NIMITA SONI PROP. SWARANLATA TRADERS,BIKANER vs. PCIT-1, JODHPUR

Assessee By Shri Amit Kothari-C.A. Revenue By Shri Lovish Kumar, CIT-DR Date of hearing 05/07/2023 Date of Pronouncement 21/08/2023 O R D E R PER: Dr. S. Seethalakshmi, JM

This appeal is filed by assessee and is arising out of the order of the Principal Commissioner of Income Tax, Udaipur dated 26.03.2022 [here in after (ld. PCIT)] for assessment year 2017-18 which in turn arise from the order dated 05.12.2019 passed under section 143(3) of the Income Tax Act, by the ITO, Ward-1(2), BKN.

Nimita Soni Prop. Swaranlata Traders 2. The assessee has marched this appeal on the following grounds:- “

1. On the fact and circumstances of the case worthy PCIT

1. Jodhpur had erred in setting aside the assessment order u/s 263 (completed earlier u/s 143(3) of the IT Act, 1961) as it was bad in law.

2. On the fact & circumstances of the case ld. AO has erred in passing the order u/s 263 and setting aside the assessment order only on the base of an audit objection whereas the appellant is saying form beginning that the mistake was only a part of typographical and technical error nothing else.

3. The appellant prays for justice and relief.

4. The appellant may please be permitted to raise any additional or alternative ground sat or before the hearing.”

Nimita Soni Prop. Swaranlata Traders evidences as to why the order passed on 05.12.2019 u/s 143(3) of the Act by the Assessing Officer shall not been declared an erroneous in so far as it is prejudicial to the interest of revenue to the extent of the issues disclosed as above.

4.1 In response the assessee filed a reply but the PCIT did not convince from the reply of the assessee and has observed that the assessee has submitted that “it may be a technical or computer error because the assessee had made its purchases from 01.11.2016". The assessee herself has relied upon a possibility of technical error but failed to give any details or evidence with regard to the source of investment in this opening stock of 950 gm gold. Further, the assessee has claimed that the said mistake could not be removed while finalizing the account as well as in audit, but the said mistake was rectified in beginning of F.Y. 2017-18i.e. on 01.04.217.Thus, it was claimed that this entry of opening stock of 950 Gram of gold does not make any difference for the purposes of taxation. This plea of the assessee is unacceptable as the main issue here is unexplained nature of the opening stock of 950 gms of gold, for which no explanation had been given by the assessee. Further, it is a trite law that the income is to be taxed in the year to which it belongs. The unexplained nature of 950 gm of gold is taxable income

Nimita Soni Prop. Swaranlata Traders in the AY. 2017-18 and the AO was bound to tax the same in the said assessment year only. The rectification of the mistake in the next financial relevant to A.Y. 2018-19 is of no consequence, as far as taxability of income of A.Y. 2017-18 is concerned.

With reference to above named subject it is faithfully submitted that before I submit my written submission, I would like to narrate the brief history of the case that the assessee is a individual proprietorship and engaged in the business of trading of gold and silvers. The Individual files its ITR on dated 31 Aug 2017 by declaring an income Rs 344673/-. After that the case was selected under CASS and notice u/s 143(2)/142(1) was issued and after several hearings the case was disposed U/S 143(3) with a addition of Rs. 12,00,000/- into income being aggrieved to the said addition the appellant filed an appeal before CIT(Appeals). That while perusing the assessment record the ITO of Audit observed a mistake of an entry of 950Gm gold and on finding of the auditor your office has issued me a notice to submit clarification on this issue so the same is intimated here :-

Regarding To the purchases made of 950 Gm for starting business

In this matter it is humbly submitted that during the assessment proceedings ld. AO has asked the same question in his query and it was faithfully submitted before the AO at that time that “If your honor will take a look towards purchase register of firm your honor will found that the firm made its 1st purchases from 01.11.2016 from some dealers. It may be a technical or computer error because the assessee had made its purchases from 01.11.2019 in Nimita Soni Prop. Swaranlata Traders support of my claim I am enclosing here detailed purchases register with quantity and amount.”.

It is faithfully submitted that the said entry was made for a test check entry in computer because it was a first entry made in this computer because the firm start its business in the month of Nov 2016. The said mistake could not be removed while finalizing the account as well as in audit but the said mistake was rectified in beginning of FY 2017-18 (01 April 2019). Actually while valuing the closing stock for the year it was valued by reducing this 950Gm entry (3225 Gm – 950 Gm) 2275 Gm. During the asst proceedings in a query related to stock valuation I have given valuation of 2275 Gm, You may verify the fact from the record All the documents are there on record. So that entry of 950 Gm does not make any difference in trading result because of following facts :- 1. Even if we remove this entry of 950Gm, the stock will not come negative.

3. A reverse entry was made in the very beginning (01 April 2017) of next financial year 2017-2018.

Your honor may verify the facts from the documents there on record. The present assessment order is neither erroneous nor prejudice to the interest of revenue therefore it is not a fit case for initiating the proceedings u/s 263 in this case. Finding for initiation of proceedings u/s 263 must be based on solid base and order must be erroneous and prejudice to the interest of the revenue as it is held by many courts at various times that :-

As I also relied upon the decision of Hon’ble ITAT Banglore bench in the latest case of Daatha Builders (P) Ltd, Banglore Vs. CIT Banglore I dated 29.01.2014, Wherein this order it was propound by the Hon’ble bench “Jurisdiction u/s 263 of the act cannot be said that there was no enquiry made by the AO on the issue considered in the order u/s 263 of the Act. It is the case where the CIT is of the view that an enquiry made by AO is inadequate. Jurisdiction u/s 263 of the act cannot be invoked for inadequate inquiry. Therefore order u/s 263 of the CIT is accordingly quashed” , Copy of the order is enclosed here with the paper book. (a) The assessment order passed cannot be termed as "erroneous" as much as the Assessing Officer has passed the order after application of his mind on the very same issue, after considering all the information, explanation filed. The Commissioner of Income Tax cannot substitute his own views on the issue in exercise of the jurisdiction

Nimita Soni Prop. Swaranlata Traders under Section 263 of Income Tax Act, 1961. Reliance in this regard is placed on the following decisions : 1. CIT v. Valliammal (D) 230 ITR 695 (Mad); 2. CIT v. Ratlam Coal Ash Co., 171 ITR 141 (MP); 3. Ashok Kumar Parasramka v. ACIT, 65 ITD 1 (Cal); 4. CIT v. Mehrotra Brothers, 270 ITR 157 (MP); 5. CIT v. Parameshwar Bohra, 267 ITR 698 (Raj.); 6. Paul Mathews and Sons v. CIT, 263 ITR 101 (Ker.); 7. CIT v. Arvind Jewellers, 259 ITR 502 (Guj); 8. CIT v. Hastings Properties, 253 ITR 124 (Cal); 9. CIT v. Goal (J.P.) (HUF), 247 ITR 555 (Col); 10. CIT v. Amalgamations Ltd., 238 ITR 963 (Mad); 11. ClT v. Macneill Magore Ltd., 232 ITR 945 (Col.) (b) Simply because the Commissioner of Income Tax felt that the assessment order is prejudicial to the interests of Revenue by itself would not be enough to vest the Commissioner with the power of suo moto revision because the first requirement of Section, namely, the order is "erroneous" is lacking. Reliance is placed on the following decisions: 1. CIT v. Gabriel India Ltd. 203 ITR 108 (Bom); 2. BCCI v. Director of IT (Exemptions), 278 ITR (AT) 83 (Mum); 3. JK Industries Ltd. v. ACIT, 283 ITR 101 (Cal); 4. CIT v. Thangamaligai (GR), 259 ITR 129 (Mad); 5. CIT v. Girdhari Lal, 258 ITR 331 (Raj); and 6. CIT v. Giridhar Lal, 258 ITR 231 (Raj). (c) Even assuming that the enquiries made by the Assessing Officer are inadequate, the jurisdiction under Sec. 263 of Income Tax Act, 1961 cannot be assumed as it was only in Nimita Soni Prop. Swaranlata Traders the cases of lack of enquiries that the jurisdiction under Sec. 263 of Income Tax Act, 1961 can be assumed. Reliance in this regard is placed on the following decisions: 1. CIT v. Anil Kumar Sharma - 335 ITR 83 (Delhi); 2. CIT v. Sunbeam Auto Ltd. 332 ITR 167 (Delhi); 3. CIT v. Gabriel India Ltd. 203 ITR 108 (Bom) "From reading of sub-section (1) of section 263, it is clear that the power of suo moto revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous in so far as it is prejudicial to the interests of the Revenue'. It is not an arbitrary or unchartered power; it can be exercised only on fulfilment of the requirements laid down by sub-section (1). The consideration of the Commissioner, as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well- accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in ether spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977) 106 ITR 1 (SC) at page 10) ...." From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax officer acting in accordance with law makes a certain assessment, the same cannot be branded as 'erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-

Nimita Soni Prop. Swaranlata Traders judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what it was . Appellate Tribunal - Chennai Bench in the case of IClCI Bank Ltd. v. Joint Commissioner of Income-tax - [2009} 309 ITR (A T) 235 (Chennai). What is erroneous :- Before we deal with the order I would like to clear definition of erroneous :

'erroneous, adj. Involving error, deviating from the law'.

The word 'error' has been defined at the same page in the same dictionary thus: 'error No. 1 : A psychological state that does not conform to Objective reality; a brief that what is false is true or that what is true is false'.

At page 649/650 in P. Ramanatha Aiyer's Law Lexicon Reprint 2002, the word 'error' has been defined to mean- 'Error: A mistaken judgement or deviation from the truth in matters of fact, and from the law in matters of judgement 'error' is a fault in judgement, or in the process or proceeding to judgement or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullityie" (termes de la ley).

Something incorrectly done through ignorance or inadvertence S.99 CPC and S.215 Cr.PC.

Error, Fault, Error respects the act; fault respect the agent, an error may lay in the judgement, or in the conduct, but a fault lies in the will or intention." At page 650 of the aforesaid Law Lexicon, the scope of Error, Mistake, Blunder, and Hallucination has been explained thus: "An error is any deviation from the standard or course of right, truth, justice or accuracy, which is not intentional. A mistake is an error committed under a misapprehension of misconception of the nature of a case. An error may be from the absence of knowledge, a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or Nimita Soni Prop. Swaranlata Traders awkwardness. An error may be overlooked or atoned for, a mistake may be rectified, but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of discarded imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgement or fact, especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived." In order to ascertain whether an order sought to be revised under Section 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. An order sought to be revised under Section 263 would be erroneous and fall in the aforesaid category of "errors" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non-application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the revenue.. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo moto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under Section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make the assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub- section (1) of Section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under Section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of Nimita Soni Prop. Swaranlata Traders scrutiny assessments. He should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereo- typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon'ble Supreme Court in Rampyari Devi Saraogi v. CIT (67 ITR 84) (SC), Smt. Tara Devi Aggarwal v. CIT M/s. Sun Minerals (88 ITR 323) (SC), and Malabar Industrial Co. Ltd's case ( 243 ITR 83) (SC). In Malabar Industrial Co. Ltd. case the Hon'ble Court has held as under: "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall the orders passed without applying the principles of natural justice or without application of mind. In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under Section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under Section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in the actions of the Assessing Officer. It is the duty of the Assessing Officer to adequately protect the interest of both the Nimita Soni Prop. Swaranlata Traders parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can always be corrected either at the instance of the assessee, if the assessee is prejudiced or at the instance of the Commissioner, if the revenue is prejudiced. While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a M/s. Sun Minerals substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefore. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon'ble Supreme Court as follows:

Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision-making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge.

Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi-judicial capacity. Therefore, a reasoned order on a substantial issue is legally necessary. The judgments on which reliance was placed by the learned Counsel for the assessee also points to the same direction. They have held that orders, which are subversive of the administration of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the Nimita Soni Prop. Swaranlata Traders nature of the transaction and materials on record, the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of the revenue. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case. In the present case there was nothing as prescribed in above category so the action of 263 in this case is not warranted in this case as the proposal of section 263 sent by ld. AO is itself erroneous because CIT(A) himself has confirmed the order of ld. AO passed u/s 143(3) of the IT Act 1961. Copy Of CIT (A) order is enclosed here in paper Book. So the proposal made in this objection has no weight therefore in view of judgments of hon’ble Supreme court, High court and ITAT benches and judgment of same assessee’s sister concern case, you are requested to kindly drop/cancel the proceedings u/s 263 of the IT Act 1961 at your end. In view of the foregoing, it can safely be said that an order passed by the Assessing Officer becomes erroneous and prejudicial to the interests of the Revenue under Section 263 in the following cases: (i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it.

(ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles .

(iii) The order passed by the Assessing Officer is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case.

In the present case there was nothing as prescribed in above category so the action of 263 in this case is not warranted in this case as the proposal of section 263 sent by ld. AO is itself erroneous because CIT(A) himself has confirmed the order of ld. AO passed u/s 143(3) of the IT Act 1961.

Nimita Soni Prop. Swaranlata Traders I am strongly relied upon the following observations made in the case of Malabar Industrial Co. Ltd. (supra) and submitted that the learned Commissioner was not justified in substituting his view for that of the Assessing Officer: "... Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law." In CIT vs. Leisure Wear Exports Ltd. [2010] 46 DTR (Del) 97 Hon’ble Delhi High Court held that power of revision u/s 263 of the Act is not meant to be exercised for the purpose of directing the AO to hold another investigation, without describing as to how the order of the AO is erroneous. Where the assessment order has been passed by the AO after taking into account assessee's submissions and documents furnished by him, and no material is brought on record by the CIT which shows that there was any discrepancy or falsity in the evidence furnished by the assessee, the order of the AO cannot be set aside for making deep enquiry only on the presumption that something new may come out. Since there was not ITAno.1646/Ahd/2010, even a whisper that the order was erroneous nor as to how the said order was prejudicial to the interests of the Revenue while the only observations of the CIT were that a deeper probe by calling for more details was required or that the matter needed examination by the AO, Hon’ble High Court held that this did not satisfy the ingredients of s. 263 of the Act. Accordingly, Hon’ble High Court upheld the findings of the Tribunal, setting aside the order of the CIT. The same view has been taken by Hon’ble ITAT bench, Chandigarh in the case of Intenational cycle gears Vs CIT-Ludhiyana dated 24.05.2012, Wherein this case order of CIT u/s 263 is also quashed.

... Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law so the action taken u/s 263 is not sustainable.

In the present case there was nothing as prescribed in above category so the action of 263 in this case is not warranted in this case as the proposal of section 263 of the Nimita Soni Prop. Swaranlata Traders IT Act 1961. Ld. AO passed asst order u/s 143(3) of the IT Act 1961. sSo the proposal made in this objection has no weight therefore in view of judgments of hon’ble Supreme court, High court and ITAT benches and judgment of same assessee’s sister concern case, you are requested to kindly drop/cancel the proceedings u/s 263 of the IT Act 1961 at your end.

An order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) "record shall include and shall be deemed always to have included all records relating to any proceeding I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 - 10 - under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.

(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.

(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.

Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso Nimita Soni Prop. Swaranlata Traders to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."

8. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 - 11 - will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon'ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the I T A N o . 3 4 4 / Ah d / 2 0 [ I T T C o r p o r a t i o n I n d i a Pvt. Ltd. vs. Pr.C IT] A.Y. 20 14-15 - 12 - AO and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.

Nimita Soni Prop. Swaranlata Traders (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order.

(v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law.

(vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO.

(vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion.

(viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction.

(ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.

Hence these information is giving here in compliance to your notice. If your honor want further more information and clarification the same may be intimated.”

Nimita Soni Prop. Swaranlata Traders and the assessing officer failed to tax the same as unexplained money and therefore, provision of section 263 was invoked and the assessment order passed by the Assessing Officer in this case is found to be erroneous in so far as it is prejudicial to the interests of revenue. Thus, on the issue we note that as per clause (a) & (b) of Explanation 2 to section 263 of Income Tax Act the order passed by the ld. AO shall be deemed to be erroneous so far as it is prejudicial to the interest of the revenue if in the opinion of the PCIT (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. The case of the assessee is not covered in both the clauses because the ld. AO made inquiries from the assessee on this issue the same is made by issuance of notice dated 25.11.2019 (APB23&24). The assessee filed the reply to this notice (APB – 25 to 27) based on this exercise the ld. AO has examined the issue and also proposed the addition of Rs. 12,00,000/- which is the issue in question for selection of the cash for cash deposit. The ld. AO based on the enquiry made taken a judicious view which the ld. PCIT cannot substitute by invoking the provision of section 263 of the Act and the revisionary power cannot be used just for the reason that in view point of PCIT the verification was not proper. In this case the assessee explained the issue of 950 gms gold

Nimita Soni Prop. Swaranlata Traders jewellery and the ld. AO has partly accepted the explanation on the issue. In the case of Malabar Industrial Co Ltd. Vs. CIT [ 243 ITR 83 ] Hon’ble apex court held that pharase i.e. prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the AO. The apex court further note that is has to be remembered that evey loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interest of the revenue. Even the jurisdiction Rajasthan high court in the case of CIT Vs. Ganpat Ram Bishnoi [ 296 ITR 292 ] has held that due revenue out to reach the public treasury and if it does not reach on account of some mistake of law or fact committed by the AO, the CIT can cancel that order and require the concerned AO to pass a fresh order in accordance with the law after holding a detailed enquiry. But when enquiry in fact has been conducted and the AO has reached a particular conclusion, through refence to such enquiries has not been made in the order of the assessment, but the same is apparent from the proceeding, in the present case the ld. AO has called for the explanation of the assessee for 950 gms jewellery and after taking the information and explanation on record taken a view which cannot be subjected to a revision u/s. 263 of the Act. Accordingly, we find merit in the grievance raised by the assessee, accordingly we hold that the PCIT is not Nimita Soni Prop. Swaranlata Traders justified in exercising jurisdiction for revision u/s. 263 of the Act. Based on this observation the impugned order is accordingly quashed.

In the result, appeal of the assessee in is allowed.