M/S METRO DEVELOPMENT ,MUMBAI vs. PCIT -27, MUMBAI, MUMBAI

The only issue to be decided in this appeal is as to whether the ld. PCIT was justified in invoking revision jurisdiction u/s.263 of the Act in the facts and circumstances of the instant case on the ground that no enquiries had been carried out by the ld. AO while framing the assessment.

We have heard rival submissions and perused the materials available on record. The assessee is a partnership firm engaged in the business of construction and deriving income from business. The return of income for the A.Y.2017-18 was filed by the assessee firm on 31/10/2017 declaring total income of Rs.1,89,50,750/-. The case was selected under ‘Limited Scrutiny’ and accordingly, notice u/s.143(2) of the Act for the purpose of verification of (i) unsecured loans (ii) squared up loans and (iii) investment in immovable property. The aforesaid items were subjected to verification under ‘Limited Scrutiny’ and accordingly, the ld. AO sought information vide notice u/s.142(1) dated 06/09/2019 regarding the aforesaid items directing the assessee to furnish the details in the prescribed format. The ld. AO issued yet another notice u/s.142(1) of the Act on 28/11/2019 making a specific query to the assessee stating that from the details furnished by the assessee in response to the earlier questionnaire, there were certain loans taken from persons who had not filed their returns of income. Accordingly, the assessee was directed to furnish the list of persons together with their name, PAN, complete postal address, e-mail ID and details of deduction of tax at source on interest payment made to them. The assessee in response thereto, again furnished the requisite details to the ld.AO in the course of assessment. The replies were filed by the assessee vide letter dated 19/09/2019, 13/11/2019 an 30/11/2019. The assessee had duly furnished the entire details of borrowings made by it in a tabular form containing the name, address, PAN, loan taken during the year, loan squared up during the year, interest component thereon and TDS details thereon, in the above mentioned submissions. The assessee had also furnished a confirmation from the lenders, PAN copy of the lenders, bank statement of the lenders, ITR acknowledgement copy of the lenders, among others, in most of the cases. The ld. AO selected 7 parties from the said list and proceeded to issue notice u/s.133(6) of the Act in the assessment proceedings, out of which, some representing parties from whom loans were taken during the year. All the parties duly responded to the notice u/s.133(6) of the Act by furnishing the requisite documents, inter alia, copy of their return of income, loan confirmation and bank statements before the ld. AO directly. The ld. AO was accordingly, satisfied with the said reply and proceeded not to make any addition in respect of unsecured loans in the assessment.

This assessment was sought to be revised by the ld. PCIT by invoking his revision jurisdiction u/s.263 of the Act on the ground that the ld. AO had not made adequate enquiries with regard to receipt of unsecured loans. The ld. PCIT also observed that out of 79 parties from whom loans were received, the ld. AO had only resorted to make sample verification of 7 parties u/s.133(6) of the Act. In this regard, the assessee submitted that in respect of 72 parties, the assessee had duly proved the creditworthiness of the lenders, identity of lenders and genuineness of transactions before the ld. AO by furnishing the copy of PAN, bank statements and ledger confirmations thereon. The said documents were again re-submitted before the ld. PCIT by the assessee. With regard to 7 parties to whom notices were issued u/s.133(6) of the Act by the ld. AO, the assessee submitted that those parties have directly responded before the ld. AO by furnishing the requisite details u/s.133(6) of the Act by furnishing the requisite documents called for by the ld. AO. Accordingly, the assessee objected before the ld. PCIT that this is not a case where the assessment was completed without making adequate enquiries on the issue subjected to be enquired.

In this regard, we have gone through the show-cause notice issued by the ld. PCIT on 02/03/2022. In the said notice, the ld. PCIT had only sought for unsecured loans which, in his opinion, had not been examined by the ld. AO while completing the assessment. The assessee made its detailed submissions in response to the said show-cause notice before the ld. PCIT. But we find from the order of the ld. PCIT u/s.263 of the Act, the ld. PCIT had sought to direct the ld. AO to examine various other issues which were not even subject matter of either show-cause notice or any opportunity being given to the assessee of being heard to make its submissions thereon, in respect of issues contained in paragraphs 4.3 to 4.6 of his order. Hence, in view of the decision of the Hon’ble Supreme Court in the case of CIT vs. Amitabh Bachchan reported in 240 Taxman 221 wherein it has been categorically held even if a particular issue is not mentioned in the show-cause notice by the ld. PCIT, the assessee should atleast be given reasonable opportunity of being heard to address the issues on which the ld. PCIT is seeking to revise the order. In the instant case, admittedly opportunity of hearing was given to the assessee only in respect of unsecured loans received by the assessee. Hence, even the interest payment on such unsecured loan which were sought to be revised by the ld. PCIT on the ground that verification was not carried out by the ld. AO is incorrect as the same is not subject matter of opportunity given to the assessee even though it is consequential offshoot of the main issue of receipt of unsecured loans. Hence, by placing reliance on the aforesaid decision of the Hon’ble Supreme Court, we have no hesitation to hold that the ld. PCIT grossly erred in invoking revision jurisdiction in respect of interest on unsecured loans and various items listed on paragraphs 4.3 to 4.6 of his order. Moreover, we find from the perusal of the assessment order that the return was selected only for Limited Scrutiny. The ld. AO had carried out those items which were mandated to be verified by him in the Limited Scrutiny. The items mentioned in paragraphs 4.3 to 4.6 of the order of the ld. PCIT does not fall in the ambit of verification under Limited Scrutiny. Hence, no error could be attributed in the order of the ld. AO to this extent. Accordingly, the revision jurisdiction u/s.263 of the Act cannot be invoked by the ld. PCIT on these issues. The revision order passed u/s.263 of the Act on these issues are hereby dismissed and quashed.

With regard to receipt of unsecured loans by the assessee, the ld. PCIT had stated that the ld. AO had not made adequate enquiries while framing the assessment. But from the perusal of the various documents enclosed in the paper book of the assessee, we find that the ld. AO had issued notices u/s.142(1) of the Act on 06/09/2019, 28/11/2019 asking for complete details of unsecured loans received by the assessee in tabular form. We find that these details were furnished by the assessee vide letter dated 19/09/2019,13/11/2019 and 30/11/2019 and copy of these replies were filed in the prescribed tabular form which are enclosed in pages 54-85 of the paper book filed before us. Further from the details submitted by the assessee in the tabular form, the ld. AO had sought to select 7 parties out of the said list and made further examination by issuing notice u/s.133(6) of the Act to those seven parties. All the seven parties duly responded directly before the ld. AO in response to notice u/s.133(6) of the Act by filing all the requisite details called for thereon. We find that the ld. AR had also placed on record the complete copy of the order sheet notings which are enclosed herewith in pages 139-146 of the paper book. In the said order sheet notings, the response filed by the assessee on various dates stated supra were duly noted and acknowledged by the ld. AO. Even the notices issued u/s.133(6) of the Act to various parties, replies received from them were also acknowledged by the ld.AO in the said order sheet noting. Further the ld. AO had also noted in the said order sheets that the notices were issued u/s.133(6) of the Act to certain parties on sample basis and the reply furnished thereon by them were checked and examined by him. All these facts clearly go to prove that adequate and requisite enquiries were indeed carried out by the ld. AO while making the assessment. Even though the case is selected for limited scrutiny to examine the unsecured loans received by the assessee, it is not expected of the ld. AO to carry out 100% verification of receipt of unsecured loans by the assessee especially when the number of parties are huge. In the instant case, as stated earlier, the assessee had furnished the entire details called for by the ld. AO in the requisite tabular form. The ld. AO on perusal of the overall details furnished by the assessee in the tabular form and on the basis of independent verification carried out by him from seven parties u/s.133(6)of the Act on test check basis, was completely satisfied with the replies given thereon. Hence, it could be safely concluded that the ld.AO had indeed taken a possible view in the matter after carrying out the requisite enquiries. The law is very well settled that once the ld. AO takes a possible view on the matter, the same cannot be subjected to revision proceedings u/s.263 of the Act by the ld. PCIT. Reliance in this regard is placed on the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd reported in 243 ITR 83 ; decision of the Hon’ble Jurisdictional High Court in the case of Nirav Modi reported in 390 ITR 292; and the decision of the Hon’ble Jurisdictional High Court in the case Garbriel India Ltd., reported in 203 ITR 108. In our considered opinion, the ld. PCIT is only trying to disturb the possible view taken by the ld. AO by merely making a bald allegation that no enquiries were carried out by the ld. AO. All the aforesaid facts clearly go to establish that adequate enquiries were indeed carried out by the ld. AO.

Moreover, we find that in the show-cause notice dated 02/03/2022 issued by the ld. PCIT, there was no whisper of the ld. PCIT trying to invoke provisions of Explanation 2 to Section 263 of the Act which came into effect from 01/06/2015 onwards. However, the same is used by him only in the revision order passed u/s.263 of the Act. This goes to prove that the assessee was never given an opportunity to address the applicability of provisions of Explanation 2 to Section 263 of the Act during the course of revision proceedings before the ld. PCIT. Hence, in our considered opinion, applying the Explanation 2 to Section 263 of the Act would be bad in law in the facts and circumstances of the instant case. Reliance in this regard is placed on the decision of the Hon’ble Gujarat High Court in the case of PCIT vs. Shreeji Prints (P) Ltd., reported in 130 taxmann.com 293 (Guj) wherein it was held as under:-

“5 The Tribunal has found that in the order passed by the PCIT, Explanation 2 of section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law.”

Moreover, the law is very well settled that revision jurisdiction u/s.263 of the Act could be initiated by the ld. PCIT only for ‘lack of enquiry’ and not for ‘inadequate enquiry’. Reliance in this regard is placed on the decision of Hon’ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd reported in 332 ITR 167. In the instant case, the ld. PCIT is only trying to conclude that the ld. AO had made inadequate enquiries. The law is further settled by the recent decision of the Hon’ble Gujarat High court in the case of PCIT vs. Shree Gayatri Associates reported in 106 taxmann.com 30 (Guj) wherein it was held as under:-

In view of the aforesaid observations and respectfully following the various judicial precedents relied upon hereinabove, we hold that the ld. PCIT erred in invoking revision jurisdiction u/s.263 of the Act in the instant case and the same is hereby quashed. Accordingly, the grounds raised by the assessee are allowed.

In the result, appeal of the assessee is allowed.