regardingthe investment made in the shares of FDPL and the amount borrowed fromAPPL for funding the said purchase, the AO could not proceed to make anyaddition on any other ground in the reassessment proceedings. 39.Thus, non-addition of any income on account of alleged income frominterest commensurate with the TDS deposited by Valtika Limited, ormaking further enquiries would not confer the learned PCIT with thejurisdiction to pass an order under Section 263 of the Act. 40.The question as framed in paragraph no.3 above is thus, answered infavour of the assessee and against the Revenue. 41.Accordingly, the order dated 28.03.2024 passed by the learned PCITand the impugned order passed by the learned Tribunal are set aside. 42.The appeal is allowed in the aforesaid terms. Pending application alsostands disposed of. VIBHU BAKHRU, J OCTOBER 21, 2024 M TARA VITASTA GANJU, J Click here to check corrigendum, if any