Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, JODHPUR BENCH,
Before: HON’BLE SH. SANDEEP GOSAIN & HON’BLE SH. VIKRAM SINGH YADAV
IN THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH, JODHPUR BEFORE HON’BLE SH. SANDEEP GOSAIN, JUDICIAL MEMBER AND HON’BLE SH. VIKRAM SINGH YADAV, ACCOUNTANT MEMBER ITA No. 25/JODH/2021 Assessment Year: 2016-17 Sunita Agarwal, Vs. Pr.CIT-1, 98, Industrial Area, Jodhpur. Bikaner. PAN No. AEOPA 9467 R
Assessee by Shri Manish Surana, CA Revenue by Smt. Sanchita Kumar, CIT-DR Date of Hearing 11/08/2021 Date of Pronouncement 07/10/2021 O R D E R PER: SANDEEP GOSAIN, J.M. The present appeal has been filed by the assessee against the order of the ld. Pr.CIT-1, Jodhpur dated 10/03/2021 for A.Y. 2016-17 passed u/s 263 of the Income Tax Act, 1961 (in short, the Act) wherein following grounds have been raised: “1. The Ld. PCIT was wrong in law as well as in facts in setting aside the order of the assessing officer without considering facts and circumstances of the case. 2. The ld. PCIT has not been able to establish the pre-requisite conditions for invoking the revisional provision.” 2. The brief facts of the case are that the assessee is an individual a d filed her return of income for the year under consideration declaring total income of Rs. 42,32,900/-. The case of the assessee was selected for
2 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT limited scrutiny and various notices were issued to her. The AO completed the assessment on 19/12/2018 U/s 143(3) of the Act determining totaling total income of the assessee at Rs. 49,54,635/-. Thereafter, the ld. PCIT had issued a show cause notice dated 10/02/2021 which was served upon the assessee but no reply has been filed by the assessee against the show cause issued U/s 263 of the Act and finally the ld. PCIT passed the order U/s 263 of the Act on the ground that the order U/s 143(3) of the Act dated 19/12/2018 passed by the A.O. is deemed to be erroneous in so far as it is prejudicial to the interests of the Revenue and directed the A.O. to pass the speaking assessment order afresh after making proper enquiries and after affording adequate opportunity of being heard to the assessee.
Now the assessee is in appeal before the ITAT on the grounds mentioned above.
Both the grounds raised by the assessee in this appeal are interrelated and interconnected and mainly relates to challenging the order of the ld. PCIT passed U/s 263 of the Act. In this regard, the ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. PCIT and also relied on the written submissions filed before the Bench and the same is reproduced below:
3 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT “A sum of rupees 60 lacs was surrendered on account of unaccounted Investments in house property. Against the surrendered income the assessee set off the business loss of Rs 20.25 lacs. The PCIT directed to examine and verity the claim of set off of loss.
The issue relating to set off of loss was duly examined by the assessing officer as evident from the assessment order itself. Your kind attention is drawn to office note or say the satisfaction note which says that:
"In this case during the survey proceedings the assessee surrendered additional income of Rs 60 Lac although the assessee had shown business income of Rs 6181145 in its computation. But the assessee claimed set off of loss pertaining to preceding year of Rs 2025334/- thus net business income shown by the assessee in its computation of income was Rs 4155811. Thus business loss claimed is allowed to the assessee."
Amendment in section 115 BBE prohibiting the set off of any type of loss was inserted by Finance Act 2016.
It was held in CUT (Mumbai) V Essar Technology Limited the Supreme Court mentioned that wing of the government has been vested with plenary power to decorate whether an amendment to operate prospectively or retrospectively . Further in general observation the legislature considers any statute prima-facie to be prospective only unless the statute has been expressly by necessary implication made to operate retrospectively.
There is also mention of this set off of at PN. 2 para 6 of the assessing officer itself.
Thus the matter examined and verified and his action was in accordance with the law.
Reference to DVO
4 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT Detailed query regarding house construction was made by the assessing officer vide query dated 5/11/2018 (PB66) and reply together with valuation report along with technical certificate was filed on 12.07.2018 (PB 68 TO 73).Further query relating to investment was raised at the time of statement recorded u/s 131 during survey.
Your kind attention is drawn to the statement recorded during survey proceedings wherein the various in depth queries were raised and replied in comprehensive manner. Further assessing officer during assessment proceedings appreciated the statement and impounded material in the backdrop of surrendered income and regular income .The order sheet entry dated 06.12.2018 is testimony to the examination and verification done by ld AO.
Thus, there has been detailed examination and verification of investment in the house construction . It has been held in ACIT Vs. M/s Ardra ITA no. 374 to 379/ coch/2017 that reference of matter to DVO by assessing officer for valuation is not mandatory. In that case appeal under section 263 was allowed.
In view of the foregoing the PCIT does not acquire jurisdiction, hence his action is bad in law.
Issue 2
It was alleged that at column number 40 of the audit report the amount of closing stock mentioned is Rs 4869765/- whereas in the balance sheet it is Rs 5020156/- .He called for due verification.
Your kind attention is drawn to PN. 83 and PN. 84 of PB. PN. 83 contains column number 40 of 3cd and PN. 84, the first page of balance sheet. There is no mention of closing stock at column 40, whereas the first page of balance sheet contains the figure of closing stock .
5 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT While computing stock turnover, stock in trade means the average of opening and closing stock . The average of opening and closing stock comes to Rs 4869765/-.The nature of two figures are different hence not comparable.
It is therefore requested that the present order of the Id. Pr. CIT may please be quashed as void ab initio and oblige.
Issue 3
Advance of Rs 25 Lac given in cash to Sh. Naveen Mahipal in two installments. The PCIT directed to examine and verify the source of credit. Although, it has been mentioned by the PCIT that this amount is reflected in schedule 4 of audited balance sheet.
Your kind attention is drawn to page 2 of assessment order( PB 118 ) which says that the assessee has advance in cash rupees 25 lakh in two installments . It further says since the assessee had borrowed funds for the investment in such non business activities therefore the interest claimed be disallowed.
There is very detailed comprehensive and categorical findings by the assessing officer. Cash book was called for vide query dated 5.11.2018 (PB 67). The same was produced and examined as evident from the opening paragraph of the order. Further the reflection of such advance in the balance sheet as clear from the order of the PCIT is a sufficient and adequate proof regarding the nature and source of transaction. For the asset side of the balance sheet, the liabilities as well as the capital balance constitute the basis.
The PCIT also called for application of section 269T in relation to the impugned advance against purchase of land.
6 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT Section 269T restricts repayment of loan, deposit or specified advance if the amount exceeds Rs 20000 or more. In the instant case there has not been any repayment of the nature specified above. There is rather advancement by the assessee hence the provision of sec. 269T are not trigerred.
Issue 4
Non examination of unsecured loan from Shri Virendra Agarwal
The assessee has not received any unsecured loan form Shri Virendra Agarwal as alleged by the PCIT .The Id AO made detailed query regarding cash creditors vide notice dated 2/7/18 (PB21) . Also called for personal statement of affairs of the assessee vide notice dated 5/1 l/2018(PB 66). The allegation of PCIT is factually incorrect.
During, the year the appellant has not received any amount of unsecured loan from Sh Virendra Agarwal. The amount was received from him way back in FY 2009-10. As apparent from the assessment record that the assessee is Prop. of M/s Yogesh Enterprises and also deriving rental income. Prior to the AY under review the assessee used to have two separate financial Statement one for Proprietorship concern and another in Individual Capacity. Whereas from the current year the Financial Statements maintained in Individual capacity were merged into the Proprietorship concern being carried on in the name of M/s Yogesh Enterprise.
During the course of Assessment proceedings not only the Financial Statements of the current year but also of the last year were called upon and examined. Thereafter, a consolidated Financial Statement showing the Individual balance sheet and the balance sheet of Proprietorship concern on the standalone basis and aggregate basis was furnished.The name of Shri Virendra Agarwal figure in unsecured loan with outstanding balance of Rs 832432/- .
7 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT Thus the entire gamut of merging of Financial Statements was critically examined by AO. Since there was no receipt of fresh cash credit from Virendra Agarwal, his name cropped up in the consolidated balance sheet as on 31.03.2016 by virtue of transfer entry from Individual Balance Sheet to the consolidated/Merged Balance Sheet of the Proprietorship concern M/s Yogesh Enterprises. All the bank statements of the assessee are on record if there had been any receipt of Unsecured Loan from Virendra Agarwal then definitely it would have been shown therein.
A statement containing the balance sheet of Smt. Sunita Agrawal and M/s Yogesh Enterprises as well as consolidated as on 31.3.15 was furnished. (PN. 108,109 & 123 to 138) were furnished.
The assessing officer examined the aforesaid. Your kind attention is drawn to PN 2 of assessment order where it is written that "the consolidated balance sheet of the assessee (individual ) and M/s Yogesh Enterprises (proprietorship concern ) that as on 1.4.2015 the opening capital was -811817 . 'Therefore the assessee has not had sufficient funds to purchase any fixed assets In the absence of any receipt of unsecured loan there is no onus to examine the credit worthiness
Issue 5
It is evident that assessee has received a total loan of Rs. 15 Lacs from one Smt. Rekha instead of Rs. 5 Lacs as shown by you. Further, you have has claimed to have expended an amount of Rs. 53,425 on behalf of interest payment against the said loan and have assessee failed to deduct TDS on this said payment of interest. Apart from this Smt Rekha verma has filed her ITR for the year under consideration showing income of Rs.2,68,662.
During the course of Assessment proceedings the ITR, Computation, Bank Statement and confirmation of accounts of all cash creditors including Smt.
8 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT Rekha Verma were furnished. In the confirmation of accounts both assessee as well as the cash creditor put their signatures in token of having accepted the veracity of transactions. Further the bank statement of Rekha Verma also highlighted the payment made by her to assessee. The Bank Statements of the assessee are also on records. If such type of money had been paid by Rekha verma it would have featured in the bank statement of the assessee.
The Ld PCIT has gone in overdrive in assuming and presuming the transaction dated 11.05.2015 for Rs. 10 Lacs as that of the assessee. It may be noted that the af'oresaid amount was received by way of loan by the Husband of the assessee Mukesh Agarwal. The reason behind the existence of Narration "TO YS AC RTGS" in both the transaction involving the assessee and her husband is the fact that the assessee is Prop of M/s Yogesh Enterprises and her husband is also Prop of M/s Yash Trading Corporation. The cash credits were received by both of them in the bank account of their respective proprietorship concern. Therefore, the nomenclature in the narration was same.
From the Bank Statement it is obvious that the immediate source of unsecured loan of Rs, 5 lakhs Rekha Verma was the money received by her from Mr. Kripa Shankar Verma on 13.05.2015 amounting to Rs.320000.00 through account payee cheque, and from Gajanand Verma on 11.05.2015 amounting to Rs. 180000.00.
The current income didn't constitute the source of unsecured loan, hence the comparison of current income which the amount of unsecured loan does not have any meaning and relevance. It has been held that the assessee cannot be asked to explain whether the cash credit has suffered tax. CIT Vs. Metachem 245 1TR 160
The appellant didn't deduct the tax at source since the payee had furnished form 15G and the same was uploaded on the income tax portal on
9 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT 28.04.2016. The prescribed due date was 30.04.2016.On the basis of such form the tax was not deducted at source in accordance with sec. 197 of the IT Act. Further the Chartered Accountant has given tax audit report in which he has reported the disallowance on account of non deduction of tax at source at nil.
It is therefore sincerely requested that the order passed by the Id. Pr. CET is illegal and may kindly be quashed.
Issue 6
A file containing 102 pages in the name of the assessee was found and impounded.
The aforesaid documents were duly examined by the survey party .Your kind attention is drawn to question no. 3 of the statement recorded during the course of survey proceedings on oath u/s 131 of the IT Act. It was stated in the reply by the assessee that the documents are the file containing the invoices relating to the construction from the period 1.4.15 to 30.06.2015. The total of expenditure which are also enlisted stands at Rs 3480424/-.
Thereafter the assessing officer during assessment thoroughly examined and verified the statements recorded and the documents found during survey against the backdrop of the surrendered income and regular income. The aforesaid action is before it is evident from the note sheet entry dated 6/12/2018 .It is therefore sincerely requested that the impugned order passed by Pr. CIT u/s 263 of the Income Tax Act, 1961 may kindly be quashed and oblige.”
On the other hand, the ld. CIT-DR has vehemently supported the order of the ld. PCIT.
10 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT 6. We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. We found that PCIT has held that the order of the A.O. U/s 143(3) dated 1/12/2018 is erroneous in so far as it is prejudicial to the interest of the revenue on the basis of six issues/points as mentioned in its order, therefore, now we will deal with all the points separately. The ld. PCIT’s main thrust was that, the A.O. had without proper verification and examination of records has accepted the claim of assessee.
As per issue/point No. 1 of the order of ld. PCIT, we found that according to the ld. PCIT, a sum of Rs. 60.00 lacs were surrendered by the assessee on account of unaccounted investments in the house property and against the surrendered income, the assessee had set off the business loss of Rs. 200.25 lacs, therefore, PCIT had directed to examine and verify the claim of set off of loss by invoking the provisions of Section 263 of the Act.
In this regard, after considering the documents placed on record and hearing the parties we found that this issue relating to set off of loss was duly examined by the A.O. which is evident from the assessment order itself. In this regard, our attention was drawn to the office note/satisfaction note which says
11 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT that: "In this case during the survey proceedings the assessee surrendered additional income of Rs 60 Lac although the assessee had shown business income of Rs 6181145 in its computation. But the assessee claimed set off of loss pertaining to preceding year of Rs 2025334/- thus net business income shown by the assessee in its computation of income was Rs 4155811. Thus business loss claimed is allowed to the assessee."
Since, as per amendment in section 115 BBE, which prohibits the set off of any type of loss was inserted by Finance Act, 2016 and in this regard, it was held in the case of CIT (Mumbai) V Essar Technology Limited, the Hon’ble Supreme Court has categorically mentioned that the wings of the government has been vested with plenary power to decorate whether an amendment to operate prospectively or retrospectively. Further in general observation the legislature considers any statute prima-facie to be prospective only unless the statute has been expressly by necessary implication made to operate retrospectively.
Thus, in this way, the amended provisions of Section 115BBE are not applicable in the case of the assessee. Even otherwise, there is specific mention of this set off at page No. 2 and para No. 6 of the order of assessment which goes to show that the matter with regard to set off was examined and verified by the A.O. With regard to reference to DVO is concerned, a detailed query
12 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT regarding house construction was made by the A.O. vide query dated 5/11/2018 (PB-66) and reply together with valuation report along with technical certificate was filed on 12.07.2018 (PB 68 to 73). Further query relating to investment was raised at the time of statement recorded u/s 131 during survey. Our attention was also drawn to the statement recorded during survey proceedings wherein the various in depth queries were raised and replied in comprehensive manner. Further A.O. during assessment proceedings appreciated the statement and impounded material in the backdrop of surrendered income and regular income. The order sheet entry dated 06.12.2018 is testimony to the examination and verification done by AO. Thus, in this way, there had been detailed examination and verification of investment in the house construction. Therefore, ld. PCIT was not justified in invoking the provisions of Section 263 of the Act on this issue.
Issue/Point No. 2: Ld. PCIT pointed out that at column No. 40 of the audit report, the amount of closing stock was mentioned at Rs. 4869765/- whereas in the balance sheet it is Rs. 4020156/-, thus according to ld. PCIT, the A.O. had not carried out the verification and examination of this issue.
In this regard, our attention was drawn towards the PN. 83 and PN. 84 of PB. wherein PN. 83 contains column number 40 of 3cd and PN. 84 contains the first page of balance sheet. There is no mention of closing stock at column 40, whereas the first page of balance sheet contains the figure of closing
13 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT stock. Thus, while computing stock turnover, stock in trade means the average of opening and closing stock. In this way, the average of opening and closing stock comes to Rs 4869765/- and the nature of two figures are different and hence not comparable. Thus, in view of the above explanation and the documents placed on record, the ld. PCIT was not justified in invoking provisions of Section 263 of the Act on this issue.
Issue/Point No. 3: the ld. PCIT noticed that an advance of Rs 25 Lac was given in cash to Sh. Naveen Mahipal in two installments and the source of the credit was not examined by the A.O., thus, the PCIT directed the A.O. to examine and verify the source of credit by invoking provisions of Section 263 of the Act.
In this regard, after considering the documents placed on record and hearing the parties, our attention was drawn page No. 2 of assessment order (PB 118) which says that the assessee has advance in cash rupees 25 lakh in two installments. It further says that since the assessee had borrowed funds for the investment in such non business activities therefore the interest claimed be disallowed. In this regard, a very detailed and comprehensive and categorical findings was recorded by the A.O.. while doing so, the A.O. had called for Cash book vide query dated 5.11.2018 (PB 67). The same was produced and examined as is evident from the opening paragraph of the order of
14 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT assessment. Further the reflection of such advance in the balance sheet as clear from the order of the PCIT is a sufficient and adequate proof regarding the nature and source of transaction. For the asset side of the balance sheet, the liabilities as well as the capital balance constitute the basis. It is important to mention here that the PCIT also called for application of Section 269T in relation to the impugned advance against purchase of land. In this regard, we are of the view that Section 269T restricts repayment of loan, deposit or specified advance if the amount exceeds Rs 20000 or more. However, in the instant case, there has not been any repayment of the nature specified above, rather there is rather advancement by the assessee hence the provision of sec. 269T are not attracted. Thus, the ld. PCIT was not right in invoking the provisions of Section 263 of the Act on this issue.
Issue/Point No.4: It was observed by the ld. PCIT that the assessee has received unsecured loan form Shri Virendra Agarwal and the same was not examined by the A.O. However, in this regard, we have considered the documents placed on record and after hearing the parties we found that the assessee had not received not received any amount of unsecured loan from Sh Virendra Agarwal . In this regard, the A.O. had made detailed queries regarding cash creditors vide notice dated 02/07/2018 (PB-21). In addition, A.O. also called
15 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT for personal statement of affairs of the assessee vide notice dated 05/11/2018 (PB-66), thus, in this way, the contentions of the ld PCIT are factually incorrect.
From record, we also noticed that during the year, the assessee has not received any amount of unsecured loan from Virendra Agarwal, however, the amount was received from him way back in FY 2009-10. As apparent from the assessment record, the assessee is Prop. of M/s Yogesh Enterprises and also deriving rental income. As per ld. AR, prior to the AY under review, the assessee used to have two separate financial Statement one for Proprietorship concern and another in Individual Capacity. Whereas from the current year the Financial Statements maintained in individual capacity were merged into the Proprietorship concern being carried on in the name of M/s Yogesh Enterprise. During the course of assessment proceedings not only the Financial Statements of the current year but also of the last year were called upon and examined by the A.O.. Thereafter, a consolidated Financial Statement showing the Individual balance sheet and the balance sheet of Proprietorship concern on the standalone basis and aggregate basis were also furnished wherein the name of Shri Virendra Agarwal figure in unsecured loan with outstanding balance of Rs 832432/- . Thus, in this way, the entire gamut of merging of Financial Statements was critically examined by AO. Since there was no receipt of fresh cash credit from Virendra Agarwal, however, his name cropped up in the consolidated balance
16 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT sheet as on 31.03.2016 by virtue of transfer entry from Individual Balance Sheet to the consolidated/Merged Balance Sheet of the Proprietorship concern M/s Yogesh Enterprises. All the bank statements of the assessee are on record and in case there had been any receipt of unsecured loan from Virendra Agarwal then definitely it would have been shown therein. Our attention was also drawn to the statement containing the balance sheet of Smt. Sunita Agrawal and M/s Yogesh Enterprises as well as consolidated as on 31.3.15 was furnished. Our attention was drawn to Page No. 2 of assessment order where it is written that "the consolidated balance sheet of the assessee (individual) and M/s Yogesh Enterprises (proprietorship concern) that as on 1.4.2015 the opening capital was -811817. Therefore the assessee has no sufficient funds to purchase any fixed assets. Since, the assessee has not received any unsecured loans, therefore, in the absence of any receipt of unsecured loan, there is no onus to examine the creditworthiness. Thus, in our view, the ld. PCIT was not right in invoking the provisions of Section 263 of the Act on this issue.
Issue/Point No. 5: Ld. PCIT observed that the assessee had received a total loan of Rs. 15 Lacs from one Smt. Rekha instead of Rs. 5.00 lacs as shown by the assessee. It was further observed that the assessee had expanded an amount of Rs. 53,425/- on behalf of interest payment against the said loan and had failed to deduct TDS on the payment of interest and apart from that, it was
17 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT also observed that Smt. Rekha Verma had filed her ITR during the year under consideration showing income of Rs. 2,68,662/-.
In this regard, after having gone through the documents placed on record and after hearing the parties, we found that during the course of Assessment proceedings, the ITR, Computation, Bank Statement and confirmation of accounts of all cash creditors including Smt. Rekha Verma were furnished. In the confirmation of accounts both assessee as well as the cash creditor put their respective signatures in token of having accepted the veracity of transactions. Further the bank statement of Rekha Verma also highlighted the payment made by her to assessee. The Bank Statements of the assessee are also on records and in case, if any money had been paid by Rekha verma then it would have featured in the bank statement of the assessee. The Ld PCIT had misread and misinterpreted and presumed the transaction dated 11.05.2015 of Rs. 10 Lacs as that of the assessee. Whereas on the contrary as per the facts, the ld. AR also drawn our attention to the documents and submitted that the aforesaid amount was received by way of loan by the Husband of the assessee Mukesh Agarwal. The reason behind the existence of Narration "TO YS AC RTGS" in both the transaction involving the assessee and her husband is the fact that the assessee is Prop of M/s Yogesh Enterprises and her husband is also Prop of M/s Yash Trading Corporation. The cash credits were received by both of them in the bank
18 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT account of their respective proprietorship concern. Therefore, the nomenclature in the narration was same. On perusal of the Bank Statement it is obvious that the immediate source of unsecured loan of Rs. 5 lakhs from Rekha Verma was the money received by her from Mr. Kripa Shankar Verma on 13.05.2015 amounting to Rs.320000.00 through account payee cheque and from Gajanand Verma on 11.05.2015 amounting to Rs. 180000.00. Since, the current income didn't constitute the source of unsecured loan, therefore, the comparison of current income with the amount of unsecured loan does not have any meaning and relevance. It is a settled law that the assessee cannot be asked to explain whether the cash credit has suffered tax or not. IN this regard, we draw strength from the decision in the case of CIT Vs. Metachen 245 ITR 160. Since the case of the assessee was not subjected to audit U/s 44AB of the Act, therefore, threw as no obligation upon her to deduct tax at source. Since the A.O. was aware of the turnover and facts of the case of the immediately preceeding year, thus, did not fasten the assessee with the obligation of tax deduction at source. Thus, in our view, the ld. PCIT was not right in invoking the provisions of Section 263 of the Act on this issue.
Issue/Point No. 6: It was observed by the ld. PCIT that during the course of survey proceedings, a file containing 102 pages in the name of the assessee was found and impounded but the A.O. has failed to make any enquiry in this
19 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT regard as to what nature of transactions were recorded in these documents. Nor any mention in this regard is there in assessment order/record.
However, after considering the documents placed on record and hearing the parties, we found that the aforesaid documents were duly examined by the survey party. Our attention was drawn to question no. 3 of the statement recorded during the course of survey proceedings on oath u/s 131 of the Act where it was stated in the reply by the assessee that the documents are the file containing the invoices relating to the construction from the period 01.4.15 to 30.06.2015. The total of expenditure which are also enlisted stands at Rs 3480424/-. Thereafter the A.O. during assessment proceedings, thoroughly examined and verified the statements recorded and the documents found during survey against the backdrop of the surrendered income and regular income. The aforesaid action is before it is evident from the note sheet entry dated 6/12/2018. Thus, in this way, the observation of the ld. PCIT is not based on correct facts and therefore, the ld. PCIT was not right in invoking the provisions of Section 263 on this issue.
After analyzing the totality of facts and circumstances and after evaluating the documents placed on record and the order passed by the A.O., we are of the view that A.O. had carried out all the necessary enquires and examined all the issues and had formed a possible view. It is also settled law that where two
20 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT views are possible and the A.O. has taken one view, then in that eventuality, the assessment order cannot be treated as erroneous. In this regard, we draw strength from the decision of CIT Vs. Kwality Steel Suppliers Complex (2017) 395 ITR 1 (SC) wherein it has been held that:
“Where two views are possible and the AO has taken one view, the assessment order cannot be treated as erroneous or prejudicial to the interest of revenue. This is for the reason that while exercising the revisionary jurisdiction, the CIT is not sitting in appeal. In the instant case, the assessee firm was constituted with two partners viz., mother and son. It stood dissolved by the operation of law in view of the death of one of the partners, i.e. the mother but the business did not come to an end as the other partners, viz., son who inherited the share of the mother continued with the business. In this situation, there was no question of selling the assets of the firm including stock-in- trade and therefore, it was not necessary to value stock-in-trade at market price. Thus, the view taken by AO in accepting the book value of the stock-in-trade was a plausible and permissible view and therefore, the CIT could not exercise his powers u/s 263.”
Even otherwise a bare perusal or bare reading of Section 263 of the Act, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo moto under it, is that the order of ITO/AO is erroneous in so far as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied or twin condition and in case if one of them is absent then recourse cannot be had to Section 263 of the Act and thus in this way the provisions cannot be invoked to correct each and every type of mistake or error committed by the A.O.. It is only when an order is erroneous then the Section will be attracted.
21 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT Even the Coordinate bench of ITAT in the decision of Sir Dorabji Tata Trust Vs DCIT(E) 188 ITD 38 had discussed and explained the nature and scope of provisions of explanation 2(a) of Section 263 of the Act and held as under:
“19. The question that we also need to address is as to what is the nature of scope of the provisions of Explanation 2(a) to Section 263 to the effect that an order is deemed to be "erroneous and prejudicial to the interests of the revenue" when Commissioner is of the view that "the order is passed without making inquiries or verification which should have been made".
Undoubtedly, the expression used in Explanation 2 to Section 263 is "when Commissioner is of the view," but that does not mean that the view so formed by the Commissioner is not subject to any judicial scrutiny or that such a view being formed is at the unfettered discretion of the Commissioner. The formation of his view has to be in a reasonable manner, it must stand the test of judicial scrutiny, and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once Commissioner records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a view and we must uphold the validity of revision order, for the recording of that view alone, it would result in a situation that the Commissioner can de facto exercise unfettered powers to subject any order to revision proceedings. To exercise such a revision power, if that proposition is to be upheld, will mean that virtually any order can be subjected to revision proceedings; all that will be necessary is the recording of the Commissioner's view that "the order is passed without making inquiries or verification which should have been made". Such an approach will be clearly
22 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT incongruous. The legal position is fairly well settled that when a public authority has the power to do something in aid of enforcement of a right of a citizen, it is imperative upon him to exercise such powers when circumstances so justify or warrant. Even if the words used in the statute are prima facie enabling, the courts will readily infer a duty to exercise a power which is invested in aid of enforcement of a right—public or private—of a citizen. [L Hirday Narain v. ITO [1970] 78 ITR 26 (SC). As a corollary to this legal position, when a public authority has the powers to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the Assessing Officer does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be, Commissioner cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made". The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the Commissioner, about the lack of necessary inquiries and verifications, but an objective finding that the Assessing Officer has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the Assessing Officer is expected to be.
That brings us to our next question, and that is what a prudent, judicious, and responsible Assessing Officer is to do in the course of his assessment proceedings.
23 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT Is he to doubt or test every proposition put forward by the assessee and investigate all the claims made in the income tax return as deep as he can? The answer has to be emphatically in negative because, if he is to do so, the line of demarcation between scrutiny and investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within no matter how liberal a time limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the income tax return and claims made therein as to whether these are prima facie in accordance with the law and where one has any reasons to doubt the correctness of a claim made in the income tax return, probe into the matter deeper in detail. He need not look at everything with suspicion and investigate each and every claim made in the income tax return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if at all any, required to be critically examined by a thorough probe. While it is true that an Assessing Officer is not only an adjudicator but also an investigator and he cannot remain passive in the face of a return which is apparently in order but calls for further inquiry but, as observed by Hon'ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 "it is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. (Emphasis, by underlining, supplied by us). It is, therefore, obvious that when the circumstances are not such as to provoke an inquiry, he need not put every proposition to the test and probe everything stated in the income tax return. In a way, his role in the scrutiny assessment proceedings is somewhat akin to a conventional statutory auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston Cotton Mills [(1896) 2 Ch 279,], in respect of the role of an auditor, would equally apply in respect of the role of the Assessing Officer as well. His Lordship had said that an auditor (read Assessing Officer in the present context) "is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a
24 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT bloodhound.". Of course, an Assessing Officer cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an Assessing Officer, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the Assessing Officer's notice in the assessment proceedings cannot be said to be lacking bona fide, and as long as the path adopted by the Assessing Officer is taken bona fide and he has adopted a course permissible in law, he cannot be faulted- which is a sine qua non for invoking the powers under section 263. In the case of Malabar Industrial Co Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83, Hon'ble Supreme Court has held that "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 ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO 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 ITO is unsustainable in law." The test for what is the least expected of a prudent, judicious and responsible Assessing Officer in the normal course of his assessment work, or what constitutes a permissible course of action for the Assessing Officer, is not what he should have done in the ideal circumstances, but what an Assessing Officer, in the course of his performance of his duties as an Assessing Officer should, as a prudent, judicious or reasonable public servant, reasonably do bona fide in a real-life situation. It is also important to bear in mind the fact that lack of bona fides or unreasonableness in conduct cannot be inferred on mere suspicion; there have to be some strong indicators in direction, or there has to be a specific failure in doing what a prudent, judicious and responsible officer would have done in the normal course of
25 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT his work in the similar circumstances. On a similar note, a co-ordinate bench of the Tribunal, in the case of Narayan Tata Rane v. ITO [2016] 70 taxmann.com 227 (Mum.) has observed as follows:
"20. Clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld. Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-a-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have claimed out or not. It does not authorise or give unfettered powers to the Ld. Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made." 22. Having said that, we may also add that while in a situation in which the necessary inquiries are not conducted or necessary verifications are not done, Commissioner may indeed have the powers to invoke his powers under section 263 but that it does not necessarily follow that in all such cases the matters can be remitted back to the assessment stage for such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under section 263, read with Explanation 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the Commissioner can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the Assessing Officer for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on
26 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT record, by the Commissioner. In exercise of his powers under section 263, the Commissioner may as well direct the Assessing Officer that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the Commissioner finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the Commissioner is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the Assessing Officer, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the Commissioner, in the exercise of his powers under section 263, can set aside an order, for lack of proper inquiry or verification, and ask the Assessing Officer to conduct such inquiries or verifications afresh.”
Thus, while applying the principles laid down in the case of Sir Dorabji Tata Trust Vs DCIT(E) (supra), it is evident that in the present case, the A.O. had made all necessary enquiries and verifications as can be expected of a prudent, judicious and responsible A.O. in normal course of his assessment work. Even ld. PCIT has not specified as to what type of enquiry ought to have been made by the A.O. which would have resulted into income or disallowance or any other adverse action, therefore, in such circumstances, the order passed by the A.O. cannot be branded as erroneous and prejudicial to the interest of revenue, therefore, we set aside and quash the order passed u/s 263 of the Act.
27 ITA 25/Jodh/2021 Sunita Agarwal Vs PCIT 22. In the result, this appeal of the assessee is allowed.
Order pronounced in the open court on 07/10/2021.
Sd/- Sd/- (VIKRAM SINGH YADAV) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Jodhpur Dated 07/10/2021 *Ranjan Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT (A) 5. The DR 6. Guard File
Assistant Registrar Jodhpur Bench