PURSHOTTAM S.PANCHAL,VALSAD vs. PR.CIT, VALSAD, VALSAD

आदेश /O R D E R PER O.P.MEENA, AM: This appeal filed by the Assessee is directed against the order of 1. Principal Commissioner of Income-Tax, Valsad [in short “the PCIT”] dated 15-03-2019, for the assessment year 2009-10. Though the assessee has taken as many as eleven grounds of appeal, 2. however the main grievance of the assessee relates that the ld. PCIT as erred in holding that the assessment order passed by the AO, was erroneous and pre-judicial to the interest of the revenue on the issue of lack of inquiry for proof of nature of business, verification and correctness of construction business and loan given to his wife Smt. Anita P. Panchal and details of booking and cancelling of property and loan given to Neer

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 2 of 14 Developers without appreciating that the assessment order was passed by the AO, after taking into account the assessee’s submissions and documents were furnished by him and no material whatsoever has been brought on record by the PCIT which showed that there was any discrepancy or falsity in evidences furnished by the assessee. Hence, the order u/s.263 may be set-aside on all the issues. Since, the basis issue in this ground of appeal is lack of inquiry. 3. Therefore, all the grounds are considered together for the sake of brevity and convenience. Brief facts of the case are that the PCIT noticed that assessment 4. was re-opened on the ground that the assessee has deposited cash amount to be at Rs.41,06,000/- in his bank account. On verification, it was noticed that the assessee has produced 40 bills of construction in which all amounts were below Rs.20,000/-. The bills were computer print out. Therefore, the AO has failed to verify the correctness of such construction of business. Further, the assessee has produced cash book which showed cash deposit and cash withdrawal on various dates which were in the nature of payment booking advance by cash and cheque. However, the AO has failed to verify the booking and advances and advances received back during the year. It was further noticed that the AO had not verified the credit of Rs.9,95,000/- on 10-12-2008 from M/s. Neer Developer with respect to the provisions of section 68 of the Act, on which no interest was charged by the assessee. It was further noticed that he AO has not verified

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 3 of 14 the genuineness of amount of Rs.22,32,000/- outstanding in the name of Smt. Anita Panchal as receivables. Therefore, a show-cause notice was issued to the assessee which was duly complied by the Authoritative Representative (AR) and the reply was furnished by the assessee and the PCIT’s order at page 5 to 9. However, after considering the same, the PCIT observed that the assessee has filed his return of income u/s.44AD, however no proof of business was called from the assessee by the AO and in form of any government license, Gumasta Dhara License, registration of business, therefore, the AO has failed to conduct such basic inquiry. Further, the loan given to his wife Smt. Anita Panchal had to be verified as the assessee had not filed his return of income for the earlier years. No bank account or any such proof that the loan was given has been produced or called for the assessee during the assessment proceedings. Further, the AO has not called for details of which booking and cancelling of property and the AO has failed to make inquiry as to why M/s. Neer Developers as given him loan without any interest. Therefore, the assessment order has been passed u/s.143(3) without making such enquiries rendering the assessment to be erroneous and pre-judicial to the interest of the revenue. The PCIT has also supported his view by placing reliance on the decision on Hon’ble High Court in the case of Gee Vee Enterprises v. ACIT (1975) 99 ITR 375 (Delhi), Malabar Industrial Company Ltd v. CIT 243 ITR 83 (SC) and others as decision in the case of CIT v. Amitabh Bachchan 69 taxmann.com 170 (2016), as held that the AO has passed the reassessment

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 4 of 14 without making inquiries or verification on this issue which ought to have made in this case, hence the order was held to be erroneous in so far as it is prejudicial to the interest of the revenue, hence the same was set-aside of the direction to frame the assessment de novo to the extent of examining the issues mentioned above after making proper inquiries. 5. Being aggrieved with the order of the PCIT, the assessee filed this appeal before this Tribunal. The ld. counsel submitted that the AO has issued an inquiry dated 6. 29-06-2016 (PB-12), which was replied by the assessee vides letter dated 11-08-2016 which was placed paper book at page 14 to 15. According to the submission, the assessee has submitted that the nature of business activity is construction as contractor. Thus, the nature of business were duly explained to the assessee by his aforesaid letter and the AO has also mentioned in page 1 of his assessment order that the assessee is engaged in the business of construction and as filed his return of income u/s.44AD of the Act for the year under consideration. The ld. counsel further referred that the return was filed u/s.44AD, however the assessee has disclosed his income as net profit at Rs.1,46,077/- as against the total turnover of Rs.7,05,050/- which gives the NP @20% which is more than the income required to the different u/s.44AD of the Act. The assessee has also filed a copy of profit and loss account appeared at paper book page 4 with capital account, therefore the facts that the assessee is engaged in the business of construction has been duly disclosed to the AO and same

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 5 of 14 stands verified by him. Therefore, the order is not erroneous and pre- judicial to the interest of the issue on this ground. With regard to the loan is given his wife Smt. Anita Panchal, the 7. copy of ledger account was filed as per paper book at page 21 in which loan of Rs.22,32,000/- is appeared and same is also appearing in the balance sheet of the assessee as on 31-03-2008 at paper book at page 27. Thus, loan is given during preceding year of his copy of account is duly filed, which has been verified by the AO. Since, the advance being for an earlier year and not for the assessment during the year under consideration, the question of order for AY 2009-10 being erroneous and pre-judicial to the interest of revenue does not arise even otherwise thus the addition on that account cannot be made in the assessment during the year under consideration. With regard to the details and proof of transactions of booking and 8. cancellation of property is duly ledger copy of construction account was filed in paper book page at 26 to 36. The AO has also verified the transactions by calling for information u/s.133(6) in the next year vide letter dated 07-11-2017 and no addition has been made. The assessee also submitted sales bills vide letter dated 22-08-2016 which have been verified by the AO, further copy of the summons issued to the assessee are placed at paper book page 18 to 19. With regard to the loan of Rs.9,95,000/- taken from M/s. Neer Developers the confirmation of which was submitted during the assessment proceedings vide letter dated 28-02-

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 6 of 14 2016 and the fact that it was interest free loan is apparent from the confirmation. The copy of confirmation was duly filed before the AO which was placed at paper book page 26. Thus, all the 4 issues on which the PCIT observed that there was lack of inquiry has been enquired into by the AO during the course of assessment proceedings. Therefore, order of the AO is not erroneous and pre-judicial to the interest of the assessee. The ld. counsel submitted that the PCIT could assume pre-judicial u/s.263 of the Act only after the order of the AO erroneous as far as it is pre-judicial to the interest of the revenue. The ld. counsel has placed reliance on the decision of ITAT Bombay, ‘I’ Bench, in the case of M/s. Indus Best Hospitality v. PCIT [ITA No.3125/MUM/2017 dated 19-01-2018] (Copy of order is filed ), wherein the issue regarding satisfaction of twin conditions which the assessment order should be erroneous and pre-judicial to the interest of the revenue of the discussed in the light of decision of Hon’ble Bombay High Court in the case of CIT v. Nirav Modi 390 ITR 292 (Bombay). In the said case that decision of Bombay Tribunal in the case of Narayan Tau Rane v. ITO 70 taxmannn.com 227, was also discussed wherein it was held that the ld. CIT should show that the view taken by the AO is unsustainable in law. In the case of M/s. Indus Best Hospitality (supra), the tribunal as specifically held that we have considered the query was raised by the AO, as to why interest was not received on the loan given to the related parties and as also why disallowance of intent should not be made u/s.141 of the Act. In respect of the said query assessee filed detail

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 7 of 14 explanations which are duly supported to the judicial decisions, therefore, it was held that revision proceeding u/s.263 of the Act directing the AO to re-examine the interest expenditure was incorrect and in justified. The appeal of the assessee is allowed. The ld. counsel further submitted that the assessment was reopened on the basis of cash deposit in bank account, however, in the same has stood verified and no cognizance has been taken in the order of section 263 also. In respect of this, the ld. counsel relied on the decision to ITAT Delhi, in the case of Lakshya Seth v. ITO [ITA No.218/DEL/2015 dated 07-10-2015] in which the AO completed the assessment by making sum addition and surrounding amount as business income @8% of gross receipts as prescribed u/s.44AF of the Act. It was held by the Tribunal after relying on the various decisions held that if there was any enquiry, if inadequate inquiry that would not by itself given occasion to the Commissioner to pass the orders u/s.263 of the Act, merely because he has a different opinion in the matter. The ld. counsel further supported his view by placing reliance in the case of Torrent Pharmaceuticals v. DCIT [ITA No. 164/AHD/2018 for AY 2014-15, dated 08- 08-2018] and Narayan Tau Rane v. ITO 70 taxmann.com 227 for applicability of Explanation-2 to section 263 of the Act. Per contra, the ld. CIT (DR) submitted that this is case of 9. inadequate inquiry, the AO has simply accepted the verification of the assessee and drawn a conclusion which is passed on erroneous assumption, the AO did not apply his mind anything made any discussion in the

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 8 of 14 assessment order and only passed a print order. The ld. CIT (DR) relied on the judgment of Hon’ble Supreme Court in the case of Deniel Merchant Pvt. Ltd v. ITO in Special Leave Petition no.2396/17 dated 29-11-2017. The ld. CIT further relied on the decision in the case of Crompton Greaves [ITA No. 1994/MUM/2017] vide its order dated 01-02-2016. Further, in the recent decision of the Apex Court in the case of Shri Amitabh Bachchan (2016) in Civil Appeal No.5009/2016, in which it was laid down that the erroneous of show-cause is not maintainability and principle of natural justice could follow the Apex Court also held that inquiry also be completed on the issue which requires investment and incomplete information is prejudicial to the interest of revenue. The failure on the part of the AO the conduct necessary inquiries in the circumstances of the case makes the order and pre-judicial to the interest of revenue. We have heard the rival submissions of both the parties and perused 10. the material available on record. We have gone through all the judgments cited by the parties before us. We note that section 263 of the Act enables supervisory jurisdiction to the CIT over the AO. The Pr. CIT is empowered to act under section 263 of the Act when he considers that AO's order is erroneous as far as it is prejudicial to the interest of Revenue. It is a settled position of law that the aforesaid twin condition i.e. AO's order is erroneous and prejudicial to the interest of revenue is sine qua non for assumption of revisionary jurisdiction by CIT. As per the scheme of the Act, AO has a dual role to discharge while assessing the income of an

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 9 of 14 assessee. He is both an investigator as well as an adjudicator. If the AO fails in discharging any of the two said duties i.e. as an investigator or that of an independent/impartial adjudicator, the CIT's supervisory jurisdiction is attracted because the order of the AO would be erroneous for lack of inquiry. Thus if he does not investigate, it would be erroneous for failure of AO to adjudicate as an independent/impartial adjudicator which means that if the AO passes assessment order in violation of natural justice, or there is bias or arbitrariness etc. then also the order of AO would be erroneous. When we say that lack of inquiry makes an AO's order erroneous, one has to keep in mind the difference between lack of inquiry and inadequate inquiry. Lack of inquiry makes the AO's order erroneous, but inadequate inquiry does not make the order of AO erroneous. If the AO's view is a plausible view on the facts and circumstances of the case, then CIT cannot exercise the 263 jurisdiction to impose his own view, which may be a view possible to be taken in the very same facts of the case. The scheme of the I.T Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the assessing officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interest of the revenue. The Hon`ble Supreme Court in the case of Malabar Industrial Co. 11. Ltd. v. CIT [2000] 243 ITR 83 (SC) 109 Taxman 66 (SC) had interpreted the provisions of section 263(1) in the following words :"A bare reading of this

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 10 of 14 provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo moto under it, is that the order of the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent— if the order of the Income-tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue—recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 11 of 14 not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law." We find that that the AO had not verified the credit of Rs.9,95,000/- 12. on 10-12-2008 from M/s. Neer Developer with respect to the provisions of section 68 of the Act, on which no interest was charged by the assessee. The genuineness of amount of Rs.22,32,000/- as loan given to his wife Smt. Anita Panchal, which were shown as outstanding in balance sheet was not examined as the same had to be verified as the assessee had not filed his return of income for the earlier years. Further, the loan given to his wife, No bank account or any such proof that the loan was given has been produced or called for the assessee during the assessment proceedings. The assessee has filed his return of income u/s.44AD, however no proof of business was called from the assessee by the AO and in form of any government license, Gumasta Dhara License, registration of business, therefore, the AO has failed to conduct such basic inquiry. Further, the AO has not called for details of which booking and cancelling of property and the AO has failed to make inquiry as to why M/s. Neer Developers as given him loan without any interest. Therefore, the assessment order has been passed u/s.143(3) without making such enquiries rendering the assessment to be erroneous and pre-judicial to the interest of the revenue. The PCIT has also supported his view by placing reliance on the decision on Hon’ble High Court in the case of Gee Vee

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 12 of 14 Enterprises v. ACIT (1975) 99 ITR 375 (Delhi), Malabar Industrial Company Ltd v. CIT 243 ITR 83 (SC) and others as decision in the case of CIT v. Amitabh Bachhan 69 taxmann.com 170 (2016), as held that the AO has passed the reassessment without making inquiries or verification on this issue which ought to have made in this case, hence the order was held to be erroneous in so far as it is prejudicial to the interest of the revenue We also find that assessment order does not demonstrate that any 13. enquiries were carried out or not. The learned counsel for the assessee referred to Page No.21 of Paper Book being balance sheet of the assessee showing loan to his wife. However, the Pr. CIT observed that no return of income was filed for previous year, hence, how the AO has examined this is not verifiable. The perusal of same does not indicate that necessary and required enquiry was carried and submitted before the AO. Thus, AO had accepted the explanation of the assessee that loan is genuine. The learned counsel for the assessee filed ledger account of construction at Paper Book Page No. 26 to 36 and submitted that next assessment year notice under section 133(6) was issued to said party but same is not applicable for the assessment year under consideration as no such enquiries are made during current year. The interest free loan of Rs. 9,95,000 from M/s. Neer developers, how the interest is not charged and whether it was genuine not verified. Thus, non-examination of these aspects has resulted in assessment order as erroneous and prejudicial to the interest of revenue. The order passed by the AO, therefore, in our opinion, is erroneous in so

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 13 of 14 far as it prejudicial to the interest of the Revenue. The Pr. CIT therefore, rightly assumed the jurisdiction under section 263 of the Act. The Ld. CIT (DR) relied on the judgement of Hon`ble Supreme Court in the case of Deniel Merchants P. Ltd. & Anr v. Income Tax Officer [SLP No(s) 23976/2017 dated 29.11.2017] in which various SLPs arising out of Hon`ble Calcutta High Court final order dated 10.04.2017 in GA NO. 599/2016 was dismissed. While dismissing the SLP, the Hon`ble Supreme Court observed as “In all these cases, we find that the Commissioner of Income-tax had passed an order under section 263 of Income Tax Act, 1961 with the observation that the Assessing Officer did not make proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income-tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry out through and detailed inquiry. It is this order, which is upheld by the High Court. We see no reason to interfere with the order of the High Court.” (Emphasis supplied by underline). The facts and circumstances of the above case of Hon`ble Supreme Court is applicable to the present case as in this case also no enquiry was made before passing assessment order. In the light of the previously mentioned judicial precedents in the 14. present case, what has to be seen is whether the AO has made enquiries about cash deposit capital gains bonds and land investment. In the light of above facts and legal position, we are of the considered view that the AO

Purshottam S. Panchal v. Pr. CIT, Valsad /ITA No.242/SRT/2019 /A.Y. 2009-10 Page 14 of 14 had not made detailed enquiries and with applying his mind accepted the claim cash deposit, capital gains bonds and investment. The perusal of the assessment order shows that it is very short and does not demonstrate or show that any enquiry were made and taken to logical end. Therefore, we find that twin conditions are satisfied for invoking the jurisdiction under section 263 of the Act. Therefore, in absence of the same the ld. CIT was correct in exercise the jurisdiction under section 263 of the Act and setting aside the assessment to be made afresh after giving proper due opportunity that the assessee. Accordingly, we upheld the order passed us 263 of the Act. Accordingly, the appeal of the assessee is dismissed. In the result, the appeal of the assessee stands dismissed. 15. 16. The order pronounced in the open Court on 12-12-2019

Sd/- Sd/- (SANDEEP GOSAIN) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat: Dated: 12th December, 2019/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/ Guard file of ITAT. By order // TRUE COPY // Assistant Registrar, Surat