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Income Tax Appellate Tribunal, MUMBAI ‘C’ BENCH, MUMBAI.
Before: Shri B.R. Baskaran (AM) & Shri Aby T Varkey (JM)
Per B.R.Baskaran (AM) :-
All the three appeals filed by the respective assessees are directed against the revision order passed by Ld PCIT u/s 263 of the Act for the years mentioned in the caption. Both the assessees are challenging the validity of revision orders passed by Ld PCIT. Since common issues are urged in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.
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The facts common to all the three appeals are stated in brief. The assessing officer reopened the assessments of AY 2012-13 and 2013-14 in the case of M/s Pioneer Investcorp Ltd and the assessment of AY 2012-13 in the case of M/s Pioneer Insurance & Reinsurance Brokers P Ltd. The common reason for reopening of the assessment is stated in brief. The revenue carried out survey operations u/s 133A of the Act in the hands of both the assessees on 03-05-2018. During the course of survey operations, it was found that the above said companies have paid consultancy/retainership fees to a person named Shri Deepak Kochhar. A statement was taken during the course of survey on oath u/s 131 of the Act from Shri Gaurang Gandhi, the managing director of both these companies. The DDIT (inv.) appears to have taken the view that the payments made to Shri Deepak Kochhar as consultancy fees were only accommodation entries. Based on the report from DDIT (Inv.), the AO reopened the assessments of all the three years under consideration in the hands of both the assessees.
During the course of assessment proceedings, the AO raised various queries with regard to the payments made to Shri Deepak Kochhar. He also noticed that both these companies have taken loans from its sister concern named M/s Aarem Management Services P Ltd. It was further noticed that the above said sister concern, in turn, had received funds from Shri Deepak Kochchar. The AO noticed that the loan taken from M/s Aarem Management Services P Ltd has been used to give consultancy fees to Shri Deepak Kochchar. It was also noticed that an agreement was entered between these assessees and Shri Deepak Kochar for engaging him as consultant. However, no other evidence was produced to prove rendering of services by Shri Deepak Kochhar. The AO also noticed that the consultancy fee has not been paid as a fixed percentage of the income received by the assesees herein from its clients. Accordingly, the AO took the view that the assessees have not explained the payments made to Shri Deepak Kochhar. However, the AO did not disallow the consultancy fees paid to him.
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The AO took the view there was circular movement of funds between Shri Deepak Kochhar and the assessee companies. With regard to these movement of funds, the AO took the view that these companies would have earned commission income. Accordingly, the AO estimated the commission income @ 3% for receipt of funds and 3% for repayment of the same, aggregating to 6%. Accordingly, the AO estimated the commission income @ 6% of the funds received added the same to the total income in all the three years in the hands of both the assessees.
The Ld PCIT examined the assessment records of all the three years under consideration in the hands of both the assessees. The Ld PCIT noticed that the AO did not make disallowance of consultancy fees paid to Shri Deepak Kochar. He observed that the DDIT (Inv), during the course of survey action, had conclusively established that the transactions with Shri Deepak Kochhar were accommodation entries to reduce taxable income. He noticed that though the AO has discussed about the nature of transactions entered between these assessees and Shri Deepak Kochchar, yet the AO did not disallow the entire consultancy fees paid to Shri Deepak Kochhar and the same has resulted in under assessment. Hence the Ld PCIT took the view that the impugned assessment orders are erroneous and prejudicial to the interests of revenue. Hence, he initiated revision proceedings u/s 263 of the Act in all the three years under consideration in the hands of both the assessees.
Before Ld PCIT, these assessees contended that the AO had called for all the information relating to the payments made to Shri Deepak Kochhar and the assessee has also furnished them. It was submitted that the Ld PCIT is placing reliance on the report of DDIT (Inv), which in turn, has placed reliance on the Statement given by Shri Gaurang Gandhi, the Managing director of these two companies. Hence the statement given by Shri Gaurang Gandhi formed the basis for reopening of assessment by the AO as well as
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the initiation of revision proceedings by Ld PCIT. It was submitted that the copies of the said statement were not furnished to the assessees.
It was contended that the, merely on the basis of some view expressed by DDIT (Inv), it cannot be said that the payments made to Shri Deepak Kochhar were merely accommodation entries and it cannot be considered that this fact has been conclusive established. It was submitted that these assessees as well as Shri Deepak Kochhar have all along maintained the stand that the payments were given/received on account of services rendered. It was further submitted that the Ld PCIT has also not arrived at any conclusion that the impugned payments made to Shri Deepak Kochhar was not genuine. He has merely placed reliance on the report given by DDIT (Inv.). It was submitted that the AO has extracted a portion of statements given by Shri Gaurang Gandhi and Shri Deepak Kochhar in the assessment order. A perusal of the same would show that both the above said persons have never said that the payments were mere accommodation entries. Hence there is no scope for doubting the payments made to Shri Deepak Kochhar. It was submitted that the AO, after examination of all the details, has only found that certain supporting evidences relating to the claim are not available. No concrete evidence to disprove the claim could be found by the AO. Hence, the AO did not disallow the consultancy fee paid to Shri Deepak Kochar. Accordingly, the Ld A.R submitted that the view so taken by the AO is a possible view. With regard to the movement of funds, the AO has taken the view that commission income should be added in the hands of these assessees, even though it was not proved to be mere accommodation entries.
The Ld A.R further submitted that the assessees herein challenged the addition of commission income by filing appeals before Ld CIT(A). However, both these assessees chose settle the said dispute under Vivad Se Vishwas Act, 2020 and accordingly settled the same. Taking support of the provisions of VSV Act, these assessees contended before Ld CIT(A) that the payments
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made to Shri Deepak Kochhar have attained finality after acceptance of applications filed by these assessees under Vivad Se Vishwas Act, 2020.
The Ld PCIT, however, expressed the view that the settlement of dispute under VSV Act is no bar for initiating revision proceedings in respect of payments made to Shri Deepak Kochhar and accordingly rejected the said contentions. The Ld PCIT did not accept the contentions of the assessees that there was proper application of mind by the AO. In this regard, he took support of clause (a) to Explanation to Section 263 of the Act (amended by Finance Act 2015 with effect from 01-06-2015) and held that the AO has passed the order without making enquiries and verification which were required in facts and circumstances of the case. The Ld PCIT also took support of the decision rendered by Hon’ble Supreme Court in the case of Malabar Industrial Co Ltd (2000)(243 ITR 83)(SC). It is pertinent to note that the Ld PCIT also discussed that the AO has not examined applicability of sec.68 of the Act on the loans received by the assessees, even though the said issue was not mentioned in the notice issued by him. Accordingly, the Ld PCIT set aside the assessment orders of all the three years in the hands of both the assessees herein and directed the AO to pass fresh assessment orders on the issues discussed in the revision orders passed by him, after giving due opportunity to the assessee. Both the assessees are aggrieved by the orders passed by Ld PCIT.
Before us, the Ld A.R reiterated the contentions made before Ld PCIT. He submitted that the basic material relied upon by the AO for reopening the assessments and by Ld PCIT for initiation of revision proceedings is the statement given by Shri Gaurang Gandhi. He submitted that the statement of Shri Gandhi has not been given to the assessee either by AO or by Ld CIT(A). Accordingly, he contended that there was clear violation of principles of natural justice. He submitted that the AO has extracted certain questions and answers from the statements given by Shri Gaurang Gandhi and Shri Deepak Kochhar. A perusal of the same would show that the said statements
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do not support the view taken by the tax authorities. Both the parties have confirmed about the payment of consultancy fees. Further the AO has raised various queries during the course of assessment proceedings and the assessee has also given due replies. Hence, there was no reason for the AO to disbelieve the genuineness of payments and he did not make disallowance of consultancy fees paid to Shri Deepak Kochhar. He submitted that the AO has taken one of the possible views on this matter and hence the impugned revision orders are liable to be quashed on this ground also. He submitted that the Ld PCIT has initiated revision proceedings on the reasoning that the AO has not given any justification for not disallowing consultancy fee paid to Shri Deepak Kochhar. However, in the impugned revision order, the Ld PCIT also did not give any definite finding that the consultancy fees paid were not genuine, i.e., the Ld PCIT has simply relied upon the opinion expressed by DDIT (Inv.).
The Ld A.R submitted that the PCIT has also expressed the view that the AO has failed to examine the applicability of sec. 68 of the Act to the amounts received by these assessees from another sister concern. However, this issue was not mentioned in the notice issued for initiation of revision proceedings. During the course of hearing also, the assessees have furnished explanations with regard the consultancy fees paid to Shri Deepak Kochar only and the settlement of dispute under VSV Act. Accordingly, he submitted that the Ld PCIT was not justified in dealing with a new issue which was not mentioned in the notice as well as not put to assessee during the course of hearing. He further submitted that the Ld PCIT did not make any enquiries or verification with regard to the consultancy fees paid to Shri Deepak Kochhar before coming to the conclusion that the assessment order is erroneous. Accordingly, he contended that the impugned revision orders are liable to be quashed.
The Ld D.R, on the contrary, supported the revision orders passed by Ld PCIT. He submitted that the AO did not disallow the consultancy charges
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paid to Shri Deepak Kochhar, even though the Investigation wing has expressed opinion that it was only accommodation entry. Accordingly, he submitted that the revision orders passed by Ld PCIT should be confirmed.
We have heard rival contentions and perused the record. The scope of revision proceedings initiated under section 263 of the Act was examined by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: “Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) :
“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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The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.”
The principles laid down by the courts are that the Learned CIT cannot invoke his powers of revision under section 263 if the Assessing Officer has conducted enquiries and applied his mind and has taken a possible view of the matter. If there was any enquiry and a possible view is taken, it would not give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. The consideration of the Commissioner as to whether an order is erroneous in so far it is prejudicial to the interests of Revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded.
We shall now refer to the notice issued by Ld PCIT. Identical notices have been issued in all the three years in the hands of both the assessees. Hence we extract below the notice dated 13-08-2021 issued in the hands of M/s Pioneer Investcorp Limited for AY 2012-13:-
“3. During the course of assessment after considering the submissions made by you, the A.O. arrived at the conclusion that the commission paid to Shri Deepak Kocchhar during the year under consideration is not genuine and accordingly, added 3% of receipts of Rs. 4,25,00,000/- i.e., Rs.12,75,000/- and 3% of payments of Rs.4,25,00,000/- i.e. Rs.12,75,000/- totalling to Rs.25,50,000/-. However, it is noted that no justification has been given by the A.O. in the assessment order as to why merely 3% of receipts of commission Rs.4,25,00,000/- i.e. Rs. 12,75,000/- and 3% of payment of Rs.4,25,00,000/- i.e. Rs. 12,75,000/- should be disallowed instead of adding the total commission at Rs.4,68,77,500/-. Considering the fact that, the AO had concluded in the assessment proceedings that payment of commission to Shri Deepak Kochchar was false/not genuine, concocted and an arrangement of mutual understanding of providing adjustment entries by one party to another party. 4. In this regard, it is also pertinent to note that the DDIT (Inv) Unit 5(4), Mumbai during the course of survey action on your company had conclusively established by facts and details that the transactions with Shri Deepak Kochchar were merely accommodation entries to reduce the taxable income. Hence, it is abundantly clear that the consultancy/
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retainership fees amounting to Rs. 4,68,77,500/- is mere accommodation entry provided by Shri Deepak Kocchar to you. 5. In view of the above facts, it appears that the AO ought to have disallowed the entire commission at Rs.4,68,77,500/- instead of Rs.25,50,000/- and failure on the part of the AO to make the above disallowance has resulted in underassessment of Rs.4,43,27,500/- (4,68,77,500· - 25,50,000).
In view of the above, prima fade, the assessment order passed under section 143(3) r.w.s. 147 dated 29/12/2019 appears to be erroneous in so far as it is prejudicial to the interest of Revenue. I, therefore, propose to pass such order thereon as the circumstance of the case justify, including an order enhancing or modifying the 'assessment, or cancelling the assessment and directing a fresh assessment under the provisions of section 263.”
A careful perusal of the notice issued by Ld PCIT would show that the Ld PCIT has relied upon the report given by DDIT (Inv.) and has observed that the DDIT (Inv.) has “conclusively” established the fact of provision of accommodation entries. The Ld PCIT also expressed the view that the AO has also reached such a conclusion.
We shall now refer to the order passed by Ld PCIT. Since identical orders have been passed by Ld PCIT, we extract below the order passed in Assessment year 2012-13 in the hands of M/s Pioneer Investcorp Ltd:-
“5.1.1 During the course of re-assessment proceedings the details sought by AO in respect of consultancy fees paid to Mr. Deepak Kochhar along with supporting documents substantiating constancy fees were filed. However, assessment was completed vide order dated 29.12.2019 making an ad hoc addition of Rs.25,50,000/- holding that Pioneer had concealed commission income at 3% of receipts from and payment made to Mr. Deepak Kochar i.e., in aggregate @ 6% of Rs.4,25,00,000/- i.e, INR 25,50,000/-. Against this order the assessee filed appeal before the CIT(A) on 28.01.2020. Post filing of appeal the assessee opted for VsV Scheme and the same was accepted by the Department. Therefore, it has been argued that the issue under consideration is settled under VSV and has attained finality. The assessee has referred to the decision of the Hon'ble Supreme Court in the case of Killick Ninon Ltd. V Deputy Commissioner of Income Tax (2002)125 taxman 1055(SC).
5.1.2 In this regard, it is observed that the decision referred by the
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assessee is in respect of KVSS and the decision of the Apex Court was in respect of peculiar facts of the case. The decision was in respect of reopening of the issue by the AO In the instant case, the proceedings u/s.263 has been initiated by the Pr. CIT, who is a supervisory authority, who has been given duty in the Income-tax Act to correct the errors in assessment made by the AO, which are prejudicial to the interest of revenue.
5.1.3 Moreover, VsV Scheme is under a separate enactment. Under the VsV Act, in Sec. 5(3) it has been provided that no matter covered by such order shall be reopened in any other proceeding under the income tax Act. Thus, the bar to reopen any proceeding is limited to matter covered under VsV Scheme. In the instant case, the matter of unaccounted receipt which has been mentioned by the AO in the assessment order (ref - para 5.11 of assessment order), is not covered by the VsV declaration. The matter that was covered in the VsV Scheme was only the commission income of 6% on receipt and payment of Rs.4,25,00,000/-.. Therefore, there is no bar for initiating revisionary proceedings in respect of other matters.
5.1.4 In the instant case, the AO observed in para 5.11 of his order that the assessee did not furnish reply to the query specifically asked on various receipts. After giving this observation, the AO did not enquire further or apply his mind in all perspective on the aforesaid fact. The AO also failed to examine the applicability of section 68 of the Act in respect of the aforesaid receipts or the taxability of the aforesaid receipts as business income. The assessment made by the AO ignoring such vital issue and failure to inquire into nature of receipt-and failure to apply mind on the facts of the case in all perspective have rendered the assessment order erroneous in so far it is prejudicial to the interest of revenue.
5.2 The assessee in its reply has contended that the AO has arrived at his conclusion after application of mind and therefore the order is not erroneous. In this regard, the detailed reason as to how the order is erroneous is given in proceeding para.
5.3 The assessee has also contended that in the show cause notice the words ‘prima facie’ and ‘appears’ have been used and no definite finding that the order is erroneous has been given. In this regard, it is stated here that in law, the use of the phrase prima facie or what ‘appears’ to be true at first, is a widely used term/phrase which means “what appears to be true at first sight” - meaning thereby it can be proved either way – true or false depending on the explanation provided in this regard. A notice is not a decision. A notice u/s.263 is obviously a notice given to the assessee providing him with an opportunity to counter the observation made by the PCIT which ‘appears’ to be true at first sight or prima facie true. Assessee’s contention, in this regard, is nothing but a rhetoric. The order u/s.263 is a decision taken by the PCIT on the basis of explanation given by the assessee in reply to the
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notice u/s.263. Therefore, the observation of assessee and challenging the notice for use or word ‘appears to be true’ is a misplaced semantic. It is nothing but lack of understanding the meaning of the phrase.
5.4 In its reply filed on 10.03.2022, the assessee, inter-alia, has also stated that it has withdrawn appeal filed before CIT(A) and therefore the subject matter has attended finality. In this regard, it is observed that there is no bar for revisionary proceedings in respect of matters which have not considered and decided in appeal. Since the appeal has been withdrawn, the issue is not considered and decided. Moreover, as already discussed, the issue in this revisionary proceeding is not exactly the same as in the appeal filed before the CIT(A). Therefore, the contention of the assessee on this issue is not tenable.
5.5 The assessee has referred to various judicial decisions in its reply, the same were perused and considered. It is noticed that in all the referred cases, the enquiries were made by the AO and thereafter assessment orders were passed. The assessee has further contended that the AO after due inquiry and verification of information concluded that only 6% of total receipts of Rs.4,25,00,000/- ought to be taxed. It is already discussed in proceeding paras that the AO did not make inquiries which were warranted in this case and also did not apply his mind on the facts before him in all perspective. 5.6 As per clause (a) to Explanation to Section 263 (amended by Finance Act, 2015 with effect from 01.06.2015), an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, the order is passed without making enquiries or verification which should have been made. In the instant case, as mentioned in the preceding paragraph, it is found that the A.O passed the assessment order without making inquiries and verification which were required in facts and circumstances of the case. This non-verification which was required in the facts and circumstances of the case and consequent loss of revenue has rendered the assessment order erroneous in so far it is prejudicial to the interest of revenue. 5.7 In this regard, the judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Limited v. CIT [2000] 243 ITR 83 (SC) may be referred to wherein the Hon'ble Court held "... The scheme of the 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 an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly 'be "'prejudicial to the interests of the revenue. The phrase prejudicial to the interests of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer." It was further held by the Apex Court that the assessment orders was erroneous if the assessing officer passed the assessment order without applying his mind to the case in all perspective. In view of aforesaid judgment of the Apex Court, if
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assessment has been made without application of mind' all perspective and there is consequential loss of revenue the order becomes erroneous in so far it is prejudicial to the interest of revenue. 6. In view of the aforesaid facts the assessment order dated 29.12.2019 is held to be erroneous in so far it is prejudicial to the interest of revenue. The assessment order is therefore, set aside and the AO is directed to pass a fresh assessment order on the issues discussed in this order after giving due opportunity to the assessee. The AO is also directed not to make any addition on the issue of commission of RS.25,50,000/-, which has become final in view of the VsV declaration filed by the assessee.” 16. A perusal of the impugned revision orders passed by Ld PCIT would show that the Ld PCIT has not discussed anything about the genuineness or otherwise of the consultancy fees paid to Shri Deepak Kochhar. In most of the paragraphs, the Ld PCIT has addressed the contention of the assessee that the settlement of disputed addition of commission income under VSV Act, 2020 will not bar him to initiate revision proceedings in respect of consultancy fees paid to Shri Deepak Kochhar. In paragraph 5.1.4, the Ld PCIT has expressed the view that the AO has failed to examine the applicability of sec. 68 of the Act on the amounts received by the assessee. Admittedly, the revision proceedings were initiated on the reasoning that the AO has not disallowed the consultancy fee paid to Shri Deepak Kochhar and not in respect amounts received by the assessee from other concern. As stated earlier, the Ld PCIT has taken the view that, since the DDIT (Inv.) has held it to be accommodation entry, the AO should have disallowed the consultancy fees paid.
We shall now refer to the assessment order in order to examine whether the view expressed by Ld PCIT upon the assessment order is correct or not. A reading of assessment order would show that the AO has observed that there are no supporting evidences for the providing/receipt of service; Shri Deepak Kochhar has not met clients; he has not given any written reports with regard to the consultancy given. Even though the assessees have furnished the agreement entered between it and Shri Kochhar, the AO was reluctant to
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accept the same, as Shri Gaurang Gandhi had stated in the statement that there was no agreement. The AO has further stated that the consultancy fees paid was different in respect of different clients and it ranged from 24.23% to 71.09% of the fees received by the assessees herein and hence there is no scientific basis for computing the fees payable to Shri Deepak Kochhar. Accordingly, the AO has expressed the view that the payments made to Shri Deepak Kochhar were not explained. However, the AO did not specifically say that the consultancy fee payments are bogus. Hence, it appears that the AO did not make disallowance.
With regard to the transfer of funds from Deepak Kochhar to M/s Aarem Management and from Aarem Management to the assessee, the AO has taken the view that Shri Deepak Kochhar has used the accounts of the assessees herein to get the unaccounted funds converted, i.e., there is circular movement of undisclosed fund through Pioneer group of companies. The AO has further held that the funds transferred to Shri Deepak Kochhar are also proved to be not genuine. All these observations of the AO are related to his comments upon transfer of funds. Since there was circular movement of funds, he chose to estimate commission income. Hence, we are of the view that it is not clear from the assessment order that the AO has come to definite conclusion that the consultancy fees paid to Shri Deepak Kochhar was only accommodation entries, as presumed by Ld PCIT.
Now we shall examine whether impugned revision orders can be sustained? We noticed earlier that the AO has initiated reassessment proceedings and the Ld PCIT has initiated revision proceedings only on the basis of report given by DDIT (Inv.). Hence, on the basis of report given by DDIT (Inv.) only, the Ld PCIT has entertained the view that the AO has failed to make disallowance of consultancy fees paid to Shri Deepak Kochhar. Whether Ld PCIT can simply rely upon the report of DDIT (Inv.) and hold the assessment order to be erroneous is the question that requires examination. In this regard, we may gainfully refer to the decisions rendered by Hon’ble
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Bombay High Court in the case of Gabriel India Ltd (supra), wherein, inter alia, held as under:-
“From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the Income tax officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income tax officer. That would not vest the Commissioner with power to examine the accounts and determine the income himself at a higher figure. It is because the Income tax officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion…. There must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed” In the case of Nagesh Knitwears P Ltd (2012)(345 ITR 135), the Hon’ble Delhi High Court has elucidated and explained the scope of the provisions of sec. 263 of the Act and the same has been extracted by the Delhi High court in the case of CIT Vs. Goetze (India) Ltd (361 ITR 505) as under:-
“Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order is not sustainable in law and the said finding must be recorded. The Commissioner of Income tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of
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enquiry, again the Commissioner of Income tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income tax and he is able to establish and show the error or mistake made by the Assessing officer, making the order unstainable in law. In some cases possibly though rarely, the Commissioner of Income tax can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under section 263 of the Act. In such matters, to remand the matter/ssie to the Assessing Officer would imply and mean the Commissioner of Income tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question….”
Similar view has been expressed by Hon’ble Madras High Court in the case of CIT Vs. Amalgamations Ltd (238 ITR 963).
The law interpreted by the Hon’ble High Courts, in the above said cases, would make it clear that the Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous and the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law.
We noticed earlier that the Ld PCIT has taken the view that the AO should have disallowed the consultancy fee paid to Shri Deepak Kochhar, since the DDIT (Inv.) has held to be only accommodation entries. There should not be any dispute that the report given by DDIT (Inv.) is only recommendary in nature and the AO is not absolutely bound by it. During the course of assessment proceedings, the assessing officer, being a quasi judicial authority, is entitled to take his own view of the matter on the basis of facts available before him. Hence we are unable to agree with the view of Ld PCIT that the AO should have implemented the view expressed by DDIT
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(Inv.), as the same would amount to encroaching into the powers of the assessing officer, which is not legally permitted. In the case of Gabriel India Ltd (supra), Nagesh Knitwears P Ltd (supra) and Amalgamations Ltd (supra), the Hon’ble High Courts have expressed the view that the Ld PCIT should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous and the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law before holding the assessment order to be erroneous. Admittedly, in the instant cases, the Ld PCIT did not conduct any enquiry on his own and he simply relied upon the report given by DDIT (Inv.).
From the paper book filed by the assessee, we notice that the AO has conducted enquiries with regard to the consultancy fee paid to Shri Deepak Kochhar. We have discussed about the observations made by the AO in this regard. The Ld PCIT has taken support of Clause (a) of Explanation 2 to sec. 263 of the Act, which reads as under:-
“the order is passed without making inquiries or verification which should have been made.”
However, a perusal of the assessment orders would show that the AO has made complete enquiry on this issue. On the contrary, the Ld PCIT did not make any enquiry or verification in order to show that the finding reached by the AO is erroneous. While the AO has taken the view not to disallow the consultancy fees paid, the Ld PCIT has taken the view that the AO should have disallowed it. Thus, the AO has taken a possible view of the matter on the basis of his examination and merely because, the Ld PCIT has got different view, he cannot initiate revision proceedings.
With regard to the observation of the Ld PCIT on the issue of examination of loans u/s 68 of the Act, we have noticed that the Ld PCIT did not mention this issue in the notice issued by him for initiation of revision proceedings. The Ld A.R submitted that the assessees have made
17 M/s. Pioneer Investcorp Limited
submissions on the issue of consultancy fee paid and submitted that no query was asked about sec.68 of the Act. At the time of hearing, it was not shown to us that the Ld PCIT has given opportunity to the assessee on the issue of examination of loans u/s 68 of the Act. Accordingly, we are of the view that the Ld PCIT could not have discussed this new issue in the impugned revision orders.
In view of the foregoing discussions, we are of the view that the impugned revision orders passed by Ld PCIT in the hands of both the assessees herein are not sustainable in law. Accordingly we quash the impugned revision orders passed by Ld PCIT.
In the result, all the appeals filed by the assessee are allowed.
Pronounced in the open court on 30.12.2022
Sd/- Sd/- (ABY T VARKEY) (B.R. BASAKARAN) Judicial Member Accountant Member Mumbai; Dated : 30/12/2022 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy//
(Assistant Registrar) PS ITAT, Mumbai