SHRI NITIN SHARMA,JABALPUR vs. PRINCIPAL COMMISSIONER OF INCOME TAX -2, JABALPUR

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER I.T.A. No.25/JAB/2019 Assessment Year: 2014-15

Shri Nitin Sharma, Jabalpur vs. Pr. Commissioner of Income (PAN: AJFPS 0440J) Tax-2, Jabalpur (Appellant ) (Respondent) Appellant by Shri Rahul Bardia, CA Respondent by Shri P. K. Mishra, CIT-DR Date of hearing 24/08/2020 Date of pronouncement 28/09/2020 ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee against the Order under section 263 of the Income Tax Act, 1961 (‘the Act’ hereinafter) dated 29/03/2019 by the Principal Commissioner of Income Tax-2, Jabalpur (‘Pr. CIT’ for short) in respect of his assessment u/s. 153C/143(3) of the Act for assessment year (AY) 2014-15. 2.1 Before us, the assessee’s challenge to the impugned order was three-fold. The assessee’s return for the relevant year having been selected for limited scrutiny under Computer Aided Selection Scheme (CASS), i.e., on two issues, being: (a) Tax credit mismatch, and (b) Cash deposit,

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Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) it was not open for the ld. Pr. CIT to, in exercise of the revisionary power u/s. 263, hold that the Assessing Officer (AO) ought to have examined or inquired into other aspects of the assessee’s return of income or affairs having a bearing on his income for the year, and direct him to do so. Sure, the AO can, where he deems it proper, seek conversion of the limited scrutiny case into a complete scrutiny case by obtaining necessary permission for the same, but his discretion in the matter cannot be questioned. That is, the revisionary power qua a limited scrutiny case is on aspects of the return outside the specified areas, circumscribed. The proposition was stated to be supported by the decisions by the Tribunal, copies of which were though not supplied nor, therefore, referred to during hearing. 2.2 The second ground of challenge is that the assessment order is itself a nullity, so that there can be in law no revision thereof. On the basis of a response to an Application u/s. 7(1) of the Right to Information Act, 2005, whereby it stands clarified that there is no satisfactory note by the AO u/s. 153C(1) on record, nor in fact any notice u/s. 153A(1) r/w s. 153C issued, it is claimed that the assessment u/s. 153C/143(3) is void ab initio inasmuch as no assessment u/s. 153C r/w s. 143(3), i.e., as made, could be in law made. 2.3 Third, each of the queries raised by the ld. Pr. CIT in the sec. 263 proceedings, and which were responded to by the assessee, stand covered by the notice u/s. 142(1), dated 24/11/2016 in assessment, and toward which the ld. counsel for the assessee, Shri Bardia, would take us through a table (at pgs. 6-8 of his written submissions (WS)), correlating the two sets of queries, i.e., one by the Pr. CIT, stating the aspects not inquired into by the AO during the assessment proceedings, and the other by the AO in the said proceedings, so that the former stood covered by the latter. Each of these queries raised, duly

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Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) responded to by the assessee (PB-I, pgs. 48, 49) during assessment proceedings, were found satisfactory by the AO. As such, he did not deem it necessary to extend the scope of the limited scrutiny assessment, for which only the notice u/s. 143(2) stood issued. The enhancement in the scope of assessment or, more precisely, the scope of inquiry therein, for which there is thus no reason, could not be thrust upon the AO. 2.4 Sh. Mishra, the ld. CIT-DR, would submit that the complete absence of any of the prerequisites of a s. 153C assessment, viz. non-issue of any notice u/s. 153A(1); non-approval u/s. 153D, etc. clearly shows it to be a sec. 143(3) assessment, and merely it being described as an assessment u/s. 153C/143(3), is, in view thereof, irrelevant and of no consequence. As regards the replies to the queries raised, there is clearly no inquiry with regard to the surrender of income u/s. 132(4); there being no reference thereto in the notice u/s.142(1) or the assessment order. It is also clear that the replies by the assessee to other queries have also not been examined by the AO, who has merely focused himself on verifying the two aspects of the limited scrutiny assessment. His approach, accordingly, was not correct, meriting revision, which has accordingly been. 3. We have heard the parties, and perused the material on record. We shall consider each of the objections to the impugned revision advanced by the assessee for its validity, acceptance of even one would, though, result in the revision being bad in law. 4.1 There is no merit in the claim that the assessment under reference is null and void. If the AO has not recorded any satisfaction u/s. 153C(1) and, consequently, not issued any notice u/s. 153A(1), as he would otherwise be obliged to, where is the question of the assessment made being, as contended, u/s. 153C r/w s.153A(1)? The response to the application under RTI Act, 3 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) bringing the facts on record to the fore, rather, supports the case of the Revenue. There is no reference to the basic incidents of an assessment u/s. 153C r/w s. 153A(1), viz. satisfaction with regard to the seized material having a bearing on the total income of the assessee – nay, of any reference to such material; issue of notice u/s. 153A(1), etc. in the assessment order. The assessee has therefore not furnished any return u/s.153A(1), which would, in case of a s. 153A(1) assessment, be u/s. 153A(1) r/w s. 144, i.e., a best judgment assessment. Even no approval of the Jt. CIT, as required u/s. 153D, for an assessment u/s. 153A r/w s.153C, stands taken. The complete absence of the pre-requisites for initiating proceedings u/s. 153A(1) in case of a person other than the person searched would only imply that the assessment made is a regular assessment u/s. 143(3). The mere describing of the assessment as an assessment ‘u/s.153C/143(3)’, i.e., instead of as ‘u/s. 143(3)’, would be by itself of no moment or consequence. The same in fact cannot even be read as ‘u/s. 153C r/w s.143(3)’, as contended; the oblique (\), which we observe to be uniformly so, rather suggestive of it being an either/or case, which cannot in law be. To that extent, there is a mistake, on which though nothing turns on. It is the correct legal position that is relevant, and not the view that the parties may take of their rights in the matter (CIT v. C. Parakh & Co. (India) Ltd. [1956] 29 ITR 661 (SC); Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)). A ‘mistake’, in any case, cannot give rise to any right to the other side. Any surviving doubt in the matter would stand quenched with reference to s. 292B. 4.2 Continuing further, as we see it, the assessment in the instant case is a regular assessment u/s. 143(3) of the Act, made upon service of a notice u/s. 143(2) dated 20/09/2016 on 23/03/2016 to verify the assessee’s return furnished u/s. 139 on 30/03/2016, albeit under the limited scrutiny regime (PB-II, pg. 14). An assessment u/s. 153C r/w s.143(3), on the other hand, would necessarily be

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Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) a complete scrutiny assessment, initiated by the issue of notice u/s. 153A(1) for assessment of the ‘total income’. There is nothing on record, including the assessment being impugned, to suggest it to be a complete scrutiny assessment. On the contrary, both the parties, as well as the revisionary authority himself, have regarded it as a limited scrutiny assessment, i.e., in terms of the notice u/s. 143(2), declaring so, with, accordingly, the assessee pleading that the said limit could not be breached without the AO, being bound by the Board Instruction, first seeking permission as contemplated by the Board Instruction, and which he has not. We have in fact already noted a complete absence of the basic incidents of a section 153A(1) r/w s. 153C assessment. A controversy, rather, may have arisen where the AO, having not recorded the satisfaction or used the seized material in framing the assessment indicating his satisfaction as to the said material having a bearing on the total income of the assessee for the relevant year – the jurisdictional fact, yet issued a notice u/s. 153A(1), so that it could be said the proceedings u/s. 143(3) abated . As explained in L. Hazarimal Kuthalia vs. Income Tax Officer [1961] 41 ITR 12 (SC), the exercise of power would be referable to a jurisdiction which conferred validity upon it, and not to a jurisdiction under which it would be nugatory. It is again trite law that mention of a wrong section, as long as the source of power exercised is available, would be of no moment (L. Hazarimal Kuthiala (supra); Hukumchand Mills Ltd. v. State of Madhya Pradesh & Anr. [1964] 52 ITR 583 (SC)). There are in fact several aspects to the matter – all in favour of saving the assessment proceedings, and even if the seized material had been, of which there is though nothing to suggest, used in assessment. However, having been neither argued nor could be regarded as within the purview of the instant, collateral proceedings, it is not considered proper to dilate further thereon. It is in fact doubtful if such contentions could at all be raised in the instant proceedings, being, as reassessment proceedings, for the benefit of the 5 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) Revenue. Suffice to state that we find the assessment proceedings to have been validly initiated, and the absence of jurisdictional fact for proceeding u/s. 153A(1) r/w s. 153C. The finality of concluded proceedings cannot be lightly, if at all, disturbed (CIT v. Mtt. Ar. S. Ar. Arunachalam Chettiar [1953] 23 ITR 180 (SC); Hindustan Coca Cola Beverage (P.) Ltd. v. CIT [2007] 293 ITR 226 (SC)), much less by raising contentious issues. The Courts are in fact, even in the relevant proceedings, slow to adopt a construction which deprives the parties of valuable rights inasmuch as when the right of appeal is not preferred within the time prescribed therefor, the other side acquires a valuable right (refer, inter alia, Mela Ram & Sons v. CIT [1956] 29 ITR 607 (SC)). Here it may also be pertinent to state that the provisions of ss. 153A & 153C are designed in a manner to keep one set of proceedings, validly initiated, for assessment of the total income, alive, removing thus the very basis of, or need to, raise such legal issues. That law does not concern itself with trivia, but substantial rights, is a part of settled jurisprudence. 4.3 Coming to the decisions mentioned in the assessee’s written submissions, we have already observed that in the absence of any reference thereto during hearing, the same were neither examined nor, correspondingly, responded to by the other side. The same therefore cannot be regarded as relied upon. We shall, nevertheless, inasmuch we are in agreement with the proposition being advocated in principle, discuss the same. We make it clear that there is no disputing the proposition that if an order is void ab initio, i.e., a nullity in law, the question it being revised does not arise. The question therefore is not of the said proposition per se, but of its applicability in the facts of a given case. In Keshab Narayanan Banerjee vs. CIT [1998] 101 Taxman 512 (Cal), the Hon’ble Court struck down an order u/s. 263 of the Act on the ground that the order u/s. 147, which it sought to revise, was itself null and void inasmuch as 6 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) the condition/s precedent for framing the said assessment, i.e., proper service of notice u/s. 148, was not satisfied. Now, without doubt, absence of satisfaction of condition/s precedent would only imply absence of a valid basis for assumption of jurisdiction for framing the assessment sought to be revised. We have in the present case found the assessment framed to be a regular assessment u/s. 143(3), albeit without extending the scope of the limited scrutiny regime, i.e., in terms of the jurisdictional notice u/s. 143(2). Nothing else is in fact relevant. The same in fact represents trite law, for which we may, inter alia, refer to CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500 (SC), holding that only one condition is to be satisfied to validate a notice u/s. 148(1), i.e., of there being a reason to believe an escapement of income from assessment. The question is not if an assessment u/s. 153A (1) r/w. section 153C could be, even assuming so, being itself a very precarious and tenuous issue, made, but validity of the assessment as made. That there is no basis, factual or legal, for an assessment u/s. 153A(1) r/w s. 153C in the instant case, has been made abundantly clear. The next decision cited, i.e., Vision Promoters & Builders (P.) Ltd. v. CIT [2017] 190 TTJ 398 (Chd), is again supportive of what is being stated by us, i.e., a valid basis for the jurisdiction assumed, or lack of it, is decisive of whether the assessment as made is in law valid or void ab inito, in which latter case it therefore cannot be subject to revision u/s. 263. In the facts of the said case an assessment u/s. 153C r/w s. 143(3) was made without recording satisfaction, which was accordingly held as without jurisdiction. Proceedings u/s. 153C, admittedly initiated in that case, are admittedly absent in the instant case. The third decision, i.e., Pioneer Distillers Ltd. v. Pr. CIT (ITA No. 479/Pun/2017), again, does not assist the assessee’s case in any manner. In that case the admitted position – as of the assessment under reference being a limited scrutiny assessment, was that the assessment subject to revision was infirm 7 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) inasmuch as the AO had not, prior to framing the assessment u/s. 147, allowing time to the assessee to respond, disposed its’ objections to the issue of the notice u/s. 148(1) per a separate, speaking order. The question whether the procedural infirmity was fatal, had already been, as stated by the Tribunal, decided by the Hon’ble jurisdictional High Court per case law cited by the revisionary authority himself, admitting it as being so. The question before the Tribunal, therefore, was if the same, admittedly void (para 10), could be saved by resort to section 263, and which was held by it, and rightly so, as not inasmuch as an order to be revised ought to be in existence, while an order which is a nullity has no existence in law (para 11). There is little interface between the facts of the two cases. All we can say is that an order passed without affording proper opportunity to the assessee cannot be said to be, at least as a matter of rule, non- est; there being decisions by the Apex Court, as in Supdt., Central Excise v. Pratap Rai [1978] 114 ITR 231 (SC) and Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC), both by its’ larger benches, impinging on the matter. In fact, the courts of law have been regularly remitting back such matters to the file of the assessing authority for compliance with the procedure (viz. Areva T & D Ltd. v. CIT [2007] 294 ITR 233 (Mad)), i.e., raising objections to the issue of notice u/s. 148(1) before the AO, as was indeed the case in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC), laying down the said procedure. Why, an order passed without observing the principles of natural justice, makes it, in terms of settled law, erroneous, so that the normal course adopted would be its set aside to the relevant stage. If at all, it again emphasizes the need for utmost circumspection in such matters, which also explains our reference to the decisions by the Apex Court settling the law. 5. The next objection, i.e., that the ld. Pr. CIT could not have directed the AO to examine other aspects of the return, travelling beyond the purview of the 8 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) limited scrutiny assessment, contradicts the assessee’s claim that all the queries raised by the ld. Pr. CIT, claimed as unaddressed in the assessment proceedings, fall within the ambit of the limited scrutiny assessment, so that the AO, satisfied on inquiry, did not either probe further nor deemed it proper to get his limited jurisdiction extended by seeking approval from the Pr. CIT/DIT. No doubt, the assessee can raise contentions, without prejudice to each other. However, on facts, only one could obtain. Either all the queries raised by the ld. Pr. CIT fall within the purview of the limited scrutiny assessment, or some of the queries raised by him indeed travel beyond the scope of such an assessment, i.e., is an either/or situation. The matter is entirely factual, and was accordingly examined, to find that all the queries, save one, put forth by the ld. Pr. CIT per his notice u/s. 263, had been, as a fact, raised by the AO during the assessment proceedings. The only issue qua these queries that would therefore survive is if the replies furnished by the assessee in the assessment proceedings were indeed satisfactory, indicating an application of mind by the assessing authority in not making further inquiries, or not so. Each of these queries, also browsed through during hearing, as well as the assessee’s replies thereto, forming part of the record, were accordingly examined in verification of the assessee’s claim of having furnished satisfactory answers, to find the same as indeed so, with in fact most of the queries being not related to the assessee, even as averred by him per an affidavit (PB-I, pg. 47), referred to during hearing. In fact, most of these queries relate to Shobha Minerals and Sagar Stone Industries, the firms in which the assessee is a partner. Further, the queries relating to the assessee all concern cash, to examine which aspect/s of the assessee’s return, it was selected for limited scrutiny. The assessee, toward the same, relied on his cash-book, furnished in the assessment proceedings along with the ledger accounts of the parties to whom cash is stated as given to (or taken from). The cash available with the assessee was examined, adding as income the sum/s credited in 9 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) accounts where the explanation/s as to the nature and source thereof was not considered satisfactory by the AO. The ld. Pr. CIT, we are afraid to say, has not examined the assessee’s replies to either the notice u/s. 142(1) or the s. 263 notice, which would have at once clarified this aspect to him. Rather, if the assessee’s replies were found not satisfactory by him, it is the deficiency therein, or the likely course which ought to have been adopted by the AO in verification of the assessee’s explanation/s, that should have been pointed out by the ld. Pr. CIT. This is as this only would exhibit non-application of mind by the AO in framing the assessment, rendering his order liable for revision. In fact, most of the cash transactions are with the said partnership firms, with the ‘cash gift’ from wife, Priyanka Sharma, at Rs.78.50 lacs, added in assessment. No wonder, then, that none of these queries translated into any adjustment to the assessee’s returned income in the post section 263 assessment order. Though a matter subsequent, with which we are not really concerned, particularly as it is the absence of proper inquiry per se that makes an order erroneous, but as pointed out herein, there is nothing to show lack of application of mind by the AO, with in fact most of the queries being not related to the assessee. 6.1 That leaves us with one query, i.e., qua the investment in ‘agricultural land’ (at Rs.45.17 lacs) in the name of Shri Nirmal Singh Kurweti, his employee, surrendered by the assessee for the relevant year vide his statement u/s. 132(4) dated 17/10/2014, being Query # 2 per the s. 263 notice dated 26/3/2018. Shri Bardia, on being questioned in the matter during hearing, would fairly admit to no query in this regard having been raised by the AO during assessment proceedings. His plea, however, was that though no specific amount has been offered to tax in its respect, as pointed out by the ld. Pr. CIT, the same gets included in the cash paid to Nirmal Singh Kurweti inasmuch as the same was out of the cash available in the assessee’s account books, duly produced 10 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) before and examined by the AO in the assessment proceedings. The matter, i.e., the source of the said investment has, accordingly, received due consideration by the assessing authority, want of which is, in effect, the charge by the ld. Pr. CIT. Toward this, Shri Bardia would take us through the copy of the account of Shri Nirmal Singh Kurweti in the assessee’s books (PB-II, pgs. 36-38), wherein loan/s stands advanced in cash for purchase of various pieces of land, at Rs.2.95 lacs, Rs.18.38 lacs and Rs.26.26 lacs, during fys. 2011-12, 2012-13 and 2013- 14 respectively, i.e., at a total of Rs.47.59 lacs (up to 31/3/2014). That is, though there is sure a difference between an amount surrendered as income for investment in property benami, and the amount paid cash to another as loan for the purchase of the said property, inasmuch as the source of cash stands explained with reference to the cash book, duly examined, no addition, i.e., despite the said difference, could be made, which would be u/s. 69, which aspect, falling within the ambit of limited scrutiny, stands duly examined by the AO in assessment; in fact, making addition wherever the source of cash was found as not satisfactorily explained. In other words, Query #2 raised by the ld. Pr. CIT, though not specifically inquired into by the AO, is governed by the scope of the limited inquiry assessment and, further, in fact, met on merits, so that no addition, in view of the AO’s satisfaction, is called for, nor is there any scope for further inquiry. The argument, though impressive, is, as we shall presently see, seriously flawed. 6.2 There is a primary difference between a ‘loan’ and ‘investment in benami property’. A loan transaction is a contract, intrinsic whereto are two (or more) persons, each offering the other something, which thus forms the consideration for the other in respect of the thing promised by him. In case of a benami investment, on the other hand, one is only using the name of another, for whatever reason/s, for holding his property, so that the ownership is concealed. 11 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) That is, the apparent is not real – nothing more and, nothing less. Motivation for the same, generally oblique, could be diverse, requiring consideration of the matter from all angles. Tax implications of the two are, therefore, different, even as there may be some overlap therein, as indeed obtains in the present case. A loan in cash, to begin with, where not shown to be so made due to a reasonable cause, attracts penalty u/s. 271D r/w ss. 269SS & 273B, i.e., in the hands of the lendee. In fact, a receipt back of loan, where the borrower is not shown to have the capacity for the same – as in the instant case where he is the assessee’s servant, admittedly a man of no means, is itself liable to be taxed u/s. 68 (see: Vijay K. Talwar v. CIT [2011] 330 ITR 1 (SC)), i.e., irrespective of whether the receipt back is in cash – again liable for penalty u/s. 271E, or not, i.e., through the banking channel; the transaction being regarded as not genuine. Why, one may ask, would any person give ‘loan’ to such a person, i.e., knowing fully well that the latter does not have the capacity to repay? And, besides, for purchase of a number of plots of land, as in the present case? Implicit in the transaction of loan is the notion or belief, at least in the honest estimation or assessment of the lender, that the borrower has the capacity to repay the principal, if not also interest thereon. In other words, the transaction/s of ‘loan/s’ is, quite plainly, bogus. Yes, one could argue that the amount be regarded as a gift, reflecting the same by write-off of (or debiting) the loan amount to the capital account of the assessee-lender. The question posed hereinbefore for a ‘loan’ could, in that case, equally validly be asked for a ‘gift’. In fact, the gift is itself liable to be taxed in the hands of the donee, an unrelated person, u/s. 56(2). The tax implication of a benami property, on the other hand, would be of it being taxed in the hands of its’ actual owner where the source of investment is not satisfactorily proved, i.e., u/s. 69. In fact, while a loan, where not properly explained as to its source, could be taxed u/s. 69, a benami property could be taxed u/s. 69 or 69B, which difference 12 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) may also become material in the facts of a given case, i.e., apart from the person subject to tax being different. Then, there is the issue of tax on the income arising on the benami property in the hands of the assessee. As would be apparent, the differing tax incidences arise on account of the essential difference afore-noted between a ‘loan’ and ‘benami property’. Strictly from the stand-point of cash available, said to explain the source of investment in land, again, there is a material difference between a ‘loan’ and ‘purchase of property benami’. In the latter case, the assessee-lender admits to the property being his, so that cash in its respect would be available to him only on realizing it, as by way of sale/transfer, i.e., on his own violation, and at the time of his choosing. That is, only in lieu of the property, on being sold, needless to add, where and under the circumstances, including the sale rate, deemed proper. A loan, on the other hand, could get repaid any time; rather, the sooner the better (from the assessee’s standpoint), generating cash for the assessee, so that the amount gets recouped without suffering any tax; repayment of loan, being a receipt on capital account, i.e., where it has been accepted by the Revenue as such. In sum, the reflection of the amount invested in land in the name of his employee, Sh. Nirmal Singh Kurweti, in his accounts as a loan thereto by the assessee is wholly inconsistent with the fact, where so, of he being the assessee’s benamidar qua the said property. Why, the borrower, stated to be assessee’s servant, is, therefore, a man of no means, so that there is no scope of repayment. The two propositions are, thus, in inherent contradiction, and cannot be regarded as equivalent, as claimed. 6.3 Continuing further, again, interestingly, the loan outstanding as per the assessee’s accounts as on 31.3.2014, the end of the third successive year for which years his account has been furnished, is at Rs.26.26 lacs (PB-II, pgs. 36- 13 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) 37), i.e., as against Rs.47.59 lacs, whereat it ought to be as per the assessee’s case. What is reason for the difference of Rs.21.33 lacs, which amount corresponds to that lent during the period 1.4.2011 to 31.3.2013 (PB-II, pg. 38), is unexplained. That is, the assessee’s explanation before us that the source of cash for the property purchased, even if not specifically examined, gets indirectly examined through verification of cash availability with the assessee, explained with reference to his cash-book in assessment, gets disproved; there being an apparent difference of Rs.21.33 lacs. Further still, it remains to be clarified/ascertained if the amount referred to in the assessee’s statement u/s. 132(4) dated 17.10.2014, whereby surrender of Rs.45.17 lacs has been made (in reply to Q.25), is in respect of the same land/s. It is only the matching of the relevant documents, i.e., the land deeds, etc. finding mention in the assessee’s accounts, comprising the surrender amount of Rs.45.17 lacs, that would establish the correspondence between the two. This is in view of the mismatch in the total amount surrendered and that reflected in the assessee’s accounts (i.e., Rs. 47.59 lacs), as also the fact that the said amount stands paid over a period of 3 years, as afore-noted. 6.4 We are not, we may clarify, for a moment suggesting that an addition u/s.69/69B shall, in any case, ensue, but only that the two, as contended before us, cannot be regarded at par, so that the assessee’s claim that the matter stands, in any case, i.e., despite being admittedly not specifically enquired into, examined through the verification of the cash account, cannot be accepted. The matter would require being examined afresh, and adjudicated by issuing definite findings of fact. It may be that the AO, satisfied qua the source of cash for purchase of property, makes no addition/adjustment to the assessee’s returned income. Without doubt, the issues raised hereinbefore, being incidental, shall also get examined & clarified, i.e., whether the said amount/s is to be indeed 14 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) regarded as a loan, or as a gift, or, quite simply, the assessee’s property, with the assessee, where in agreement with the AO’s findings, making suitable changes in his accounts, inasmuch as the same only purport to represent the actual state of affairs, truly and fairly. 6.5 As apparent from the foregoing, not only can it be not said that the issue has been examined through the verification of the assessee’s cash-book, the examination of the same, even strictly from the standpoint of cash – inasmuch as there is clearly an overlap, leaves much to be desired. In fact, it would not be incorrect to say that the issue has not been examined at all, i.e., from whatever angle, by the assessing authority. There is no whisper in his order qua the same, much less a finding/s, with, rather, we observing of there being several aspects to the matter (para 6.2). 7.1 Next, we proceed to examine the legal implication/s of the foregoing analysis, resulting in the finding of absence of any, much less, proper inquiry in the matter during assessment proceedings. That absence of proper enquiry, i.e., as warranted in the facts and circumstances of the case, being such as would provoke further inquiry, so as to ascertain the truth of the matter or arrive at a reasonable satisfaction with regard thereto, would make an order erroneous inasmuch as there is no proper application of mind, is trite law. The same is among the four tests; the other three being: wrong assumption of facts; incorrect application of law; and omission to observe the principles of natural justice, laid down by the Apex Court, as in Malabar Indl. Co. Ltd. vs. CIT [2000] 243 ITR 83 (SC)(also see: CIT vs. Jawahar Bhattacharjee [2012] 341 ITR 434 (Gau)(FB)), for an order to be regarded as erroneous. For instance, an assessment made by accepting the income returned as such, without inquiring if the income returned had been earned by the person returning the same, was held

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Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) by the Apex Court to be erroneous and prejudicial to the interest of the Revenue (Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)). The case law in the matter is legion, with Hon’ble Courts all through, including the Apex Court (as in Toyota Motor Corp. v. CIT [2008] 306 ITR 52 (SC), affirming the decision by the High Court reported at [2008] 306 ITR 49 (Del), and the Hon'ble jurisdiction High Court (as in CIT vs. Deepak K. Garg [2008] 299 ITR 435 (MP); CIT v. Mahavar Traders [1996] 220 ITR 167 (MP)), holding like-wise in different fact settings. Reference, however, is being made only to the decision in Gee Vee Enterprises v. CIT (Addl.) [1975] 99 ITR 375 (Del), wherein reliance has been placed on the decisions in Rampyari Devi Saraogi vs. CIT [1968] 67 ITR 84 (SC) and Tara Devi Agarwal (supra), also referred to in Malabar Industrial Co. Ltd. (supra) and Jawahar Bhattacharjee (supra). As explained therein: ‘It is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. 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. It is because it is incumbent on the Income-tax Officer to further investigation the facts stated in the return when circumstances would make such an inquiry prudent that the word “erroneous” in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.’ (emphasis, supplied) 7.2 Now, examination from the limited stand-point of cash availability was surely within the competence of the limited scrutiny assessment; cash deposit being one of the two parameters required to be considered. Absence or lack of 16 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) proper inquiry, i.e., as warranted in the facts and circumstances of the case and the law in the matter, is essentially a matter of fact. We have, as a matter of fact, observed a complete absence of inquiry in the matter, i.e., even from the limited stand-point of cash availability, not to speak of from a wider perspective, as in fact, was warranted. The order by the ld. Pr. CIT is, therefore, sustainable, albeit only qua this issue alone, i.e., the non-disclosure of the surrendered amount of Rs. 45.17 lacs per section 132(4) statement dated 17/10/2014 by the assessee per his return of income for the relevant year. His order, however, does not find fault with the assessment on that score alone. In his view, the AO ought to have sought his approval for comprehensive scrutiny, and examined the issue/s referred to in his notice, for which reference is made by him to para 4 of the Board’s Instruction No. 7/2014, dated 26/09/2014, reproducing it at para 8 (pg. 13) of his order. The assessee’s case in this regard is that inasmuch as the same falls within the purview of limited scrutiny, the AO, satisfied with the availability of cash, making addition to the extent the deficit was in his opinion unexplained/not satisfactorily explained, did not consider it necessary to expand the scope of the inquiry further. That is to say, that the AO’s discretion in the matter, i.e., for the conversion of a limited scrutiny to a comprehensive scrutiny, cannot be questioned. We have ourselves, in Vishal Sethi vs. CIT (I.T.A. No.57/Jab/2019, dated 07/9/2020), upheld this proposition. If the Assessing Officer himself is unable to, in view of his limited jurisdiction, act in a particular manner, his order cannot be regarded as erroneous and prejudicial to the interest of the Revenue on account of not inquiring into aspects (of the assessee’s return) outside his purview in such proceedings. However, in Vishal Sethi (supra), the tax effect of the issues not considered by the AO did not exceed Rs. 5 lacs, i.e., the monetary threshold limit for seeking such conversion (for non-metro charges). The Board Instruction itself requires the AO to, where deemed proper, undertake proper 17 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) inquiry in the matter after seeking approval from the competent authority, being Pr. CIT/DIT, i.e., under whose administrative charge he functions. Board Instructions are binding on the AO u/s 119. In fact, this forms the very basis of our holding in Vishal Sethi (supra), as also by the Tribunal in similar cases, that the AO cannot travel beyond the limited scrutiny on his own, and therefore his order cannot be faulted with on that score. However, the Board instruction/s itself enjoins the AO to, where circumstances so warrant, extend the scope of inquiry; his purview, nay duty and, rather, the whole purport of the assessment proceedings, is to bring to tax the correct income chargeable to tax. And which, again, represents trite law (refer, inter alia, Ahmedabad Electricity Co. Ltd. vs. CIT [1993] 199 ITR 351 (Bom)(FB)). It is in fact in view of this that the four- way test, including the absence of proper inquiry, has been laid down by the Hon'ble Courts toward regarding an order erroneous and prejudicial to the interest of the Revenue. And for which reference may again be made to the decision by Hon'ble jurisdictional High Court in Deepak Kumar Garg (supra), holding as under: (pg. 437) ‘The Assessing Officer accepted the version of the assessee without proper enquiry and a result a substantial amount of taxable income was not brought to tax. In such a case the assessment order would be erroneous and prejudicial to the interest of the Revenue because law enjoins upon the Assessing Officer to make the assessment order bringing all taxable income to tax. The enquiry held in a perfunctory manner could not be said to be a proper enquiry before passing the assessment order. This cannot be a ground to shut out the jurisdiction of the Commissioner of Income-tax that an adequate enquiry was conducted by the Assessing Officer.’ Similarly, it held as under in Mahavar Traders (supra): Held, that the Income Tax Officer should have examined the matter in the light of the conditions mentioned in both the sections before granting relief. The Commissioner of Income-tax had not given any finding but only remanded the case to the Income Tax Officer for making assessment afresh. The Tribunal, instead of approaching the matter in the proper perspective, had on their own started making inquiries and found that the order passed by the Income Tax Officer was correct. This was erroneous. The order passed by the Commissioner of Income-tax was valid.’ 18 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) This infirmity, i.e., making an assessment without proper inquiry, i.e., as warranted by the facts and circumstances of the case, and the law in the matter; the issue in Mahavar Traders (supra), for instance, being the satisfaction of the conditions for allowance of deductions claimed u/ss. 80-HH & 80-J of the Act, in fact gets incorporated in law itself by way of Explanation 2 (clauses (a) & (b)) to section 263 by Finance Act, 2015, w.e.f. 01/06/2015, so that the same deems an order bearing the said infirmity as erroneous and prejudicial to the interests of the Revenue. 7.3 Now, it is axiomatic that while an assessment under comprehensive scrutiny is to be regarded as erroneous in-so-far as it is prejudicial to the interest of Revenue, for want of proper inquiry, a limited scrutiny assessment cannot, particularly considering that there is nothing in law, i.e., except the Board Instruction u/s. 119, binding on him, that stops him from travelling to and examining those areas that merit his consideration. That is, no difference could be drawn between the two categories of assessments – limited and comprehensive, except the Board Instruction limiting the scope of inquiry in one category of assessments. However, what when the Board Instruction itself enjoins him to get the said scope extended in the appropriate cases? And which aspect is not in dispute; rather, patent from the Board Instruction. Now, it cannot be that one Board instruction is binding and the other not, or one part of it is binding and the other not. That would clearly be ludicrous and without any legal basis; in fact, would make an order stating so as self-contradictory. As afore-noted, vide the amendment afore-referred, an order not made in accordance with an order, direction or instruction issued u/s. 119, is deemed to be erroneous and prejudicial to the interests of Revenue. There is, it may be appreciated, no absolute bar in law for extension of scope of inquiry, but only one formulated by the Board, as a matter of policy, toward better management 19 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) of tax assessments. The same therefore itself provides for extension of the said scope in appropriate cases. Not only is the said Instruction binding, not observing its mandate makes an assessment made in disregard thereof as infirm and, accordingly, liable for revision u/s. 263. In fact, providing an absolute bar would dilute the plenary power of the assessing authority in the matter of assessment, so that all that the Board instruction seeks to provide is for a mechanism for the exercise of that power with a view to optimize scarce resources – nothing more and nothing less, i.e., where a return has been initially selected for scrutiny on limited aspects. That apart, it would be inconsistent with the scheme of the Act, which seeks to bring the total income of an assessee to tax. Further still, inasmuch as one AO may extend the scope of an assessment, and the other not, providing for the assessment made without observing the said mandate as infirm, liable for revision u/s. 263, places the two situations on an even keel, i.e., on a same footing, under law. An absence of such a provision would make the law inequitable as between the two assessees, similarly placed. Also, it shall render it ultra vires the Constitution inasmuch as it would offend Article 14, guaranteeing equality before law. Providing for permission for the enhancement in scope, which is what the ld. Pr. CIT in effect does in the instant case, is to provide an in-built check to ensure the exercise of power only in deserving cases. 8. In view of the foregoing, the direction by the ld. Pr. CIT for adjudicating the issue/s in accordance with law, i.e., without any fetter, cannot be faulted with. We, accordingly, uphold the impugned order insofar and to the extent it relates to Query # 2 per the section 263 notice dated 26/03/2018, i.e., qua the non-disclosure of income surrendered in respect of investment in property in the name of Shri Nirmal Singh Kurweti, the assessee’s servant/employee. This is of course without prejudice to our having found a complete absence of any 20 | P a g e

Nitin Sharma v. Pr. CIT ITA No. 25/Jab/2019 (AY 2014-15) examination in assessment qua the same and, therefore, from the standpoint of cash availability as well. For the other queries raised by the ld. Pr. CIT, the assessee has shown that the same did not pertain to him or stand suitably addressed by him during the assessment proceedings. We decide accordingly. 9. In the result, the appeal is partly allowed. Order pronounced on September 28, 2020 under Rule 34(4) of The Income Tax (Appellate Tribunal) Rules, 1963 Sd/- Sd/- (N.R.S.Ganesan) (Sanjay Arora) Judicial Member Accountant Member Dated: 28/09/2020

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