RAJIV JAIN,MUZAFFARNAGAR vs. PR.CIT, MUZAFFARNAGAR

PER SAKTIJIT DEY, JM:

The present appeal has been field by the assessee assailing

the order dated 18.03.2021 passed by learned Principal

Commissioner of Income Tax (PCIT), Muzaffarnagar, under

section 263 of the Income-tax Act, 1961 (for short ‘the Act’) for the

assessment year 2015-16.

2 ITA No. 530/Del./2021 AY : 2015-16

appearing for the assessee has argued the appeal on merits. In

view of the aforesaid, we hold that ground no. 2 is deemed to have

not been pressed, hence, dismissed.

a resident individual stated to be engaged in the business of

manufacturing of pipes. For the assessment year under dispute,

the assessee filed its return of income on 29.09.2015 declaring

income of Rs.21,79,850/-. The return of income filed by the

assessee was selected for scrutiny and the assessment proceeding

in case of the assessee was completed under section 143(3) of the

Act vide order dated 03.11.2017 determining the total income at

Rs.22,85,950/-.

and examined the assessment records of the assessee for the

impugned assessment year. On examining the records, she found

3 ITA No. 530/Del./2021 AY : 2015-16

that the Assessing Officer has not properly examined the

genuineness of the sundry creditors. Further, she observed, the

Assessing Officer has not made proper enquiry and examined the

genuineness of loans availed from family members. Thus, she was

of the view that due to lack of proper enquiry and verification of

the genuineness of the sundry creditors and loan transaction by

the Assessing Officer, the assessment order is not only erroneous

but prejudicial to the interest of Revenue. Accordingly, she issued

a show-cause notice, purportedly, under section 263 of the Act to

the assessee to explain, who the assessment order should not be

revised. In response to the show-cause notice, the assessee filed a

detailed submission stating that in course of assessment

proceeding, the Assessing Officer had thoroughly examined the

issues for which the case was selected for scrutiny. It was

submitted, after proper enquiry and application of mind, the

Assessing Officer having passed the assessment order, it cannot

be subjected to proceeding under section 263 of the Act. Learned

PCIT did not find merit in the submissions of the assessee. He

observed, the Assessing Officer has not ascertained whether the

creditors are related to the business of the assessee and whether

the identity of the creditors and genuineness of the transaction

4 ITA No. 530/Del./2021 AY : 2015-16

are established. Further, she observed, the Assessing Officer did

also examine the genuineness of the unsecured loans availed by

the assessee. She observed, though, the assessee filed a detailed

reply, however, no supporting documentary evidences were

furnished. Thus, she ultimately held that the assessment order is

erroneous and prejudicial to the interest of the Revenue, as, the

Assessing Officer has not conducted proper enquiry, which he

should have done as per Explanation 2(a) of Section 263(1) of the

Act. Accordingly, she set aside the assessment order with a

direction to the Assessing Officer to pass a fresh assessment

order after due verification of the issues, on which, the

assessment order was revised.

counsel for the assessee submitted, in course of assessment

proceeding, the Assessing Officer has issued notices under

section 142(1) and 143(2) of the Act with detailed questionnaire.

He submitted, all the issues on which the assessment was

selected for scrutiny were enquired into and examined by the

Assessing Officer. In this context, he drew our attention to the

observations made by the Assessing Officer in the assessment

order as well as the notice issued under section 143(2) of the Act

5 ITA No. 530/Del./2021 AY : 2015-16

and the reply furnished in response thereof. Thus, he submitted,

the allegation of learned PCIT that the Assessing Officer has not

properly enquired into and examined the issues is without basis.

He submitted, in course of assessment proceeding, the Assessing

Officer has made specific enquiry with regard to sundry creditors

and unsecured loans and only after making necessary enquiry

and being satisfied with the explanation and supporting evidences

furnished by the assessee, had completed the assessment by

adding back a part of the sundry creditors. Thus, he submitted,

in the circumstances, the assessment order could not have been

revised by learned PCIT. In support of such contention, he relied

upon the following decisions:

6 ITA No. 530/Del./2021 AY : 2015-16

of assessment proceeding, the Assessing Officer has not enquired

into all the issues for which the assessment was selected for

scrutiny. He submitted, the Assessing Officer did not take the

enquiry to its logical end and has only made half-baked enquiry.

He submitted, by virtue of Explanation 2(a) of section 263(1) of

the Act, the Revisionary Authority has power to revise the

assessment order, in case, he feels that the enquiry ought to have

been conducted by the enquiry officer was not conducted. Thus,

he submitted, learned PCIT having exercised her jurisdiction

correctly and passed the order under section 263 of the Act, it

should be upheld.

made by the parties in the light of the decisions relied upon and

perused the materials on record. The factual matrix reveals that

assessee’s case was selected for limited scrutiny to examine the

following issues:

(1) Large increase in sundry creditors with reference to the

turnover.

7 ITA No. 530/Del./2021 AY : 2015-16

(2) Mismatch in sales turnover reported in Audit Report

and the return of income.

(3) Substantial increase in capital during the year and

unsecured loans.

verifying the issues for which the case was selected for scrutiny

the Assessing Officer, from time to time, had issued notices under

section 143(2) as well as section 142(1) of the Act with detailed

questionnaire. The Assessing Officer has also observed that in

response to the statutory notices issued, the assessee had filed

detailed reply with supporting evidences. It is also evident, to

verify the genuineness of the sundry creditors, the Assessing

Officer had conducted independent enquiry by issuing notices

under section 133(6) of the Act and in response to such notices

many of the parties furnished account confirmation. On verifying

the information received, he found that in some of the cases

outstanding balance shown by the assessee did not match with

the balance shown by the parties in the account confirmation.

Therefore, the differential amount of Rs.95,900/- was added back

to the income of the assessee. Since, in one of the instances of the

sundry creditors the notice issued under section 133(6) was

8 ITA No. 530/Del./2021 AY : 2015-16

returned back unserved, the Assessing Officer added back an

amount of Rs.10,200/-. Thus, the aforesaid facts clearly reveal

that in course of assessment proceeding, the Assessing Officer did

examine and enquire into the sundry creditors appearing in the

balance-sheet of the assessee.

on record reveal that in course of assessment proceeding the

Assessing Officer not only called upon the assessee to furnish the

necessary details to prove the genuineness of the transaction but

the assessee did furnish all supporting evidences to establish the

genuineness of the loan transaction. This fact is evident from the

supporting evidences furnished by the assessee before the

Assessing Officer which are placed in the paper-book. On

examination of theses evidences placed in the paper-book, it is

observed that not only the identity of the creditors have been

established but their creditworthiness was also proved. Further,

there cannot be any doubt regarding the genuineness of the

transaction as it was done through banking channel. The

assessee had also furnished the confirmations as well as return of

income and copies of the creditors in course of the assessment

proceeding. In fact, on a careful reading of the impugned order of

9 ITA No. 530/Del./2021 AY : 2015-16

learned PCIT, it is evident, learned PCIT does not dispute the fact

that the Assessing Officer had enquired into the sundry creditors,

however, the only doubt she has expressed is though, the sundry

creditors are located at different places, however, their reply were

sent from the same post office of Muzaffarnagar. This, in our view,

cannot be the sole reason to hold that the assessment order is

erroneous and prejudicial to the interest of Revenue.

not deny the fact that confirmation and other supporting

evidences have been furnished by the assessee, however,

interpreting the reference made by the bank to certain transaction

in their own code, she has held that the persons who advanced

the loans were having two accounts in the same bank and money

has been transferred from one account to the other account

through cheque after which the balance has been forwarded to

the assessee. Thus, from the aforesaid discussions made by

learned PCIT, the fact which emerges is, in course of assessment

proceeding the Assessing Officer did make enquiry with regard to

the issues for which the assessee’s case was selected for limited

scrutiny. However, since in the opinion of learned PCIT the

inquiry conducted by the Assessing Officer is not enough or

10 ITA No. 530/Del./2021 AY : 2015-16

should have been made in a different manner, she has invoked

jurisdiction under section 263 of the Act to revise the assessment

order.

section 263 was brought to the statute. A reading of section 263

of the Act would reveal that the basic conditions which require to

be fulfilled are, the order sought to be revised must be erroneous

and at the same time it must be prejudicial to the interest of the

Revenue. Unless, these two basic conditions are satisfied, the

Revisionary Authority cannot invoke his power under section 263

of the Act. The only reason for which the learned PCIT has

invoked her power under section 263 of the Act is, the Assessing

Officer did not make enquiry, which, in the opinion of learned

PCIT, he should have made. In this context, learned PCIT has

referred to Explanation 2(a) of Section 263(1) of the Act. In our

considered opinion, Explanation 2(a) to section 263(1) of the Act

does not confer unbriddled power at the hands of the Revisionary

Authority. Explanation 2(a) to section 263(1) is also subject to

fulfillment of basic conditions of section 263(1) of the Act that the

order sought to be revised must be erroneous and at the same

time should be prejudicial to the interest of Revenue. If facts on

11 ITA No. 530/Del./2021 AY : 2015-16

record reveal that the Assessing Officer has made proper enquiry

and has passed the order with proper application of mind, it

cannot be said that the enquiry which should have been made,

was not made. As held by the Hon’ble Delhi High Court in case of

CIT Vs. Ashish Rajpal (2010) 320 ITR 674 (Del.), if a query was

raised by the Assessing Officer in course of assessment

proceeding which was satisfactorily answered by the assessee but

did not get reflected in the assessment order, that by itself would

not lead to a conclusion that there was no enquiry by the

Assessing Officer. The same view was expressed by the Hon’ble

Jurisdictional High Court in case of CIT Vs. Vikas Polymers

(2012) 341 ITR 537 (Del.).

assessment proceeding the Assessing Officer had made enquiries

in respect of all the issues on which the case was selected for

scrutiny. Therefore, even if the Assessing Officer has not made

any observations with regard to some of the issues in the body of

the assessment order, that by itself, would not lead to the

conclusion that the Assessing Officer has not made any enquiry

while completing the assessment.

12 ITA No. 530/Del./2021 AY : 2015-16

Assessing Officer has not made any enquiry. What she says is,

the Assessing Officer has not made the enquiries or verification

which he should have made in terms of Explanation 2(a) of

section 263(1) of the Act. In the facts of the present appeal, it is

established that the Assessing Officer did make the enquiries. The

grievance of the Revisionary Authority is only with regard to the

mode and manner of enquiry conducted by the Assessing Officer.

This, in our view, cannot be a factor for invoking the jurisdiction

under section 263 of the Act. If such arbitrariness is allowed, in

every given case the Revisionary Authority can invoke jurisdiction

under section 263 of the Act by simply taking recourse to

Explanation 2(a) to section 263(1) of the Act by saying that the

Assessing Officer has not made enquiries or verification which he

should have made. This, in our view, is impermissible. Whether

the Assessing Officer has made enquiries before passing the

assessment order will depend upon the facts of each case. If the

facts on record reveal that the Assessing Officer did make the

enquiry on the issues on which the revisionary power under

section 263 of the Act is invoked and has carried such enquiry to

its logical end, then, it has to be held that the order passed

13 ITA No. 530/Del./2021 AY : 2015-16

cannot be held to be erroneous and prejudicial to the interest of

Revenue, only because, the revisionary authority feels that the

enquiry which should have been made was not made.

available on record and applying the ratio laid down in the

decisions cited before us, we hold that the assessment order

passed in the instant case cannot be held to be erroneous and

prejudicial to the interest of Revenue on the ground that proper

enquiries were not made. Accordingly, we set aside the impugned

order of learned PCIT passed under section 263 of the Act and

restored the assessment order.

Order pronounced in the open court on 29th April, 2022

Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) PRESIDENT JUDICIAL MEMBER

Dated: 29th April, 2022. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi