NANHAKOO JAISWAL,VARANASI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, VARANASI

IN THE INCOME TAX APPELLATE TRIBUNAL VARANASI BENCH, VARANASI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No.77/VNS/2023 A.Y.-2018-19 Nanhakoo Jaiswal, vs. Assistant Commissioner of Village-Phoolpur, District-Varanasi, Income Tax, Central Circle- Uttar Pradesh-221205 Varanasi PAN: AXVPJ8399R (Appellant) (Respondent) Assessee by: Sh. S.K. Jaiswal, CA Revenue by: Sh. Koushlendra Tewari, CIT DR Date of hearing: 20.01.2026 Date of pronouncement: 17.04.2026 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee against the orders of the ld. PCIT, Central, Lucknow, passed under section 263 of the Income Tax Act on 7.06.2023, wherein the ld. PCIT has revised the order passed by the Assessing Officer under section 147 r.w.s. 143(3) for the A.Y. 2018-19, on 1.12.2022. The grounds of appeal are as under:- “1. BECAUSE the learned Principal Commissioner of Income Tax (Central) has erred in law and on facts in holding that assessment order dated 01.12.2022 passed by ACIT, Central Circle, Varanasi under section 147 of the Income Tax Act, 1961 is erroneous so far as prejudicial to the interest of revenue. 2. BECAUSE during the course of assessment proceeding the learned assessing officer has made the proper enquiry and the appellant has furnished the cash- flow statement and fully explained the source of loan of Rs. 5,00,000/- given to his mother Smt. Chandrawati Devi and source of payment of Rs. 8,25,379/- to Shalimar Hatcheries Pvt. Ltd. 3. BECAUSE the learned PCIT has failed to appreciate the fact that appellant has neither utilized any interest bearing fund in giving loan of Rs. 5,00,000/- to his mother for purchase of house nor he has earned any interest on the aforesaid loan, therefore direction for charging of notional interest @ 12% on sum of Rs. 5,00,000/- is based on conjecture and surmises and not on the basis of any material on record. 1

ITA No.77/VNS/2023 Nanhakoo Jaiswal A.Y. 2018-19 4. BECAUSE the order appealed against is contrary to the facts, law and principle of natural justice.” 2. The facts of the case are that the AO received the information through the Insight Portal that during the year, the assessee had made transactions of cash deposit with the Bank of India amounting to Rs. 1,18,19,000/- but not furnished a return of income. Notices under section 148A were issued after following the due procedure in response to which a return of income was filed declaring the total income of Rs. 2,22,480/-. Subsequently, after issue of notices and submission of replies, the ld. AO assessed the income of the assessee at the returned income. However, he noted that since the assessee had failed to get his accounts audited, as he was required to do, he initiated penalty proceedings under section 271B. 3. The ld. PCIT called for the assessment records and after going through them, he noticed that despite having an income only Rs. 2,22,480/-, the assessee had given loan and advances to the tune of Rs. 5,00,000/- to Smt. Chandrawati Devi. He also observed that during the course of assessment proceedings, the assessee had submitted that he had purchased chicks from M/s Shalimar Hatcheries Pvt. Ltd., and sold the same to various small customers in cash and on credit and the deposits in the bank account were on account of cash collected from a customers, which were then transmitted to M/s Shalimar Hatcheries Pvt. Ltd., through NEFT from the same bank account. The ld. PCIT noted that the assessee had claimed to have made total purchases from M/s Shalimar Hatcheries Pvt. Ltd., to the tune of Rs. 1,25,98,589/- of which the sum of Rs. 5,07,207/- was outstanding payment at the end of the year. However, perusal of the bank account revealed that total payment of Rs. 1,12,66,000/- had been made to M/s Shalimar Hatcheries Pvt. Ltd., from the said bank account and from the same, the ld. PCIT concluded that payments to the extent of Rs. 8,25,379/- needed further examination for determination of its sources. He also concluded that the nature and sources of, “loans and advances” to Smt. Chandrawati Devi had also not been examined and was required to be done. Accordingly, he issued a show cause notice to the assessee as to why his assessment should not be revised. In response, the assessee 2

ITA No.77/VNS/2023 Nanhakoo Jaiswal A.Y. 2018-19 submitted that the AO had made a detailed enquiries and examined the issue of loan to Smt. Chandrawati Devi in detail. He had raised the specific query under section 142(1) and compliance had duly been made by the assessee. He had examined the cash book and bank book maintained in regular course of business to verify the cash flow statement and the source of loans and advances to Smt. Chandrawati Devi. A copy of this cash flow statement was reproduced in his submissions. Regarding the source of payment to M/s Shalimar Hatcheries Pvt. Ltd., which the ld. PCIT held to be unexplained, it was submitted that a sum of Rs. 1,41,379/- had been credited to the profit and loss account under the head discount and incentive because of discount allowed on purchase by M/s Shalimar Hatcheries Pvt. Ltd,. Furthermore, a sum of Rs. 6,84,000/- had been paid directly by sundry customers whose details were furnished and as proof of the same, the assessee had submitted copies of statement of account of M/s Shalimar Hatcheries Pvt. Ltd., and the sundry customers. Thus, it was submitted that the difference of Rs. 8,25,379/- which the ld. PCIT stated as not explained, stood fully explained and verifiable from the statement of accounts filed during the course of assessment proceedings. The assessee, therefore, submitted that since the ld. AO had made detailed enquiries on the subject, there was no occasion to take up proceedings under section 263. 4. The ld. PCIT observed that no confirmation from Smt. Chandrawati Devi was found on assessment records and no query in this regard have been made by the AO during the course of assessment proceedings. He also found that no cash flow statement has been produced during the assessment proceedings and the AO had not made any further query in this regard in the course of assessment proceedings. He also noted that since the assessee had neither charged interest nor provisioned for interest on the loan, the AO should have assessed the income of the assessee by adding income on account of interest @ 12% per annum on that loan of Rs. 5,00,000/-. With regard to the difference observed on account of purchases made from M/s Shalimar Hatcheries Ltd., the ld. PCIT held that no further enquiry/verification in this regard had been made by the AO during the 3

ITA No.77/VNS/2023 Nanhakoo Jaiswal A.Y. 2018-19 course of assessment proceedings and no confirmation of such debtors were available on records. Thus, the written submission made by the assessee had simply been accepted. In view of the aforesaid circumstances, the ld. PCIT invoked the provisions of Explanation 2 to section 263 of the Act and set aside the order of the AO for passing a fresh order after giving the assessee an opportunity to be heard. 5. The assessee is aggrieved against such order and has accordingly come in appeal before us. Sh. S.K. Jaiswal, C.A. (hereinafter referred to as the ld. AR) submitted that both the points, which the ld. PCIT alleged had not been enquired into, had in fact been enquired into. He invited our attention to page nos. 9 of his paper book which contained the questionnaire issued by the AO and pointed out that question nos. 11 and 12 dealt with unsecured loans taken by the assessee and loans and advances given by the assessee. He then invited our attention to the response filed by him to this notice which was given on page 13 of his paper book. The ld. AR also drew our attention to question no. 21 of the questionnaire issued by the AO, which was specifically made with regard to cash deposits made in his bank account during the financial year alongwith all documentary evidences and his own reply to the said question contained on page 15 of his paper book. He also drew our attention to page 98 of his paper book which contained the account of M/s Shalimar Hatcheries Ltd., in the books of the assessee which not only, in his opinion, contained the details of all payments made to M/s Shalimar Hatcheries Ltd., but also reconciled the so-called discrepancy pointed out by the ld. PCIT. He particularly invited our attention to entries of discount and incentive that formed the part of this account and entries relating to six customers which were included in the said account. The ld. AR further submitted that the AO had applied for and called for the cash flow statement and in response to this, he had submitted the entire cash book to the AO for scrutiny. A copy of the said cash book was placed in the paper book from pages 21 to 46. The ld. AR pointed out that a sum of Rs. 8,53,000/-, a sum of Rs.6,84,000/- had paid by the customers directly to M/s Shalimar Hatcheries Pvt. Ltd,. Therefore, the assessee had credited the customers’ 4

ITA No.77/VNS/2023 Nanhakoo Jaiswal A.Y. 2018-19 account and debited the M/s Shalimar Hatcheries Pvt. Ltd., in the ledger. Accordingly, it was submitted that there was no loss to Revenue on this account and therefore, it could not be said that the order passed was prejudicial or erroneous to Revenue. He, therefore, prayed that the order of the ld. PCIT be set aside and the order of the ld. AO be restored. 6. On the other hand, Sh. Koushlendra Tewari, CIT DR (hereinafter referred to as the ld. DR) pointed out that the only issue involved in the present appeal was whether the ld. PCIT was justified in invoking Explanation 2 to section 263.He pointed out that the enquiry made by the AO was inadequate. The notice issued by him was not specific and the ld. AO did not follow up on the first set of replies. Therefore, the enquiry was also incomplete. The ld. CIT(A) pointed out that it was evident from the reply furnished by the assessee that he had not charged any interest on the loans advanced to Smt. Chandrawati Devi and the AO ought to have enquired as to whether any interest payable, was disallowable in his hands on that account. Similarly, once there was a discrepancy between the amount of money paid from the bank account and the actual amount paid, the ld. AO was obliged to ask the question and examine the debtor’s account. The ld. PCIT was only asking for an enquiry and therefore, there could be no reason to quash his order on this account. 7. We have duly considered the facts and circumstances of the case. As regards, the first issue that is the failure of the AO to assess interest in the hands of the assessee on account of interest free loan being given to the debtor, we note that before there could be any allegation of error in the said order on that account, the fact had to be brought on record that the assessee was paying interest at that rate to some party on account of loans taken. But the ld. PCIT has not brought any such evidence on record. We note that the assessee has pointed out in his reply dated 21.11.2022 that there were no unsecured loans on balance-sheet date of 31.03.2018. We further note that Smt. Chandrawati Devi is the mother of the assessee and therefore, in the absence of any findings that any interest-bearing funds raised for the business, have been diverted on personal account to Smt. 5

ITA No.77/VNS/2023 Nanhakoo Jaiswal A.Y. 2018-19 Chandrawati Devi, any addition to the assessee’s income on account of notional interest would not be as per the provisions of law. In the circumstances, without pointing out that some interest had been paid, which rendered the enquiries of the ld. AO as incomplete, Explanation 2 could not have been invoked by the ld. PCIT. With regard to the issue of discrepancy between the payments made out of the bank account and the total payments made to M/s Shalimar Hatcheries Ltd., we find that during the course of assessment proceedings, the assessee had filed a copy of the discount and the incentive ledger account before the AO and this is also reflected in the ledger account of M/s Shalimar Hatcheries Pvt. Ltd., as formed in the books of the assessee. We further note that the ledger accounts of the amounts transferred by the sundry customers are reconciled with the statement of account of M/s Shalimar Hatcheries Pvt. Ltd., as filed by the assessee during the course of assessment proceedings. Thus, it cannot be said that these aspects had not been enquired into and accordingly, there does not appear to be any basis for the ld. PCIT to hold that the enquiries of the AO in this regard were incomplete. Accordingly, there does not appear to be justification for invoking Explanation 2 to section 263 and the order passed by the ld. PCIT is therefore, quashed while the orders passed by the AO are restored. 8. In the result, the appeal of the assessee is allowed. Order pronounced on 17.04.2026 in the Open Court. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 17/04/2026 Sh Copy forwarded to: 1. Appellant – 2. Respondent – 3. CIT DR, ITAT 4. CIT, 5. The CIT(A) By order Sr. P.S.