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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI AMARJIT SINGH & SHRI O.P.MEENA
Ketan Ishwarlal Shah Vs. Ld.Pr.CIT, Valsad/ITA No.1496/AHD/2017 for A.Y. 2007-08 Page 1 of 11
आयकरअपील�यअ�धकरण,सुरत�यायपीठ,सुरत IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI AMARJIT SINGH, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER आ.अ.सं./I.T.A No.1496/AHD/2017 �नधा�रण वष�/Assessment Year: 2007-08 Ketan Ishwarlal Shah, V Principal Commissioner of Income 567,2797, Nehru Street, Near s. Tax, Hiten studio, Vapi – 396192. Valsad. [PAN: ASMPS 5062 Q] अपीलाथ� / Appellant ��यथ�/Respondent �नधा�रतीक�ओरसे /Assessee by Shri Rajesh M.Upadhyay (ITP) राज�वक�ओरसे /Revenue by Shri O.P.Singh – CIT-DR सुनवाईकीतारीख/ Date of hearing: 24.10.2019 उ�घोषणाक�तार�ख/Pronouncement on: 10.12.2019 आदेश /O R D E R PER O.P.MEENA, AM: 1. This appeal filed by the assessee is directed against the order of Learned Principal Commissioner of Income-tax- Valsad [in short “the Pr. CIT ”] dated 27.03.2017 pertaining to Assessment Year 2007-08 passed under section 263 of Income Tax Act,1961 ( in short ‘the Act’).
The sole ground states that Ld. Pr. CIT Valsad has erred in law and on facts to pass order under section 263 and thereby set-aside original assessment order under section 143 (3) read with section 147 of the Act passed by the ITO without appreciating the facts that
Ketan Ishwarlal Shah Vs. Ld.Pr.CIT, Valsad/ITA No.1496/AHD/2017 for A.Y. 2007-08 Page 2 of 11
the AOs order is neither erroneous nor prejudicial to the interest of the Revenue, hence impugned order under section 263 of the Act, is required to be quashed.
Succinctly, facts as culled out from the orders of the AO and Ld.Pr.CIT are that the assessee has filed return of income on 20.07.2007 declaring total income of Rs.1,77,580/-. The assessment was reopened under section 148 and which was assessed at Rs.1,77,580/- vide order dated 19.03.2015 under section 143(3) read with section 147 of the Act. Ongoing through the assessment records, the Pr. CIT noticed that the assessee has made cash deposits of Rs.19,07,329/-. However, the AO has accepted the claim without calling copy and bank statement of the assessee that the assessee was doing trading in grass and change in stand of commission income. The AO has accepted the claim without inquiry and investigation whatsoever. Still the AO has accepted the claim of the assessee that cash deposits in bank account is on account of sale of grass. In support of this, the assessee has filed certain documents from certain individuals without mentioning the exact correspondence address of any of them. In response to show-cause notice issued under section 263, the assessee has filed letter dated 24.03.2017 stating that cash deposits is out of sale made of trading of grass during the year under consideration and that he has submitted the relevant document like sale register, cash
Ketan Ishwarlal Shah Vs. Ld.Pr.CIT, Valsad/ITA No.1496/AHD/2017 for A.Y. 2007-08 Page 3 of 11
book for justification of cash deposits at the time of assessment before the AO and has also mentioned that the sales register, cash book and bank book are being submitted with enclosures. Therefore, the Pr. CIT observed that in view of the complete non- cooperation from the assessee and change of stand by the A.R. of the assessee, during the assessment proceedings, the explanation cannot be accepted. The AO made a grievous error/mistake in accepting the assessee’s claim on the basis of sales/vouchers, mentioning different amounts. Therefore, after citing some judicial pronouncements, the Ld.Pr.CIT held that without examining and investigation the issue which has result in to not only order being erroneous as well as prejudicial to the interest of revenue. The ld.Pr.CIT has relied in the case of Gee Vee Enterprise v. Addl. CIT 99 ITR 375(Del). Therefore, the order was considered erroneous and prejudicial to the interest of the revenue hence, was set-aside to the file of the AO with a direction to be made afresh after obtaining complete bank statement.
Aggrieved with order, the assessee filed this appeal before Tribunal. The learned counsel for the assessee vehemently contended that the AO has duly verified and applied his mind to issue under consideration; therefore, the order of the AO is not erroneous and prejudicial to the interest of the revenue. The learned counsel for the
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assessee submitted that the ld. Pr. CIT could assume jurisdiction under section 263 of the Act only if the order of the AO is erroneous as far as it is prejudicial to the interest of the revenue. Both the conditions have to be fulfilled before action under section 263 is initiated. The ld. Counsel for the assessee has drawn our attention to Page No.2 of Paper Book, which is a copy of reasons recorded for reopening of assessment, which says that the assessment has been reopend based on non- disclosure of cash deposits of Rs.16,07,329/- in the Savings Bank Account with ICICI Bank furnished by the assessee wherein details of bank account and cash deposits in bank account were furnished vide Anx-B and Anx-C as mentioned in respect of item 3 and 4 of said letter. The Ld.AO vide questionnaire dtd. 26.05.2014 (PB-8-9) has asked to furnish details of bank account and bank deposits and bank statement as per preforma prescribed in the questionnaire issued under section 142(1) by which the Ld.AO vide question No.2(a) and 6 has made specific query in respect of bank statement and bank account maintained by the assessee. In response to which, the assessee has submitted details of Axis Bank placed at Paper Book Page No.42 -44 , ICICI Bank placed at PB-53-60. The assessee has also filed cash book which is placed at Paper Book Page No.27 to 41. Accordingly, the learned counsel for the assessee submitted that the AO has examined all the details of bank deposits on the basis of
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which the case of assessee was reopened and after satisfying the same has accepted the plea of the assessee. Thus, the ld. Counsel for the assessee argued that this proves that the AO was alive to the proceedings and it was only after applying his mind to the facts of the case and thereafter passed assessment order which is not erroneous nor prejudicial to the interest of Revenue. The ld. Counsel for the assessee further submitted that erroneous order means the assessment that deviate from law and not in accordance with law. If the AO acting in accordance with law makes certain assessment, the same cannot be termed as erroneous. The ld.Counsel place reliance in his own case of ITAT Surat Bench in the case of Ketan I.Shah vs. PCIT in ITA No.372/SRT/2018 for A.Y. 2008-09 and Hon'ble Gujarat High Court in the case of CIT Vs. R.K.Construction Co. [2009] 313 ITR 65 wherein it was held as under: “16. As far as law is concerned, the assessing officer has taken a particular view on the basis of evidence produced before him. On the basis of the said material and materials which were collected by the Commissioner (Appeals) in revisional proceedings, the Commissioner (Appeals) has taken a different view. However, in the revisional proceedings under section 263, it is not open for the Commissioner (appeals) to take such a different view in view of the decisions of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (supra). There is nothing on record to suggest that the view taken by the assessing officer is unsustainable at law. This court has also taken the same view in case of CIT v. Arvind Jewellers (supra) whereby the order passed by the Commissioner (appeals) under section 263 of the Act was quashed and set aside.” 5. The ld. Counsel for the assessee relied in the case of Lakshay Sheth v. ITO WD 19(3) New Delhi [I.T.A.No. 218/Del/2015 A.Y. 11-12 dtd.
Ketan Ishwarlal Shah Vs. Ld.Pr.CIT, Valsad/ITA No.1496/AHD/2017 for A.Y. 2007-08 Page 6 of 11
7.10.2015] wherein after placing reliance in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC): [2003] 183 CTR 228 (SC) : [2003] 131 Taxman 535 (SC) ITO v. D G Housing Projects Ltd. I.T.A.No. 179/2011 dtd. 1.3.2012 of Hon`ble Delhi High Court it was held that when ITO proceeded to estimate the business income of the assessee @ 8% of gross receipts under section 44AF , the logical conclusion that view and approach taken by the AO in framing original assessment order under section 143 (3) was quite justified , reasonable and in accordance with provisions of the Act , hence, the conclusion drawn by the CIT that the order is erroneous and prejudicial by referring some citation is not valid to assume jurisdiction under section 263 of the Act.
On the other hand, the Ld. CIT (DR) submitted that this is a case of inadequate inquiry. The AO has not examined the details of bank account and cash deposits therein and has accepted the trading receipts shown by the assessee but did not apply his mind nor made any discussion in the assessment order.
We have heard the rival submissions of both the parties and perused the material available on record. We have gone through all the judgements cited by the parties before us. We note that section 263 of the Act enables supervisory jurisdiction to the Ld.Pr.CIT over the AO.
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The Ld.Pr.CIT is empowered to act u/s. 263 of the Act when he considers that AO's order is erroneous in so 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 Ld.Pr.CIT. As per the scheme of the Act, AO has a dual role to discharge while assessing the income of an 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 Ld.Pr.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
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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.
Thus, in order to exercise the powers under section 263(1) of the Act, the Commissioner of Income tax must be satisfied that the assessment order made by the Assessing Officer was (a) erroneous ; and (b) prejudicial to the interests of the Revenue. The Supreme Court in the case of Malabar Industrial Co. 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 provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu 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 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."
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Following the aforesaid judgment, the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282 (SC) reiterated that the phrase "prejudicial to the interests of the Revenue" as used in section 263(1) of the Act must be read in conjunction with the expression "erroneous" and unless the view taken by the Assessing Officer is found to be unsustainable in law, the powers under section 263 of the Act cannot be invoked.
Non-Examination of issue by Assessing Officer does not, per se, make the assessment order prejudicial to interest of revenue for revision under section 263 of the Act. We find that the AO has made proper enquiry and examined accounts, it could not be said that there was non- application of mind by him. Hence, the action under Section 263 was held invalid.
In the light of the aforesaid judicial precedents in the present case what has to be seen is whether the AO has made enquiries about cash deposits in bank account with ICICI Bank. Thus, the view taken by the AO was plausible view, which cannot be disturbed by the ld. Principle Commissioner of Income tax. The ld. Counsel for the assessee relied in the case of Lakshay Sheth v. ITO WD 19(3) New Delhi [I.T.A.No. 218/Del/2015 A.Y. 11-12 dtd. 7.10.2015] wherein after placing reliance in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC): [2003] 183 CTR 228 (SC) : [2003] 131 Taxman 535 (SC) ITO v. D G Housing
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Projects Ltd. I.T.A.No. 179/2011 dtd. 1.3.2012 of Hon`ble Delhi High Court it was held that when ITO proceeded to estimate the business income of the assessee @ 8% of gross receipts under section 44AF , the logical conclusion that view and approach taken by the AO in framing original assessment order under section 143 (3) was quite justified, reasonable and in accordance with provisions of the Act, hence, the conclusion drawn by the CIT that the order is erroneous and prejudicial by referring some citation is not valid to assume jurisdiction under section 263 of the Act.
In the case of CIT v. Green World Corporation [2009] 314 ITR 81/181 Taxman 111 (SC), the Hon'ble Supreme Court observed, "An Order of Assessment passed by the Assessing Officer should not be interfered with only, because another view is possible. And also Hon'ble Gujarat High Court in the case of CIT Vs. R.K.Construction Co. [2009] 313 ITR 65 wherein it was held as under: “16. As far as law is concerned, the assessing officer has taken a particular view on the basis of evidence produced before him. On the basis of the said material and materials which were collected by the Commissioner (Appeals) in revisional proceedings, the Commissioner (Appeals) has taken a different view. However, in the revisional proceedings under section 263, it is not open for the Commissioner (appeals) to take such a different view in view of the decisions of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (supra). There is nothing on record to suggest that the view taken by the assessing officer is unsustainable at law. This court has also taken the same view in case of CIT v. Arvind Jewellers (supra) whereby the order passed by the Commissioner (appeals) under section 263 of the Act was quashed and set aside.”
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In the light of above facts and legal position, we are of the considered view that the AO had made detailed enquiries and after applying his mind accepted the claim of the assessee, which is also plausible view. Therefore, we find that twin condition were not satisfied for invoking the jurisdiction under section 263 of the Act. Therefore, in absence of the same the ld. Pr. CIT was not correct in exercise the jurisdiction under section 263 of the Act. In view of these facts and law, we quash the impugned order passed under section 263 of the Act.
In the result, the appeal of the assessee stands allowed.
Order pronounced in the open court on 10-12-2019.
Sd/- Sd/- (AMARJIT SINGH) (O.P.MEENA) (�याियक सद�यतथा/JUDICIAL MEMBER) (लेखा सद�यकेसम� /ACCOUNTANT MEMBER) सुरत/ Surat, �दनांक Dated: 10th December, 2019/S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat