SHRI SATISH KUMAR. S/O. SH. HANS RAJ,HOSHIARPUR vs. INCOME TAX OFFICER WARD-4, HOSHIARPUR

आदेश आदेश /O R D E R आदेश आदेश PER O. P. MEENA, ACCOUTANT MEMBER: 1. This appeal by the Assessee is directed against the order of learned Principal Commissioner of Income-Tax-1, Jalandhar (in short “the Pr.CIT”) dated 26.03.2019pertaining to Assessment Year 2014-15, passed under section 263 of Income Tax Act, 1961 (in short ‘the Act’).

Satish Kumar v. Pr.CIT- Jalandhar/I.T.A.No. 258/ASR/2019/A.Y. 14-15 Page 2 of 20

passing order under section 263 of the Act, which is illegal and

without jurisdiction and Pr.CIT has grossly erred in holding the

assessment order passed under section 143 (3) as erroneous and

prejudicial to the interest of the Revenue, even though the AO has

carried out necessary enquiries by issue of questionnaire. The

assessment order was not prejudicial as assessment order was selected

for Limited scrutiny under CASS to verify and examine large other

expenses as claimed in the Profit & Loss Account. Therefore, Pr.CIT

has grossly erred in setting-aside the order and directing the AO to

make fresh assessment after making proper enquiries, which amounts

to change of opinion and the assessment framed is neither erroneous

and prejudicial to the interest of the Revenue. 2. Succinctly, facts as culled out from the orders of lower authorities

are that the assessee is engaged in business of Real Estate, Liquor

Contractor and Toll Plaza Contractor. The assessee has filed return of

income on 19.09.2014 declaring total income of Rs.18,37,730 which was

selected under CASS for Limited scrutiny for examination of large

expenses. The same was assessed at Rs.18,63,230 vide order dated

21.11.2016 under section 143(3) of the Act. On examination of records,

Satish Kumar v. Pr.CIT- Jalandhar/I.T.A.No. 258/ASR/2019/A.Y. 14-15 Page 3 of 20

the Pr. CIT noticed that the assessee has debited in the Profit & Loss

Account toll Plaza expenses of Rs.1,48,97,057 which included expenses of

Rs. 3,62,608 of computer expenses and Rs.3,68,192 on weig bridge

expenses. As these expenses were paid to particular entity which are in

the nature of Works contract and liable to TDS under section 194C of the

Act. However, the perusal of records suggest that there is nothing on

record that TDS was deducted on these payments. The Pr.CIT further,

observed that the assessee has debited Rs.5,91,030 as court fees paid for

civil suit to recover Rs. 2,09,00,000 and Rs.17,53,638 against Kamaldeep

Singh and M/s. Gupta Traders respectively. However, the perusal of

records suggest that these are not relating to any business activity of the

assessee, hence, such expenses are apparently not allowable. Further,

the disputed assets involved in recovery of Rs.2,26,53,638 were not find

place in balance sheet hence, nature of source of funds has not been

examined by the AO. Further, perusal of details of licence fee expenses

in respect of liquor business showed that the assessee was running Ahatas

(Drinking place at least at four places) but no income from Ahatas has

been shown. Therefore, the Pr.CIT has issued a show-cause notice to the

assessee to hold as to why the order passed should not be treated as

erroneous and prejudicial to the interest of the Revenue. The assessee

Satish Kumar v. Pr.CIT- Jalandhar/I.T.A.No. 258/ASR/2019/A.Y. 14-15 Page 4 of 20

has replied that payment made for computer and weigh bridge expenses

on account of payment made in last year and appropriated to expenses

account during the year under consideration. The Toll Plaza Contract was

allotted for nine months only. Computer and weigh bridge installed on

the Toll Plaza are taken over by the new contractor and expenses are

written off proportionately and claimed in Profit & Loss Account on which

no TDS was required to be made. The amount of Rs.2,09,00,000 from

Kamaldeep Singh and Rs.17,53,638 from Gupta Traders are relates to

business of the assessee. The amount due has been debited in capital

account since liquor licence is for one year and all amount due has been

debited in capital account. As regards income from Ahatas, it was

submitted that the Ahatas were given to the independent person, who

run the Ahatas on daily payments of Rs.300 to Rs.1000 per day and

amount received is credited in sales account. Further, on legal ground, it

was submitted that the AO has made all the enquiries and test checked

the books of accounts and completed the assessment after verification.

Therefore, the assessment order is not erroneous and prejudicial to the

interest of the Revenue as held by the Hon`ble Supreme Court 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). The Ld. AR of the assessee

Satish Kumar v. Pr.CIT- Jalandhar/I.T.A.No. 258/ASR/2019/A.Y. 14-15 Page 5 of 20

has also relied in the case of CIT v. Amar Jewellers Ltd. v. DCIT [2002]259

ITR 502, CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) [2010] 189

Taxman 436 (Delhi), CIT v. Vinod Kumar Gupta [2007] 165 Taxman 225

(P&H) and others which have been reproduced by the Pr.CIT in his order

passed under section 263 of the Act. However, the Pr. CIT observed that

the objection regarding difference of opinion between the AO and Pr.CIT,

is concerned the position has been substantially altered with insertion of

Explanation-2 to section 263 by the Finance Act, 2015 and the deeming

provisions would not apply pertaining to pre amended period does not

hold good. The assessee has objected that case was selected under

Limited scrutiny under CASS, hence, this cannot be extended to other

queries. However, Pr.CIT observed that this case was selected for

verification and examination of large expenses claimed under the head of

other expenses. The Pr. CIT observed that regarding computer expense

and weigh bridge expenses the assessee has not filed satisfactory reply

for non deduction of TDS. Regarding expenses of Rs.5,91,030, the claim

of business relation and expenses debited to capital account but no

details are filed. Hence, these expenses were liable to be disallowed.

The AO was require to make enquiry for recovery suit claim of

Rs.2,26,53,638 and why these were not reflected in balance sheet.

Satish Kumar v. Pr.CIT- Jalandhar/I.T.A.No. 258/ASR/2019/A.Y. 14-15 Page 6 of 20

Regarding Ahatas income the assessee has only filed a ledger account

showing income received as Ahatas income but details of same has not

been filed. Thus, after considering reply to show-cause notice, the Pr.

CIT observed that the order passed by the AO is erroneous as well as

prejudicial to the interest of revenue because assessment order passed

without making required inquiries and verification in respect of above

issues. Therefore, the order was considered to be erroneous and

prejudicial to the interest of the revenue hence, was set-aside to the file of the AO with a direction to make fresh assessment on the above mentioned issues after giving due opportunity to the assessee. 3. Aggrieved with order of Pr.CIT, 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 the issues under

consideration; therefore, the order of the AO is not erroneous and

prejudicial to the interest of the revenue. The learned counsel for the

assessee submitted that the Pr.CIT can 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 point no. 1 of questionnaire (PB-

Satish Kumar v. Pr.CIT- Jalandhar/I.T.A.No. 258/ASR/2019/A.Y. 14-15 Page 7 of 20

16) of notice under section 142(1) dated 22.08.2016 (Paper Book Page

No.14 to 23 ) by which the details of Toll Plaza expenses of

Rs.1,48,97,057 was called for and the assessee has filed his reply vide

letter dated 29.08.2016 (PB 24 to27) vide point no. 1 giving details of Toll

Plaza Expenses. With reference to issue no. 2, being court fees expenses

of Rs.5,91,030, it was submitted to the AO has raised query vide para

No.7 of questionnaire dated 22.08.2016 of which reply was furnished by

the assessee vide paragraph No.3 (placed at PB-18). With regard to

licensing fees of Rs.2,70,39,107. The learned Counsel submitted that the

AO has raised query vide para 2 of notice under section 142(1) dated

22.08.2016 (PB-17) which was replied by the assessee vide para No. 2 of

which reply is placed the assessee Paper Book Page No. 18 and also detail

explanation was filed vide paragraph No. 2 of explanation which is placed

at the assessee`s Paper Book Page No. 25. With regard to recovery suit

expenses, the learned counsel for the assessee submitted that a copy of

ledger account was filed which is placed at Paper Book Page No. 51

showing the expenses debited in the name of Shri Kamaldeep Singh Anand

and Gupta Traders. Hence, it was contended that such expenses are

reflected in the ledger account, which have been debited to capital

account of the assessee. The copy of account is placed at Paper Book

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Page No. 53 of Kamaldeep Singh and of Gupta Traders at Paper Book Page

No.54. The details of suit recovery are given at Paper Book Page No. 55 to

verification. The learned counsel for the assessee further referred Paper

Book Page No. 65 of which copy of Ahatas account showing monthly

income from Ahatas totaling to Rs.4,73,200 for the year under

consideration. The details of same were submitted along with books of

accounts during the course of assessment proceedings. Therefore, the

assessment order passed after verification and enquiry is not erroneous

and prejudicial to the interest of the Revenue. The Pr.CIT has not

specified that which enquiries were ought to have made. The ld. Counsel

for the assessee further submitted that the Pr.CIT in his notice himself

mentioned that the assessee examination of records showed the

discrepancies, which means the details were on record and were

examined by the AO. The learned counsel for the assessee further

submitted that the assessment year involved is assessment year 2014-15

and amendment by way of Explanation 2 to section 263 was inserted with

effect from 01.06.2015, hence, same is not applicable for the assessment

year under consideration as it is not retrospective in nature. It was

submitted that erroneous order means the assessment that deviate from

Satish Kumar v. Pr.CIT- Jalandhar/I.T.A.No. 258/ASR/2019/A.Y. 14-15 Page 9 of 20

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. 4. Further, in support of his contentions, the ld. Counsel for the assessee relying on plethora of decisions, including the decisions of the Hon’ble Supreme Court in Malabar Industrial Co. Limited (243 ITR 83); CIT V. Arvind Jewellers 259 ITR 502 (Gujarat), CIT V. Vinod Kumar Gupta [2007] 165 Taxman 225 (P&H), CIT V/s. Max India Ltd. 2007] 295 ITR 282 (SC), ITO V. DG Housing Projects Limited [2012] 343 ITR 329 (Del),Ranka Jewellers v. Addl. CIT [2010] 328 ITR 148 (Bombay), CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) [2010] 189 Taxman 436 (Delhi) Narain Singla v. Pr.CIT 62 Taxmann.com 225 (Chandigarh-Trib) , Jivan Kumar v. Pr.CIT [I.T.A.No. 219 & 672/ASR/2016 and others as per his case laws Paper Book. The learned counsel for the assessee submitted that it is a settled position of law that when the assessing officer has taken a certain view on the basis of evidence before him on the information furnished by the assessee regarding issue under consideration in response to enquiries made by the assessing officer, the Pr.CIT cannot seek to revise the assessment order under Section 263 of the Act by taking a different view. 5. Au contraire, the Ld. CIT (DR) submitted this is a case where the AO has not made required enquiries. The case was selected for Limited

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scrutiny, but that does not mean that the AO was not required to make

enquiries, which are necessary. The assessee has claimed various

expenses but the AO has not examined the same properly. Therefore,

Explanation-2 to section 263 of the Act is very much applicable, as the AO

has not made required enquiry. Therefore, the order passed by the AO is

erroneous and prejudicial to the interest of the Revenue. Hence, Pr.CIT

has rightly assumed jurisdiction to set-aside the issue to the AO for fresh assessment as the AO to examine the issue under dispute. 6. We have heard the rival submissions of both the parties and perused

the material available on record. We are of the view that section 263 of

the Act enables supervisory jurisdiction to the Pr.CIT over the AO. The

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 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

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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. 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-

moto-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

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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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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. 8. No doubt, clause (a) of the Explanation 2 to section 263 deems the

order to be erroneous and prejudicial to the interest of the Revenue in case order is passed without making enquiries or verification which should

have been made in the opinion of Pr.CIT. In our opinion, for the

applicability of clause (a) of Explanation, it is necessary that the Pr. CIT must mention in the order what inquiries or verification the Pr. CIT

desires to have been carried out by the AO. The Pr. CIT in this case even

though stated that the AO failed to examine computer expenses and

weigh bridge, court fee, licensee fee and recovery dues during the course

of assessment proceedings, but did not pointed out what type of inquiry

of verification should have been carried out in this regard by the AO.

However, the order passed by the AO, in our opinion, shall be deemed to

be erroneous in so far as it prejudicial to the interest of the Revenue, if

the Pr. CIT would have specifically pointed out which of inquiries or

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verification should have been carried out by the AO in this regard and the

AO failed to carry out those inquiries and verification as desired by the

Pr.CIT. Since the Pr. CIT has not suggested the basis of inquiry or

verification to be carried out by the AO, the order passed by the AO

cannot be deemed to be erroneous in so as far as it is prejudicial to the interest of the Revenue. 9. Similar view has been in the case of CIT v. Sunbeam Auto Ltd.

[2011] 332 ITR 167 (Delhi) [2010] 189 Taxman 436 (Delhi) wherein the Hon`ble High Court held that inadequacy of enquiry will not give

jurisdiction to Commissioner under section 263. In this case the Hon`ble

High Court has held as under: (Head note) : Section 263 of the Income-

tax Act, 1961 - Revision- of order prejudicial to interest of revenue-

Assessment year 2001-02- Whether if while making assessment,

Assessing Officer has made an inadequate enquiry, that would not, by

itself, give occasion to Commissioner to pass order under section 263,

merely because he has different opinion in matter, it is only in cases

of 'lack of inquiry' that such a course of action would be open- Held,

yes - Assessee-company was engaged in business of manufacturing and

supplying auto parts - In assessment for relevant assessment year, it

had been allowed deduction of expenditure incurred on tools and dyes

Satish Kumar v. Pr.CIT- Jalandhar/I.T.A.No. 258/ASR/2019/A.Y. 14-15 Page 15 of 20

as revenue expenditure - Commissioner, however, set aside

assessment order in exercise of his powers under section 263 on

ground that Assessing Officer had allowed aforesaid expenditure

without making proper enquiry - He, accordingly, remitted matter

back to Assessing Officer to re-examine issue - Whether when facts

clearly showed that Assessing Officer had undertaken exercise of

examining as to whether expenditure incurred by assessee in

replacement of dyes and tools was to be treated as revenue expenditure or not and on being satisfied with assessee's explanation,

he accepted same, it could be said to be a case of lack of inquiry -

Held, no - Whether further, on facts and law, view taken by Assessing

Officer was one of possible views and, therefore, assessment order

passed by Assessing Officer could not be held to be prejudicial to

interest of revenue - Held, yes - Whether, therefore, Tribunal was justified in setting aside order of Commissioner - Held, yes 10. The Pr. CIT has noticed that the assessee has debited in the Profit & Loss Account toll Plaza expenses included Rs.3,62,608 of computer

expenses and Rs.3,68,192 on weigh bridge expenses which were works

contract and liable to TDS under section 194C of the Act. The assessee

debited Rs.5,91,030 as court fees paid for civil suit to recover Rs.

Satish Kumar v. Pr.CIT- Jalandhar/I.T.A.No. 258/ASR/2019/A.Y. 14-15 Page 16 of 20

2,09,00,000 and Rs.17,53,638 against Kamaldeep Singh and M/s. Gupta

Traders respectively how these are related to business activity not

examined and no income from Ahatas has been shown, but did not

pointed out as to why order is erroneous when the all detailed of balance

sheet and notes appended thereto were on record of the AO. that The

order passed by the AO, in our opinion, shall be deemed to be erroneous

in so far as it prejudicial to the interest of the Revenue, if the Pr. CIT

would have specifically pointed out which of inquiries or verification should have been carried out by the AO in this regard and the AO failed

to carry out those inquiries and verification as desired by the Pr.

Commissioner of Income-tax. Since the Pr. CIT has not suggested the

basis of inquiry or verification to be carried out by the AO, the order

passed by the AO cannot be deemed to be erroneous in so as far as it is prejudicial to the interest of the Revenue. 11. In the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167 (Delhi) [2010] 189 Taxman 436 (Delhi) it was held that if there is some enquiry by

the Assessing Officer in the original proceedings, even if inadequate, that

cannot clothe the Commissioner with jurisdiction under section 263

merely because he can form another opinion. At the most, the case of the

assessee can be regarded to be lack of inquiry in accordance with

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Commissioner of Income tax if he has different opinion how to proceed with assessment of the case.

the present case, what has to be seen is whether the AO has made

enquiries about issue under consideration. The ld. Counsel for the

assessee has drawn our attention to point no. 1 of questionnaire (PB-16)

of notice under section 142(1) dated 22.08.2016 (Paper Book Page No.14

to 23 ) by which the details of Toll Plaza expenses of Rs.1,48,97,057 were

called for and the assessee has filed his reply vide letter dated

29.08.2016 (PB 24 to 27) vide point no. 1 giving details of Toll Plaza

Expenses. With reference to issue no. 2, being court fees expenses of

Rs.5,91,030, it was submitted to the AO has raised query vide para No.7

of questionnaire dated 22.08.2016 of which reply was furnished by the

assessee vide paragraph No.3 (placed at PB-18). With regard to licensing

fees of Rs.2,70,39,107,the learned Counsel submitted that the AO has

raised query vide para 2 of notice under section 142(1) dated 22.08.2016

(PB-17) which was replied by the assessee vide para No. 2 of which reply

is placed the assessee Paper Book Page No. 18 and also detail

explanation was filed vide paragraph No. 2 of explanation is placed at the

assessee`s Paper Book Page No. 25. With regard to recovery suit

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expenses, the learned counsel for the assessee submitted that a copy of

ledger account was filed which is placed at Paper Book Page No. 51

showing the expenses debited in the name of Shri Kamaldeep Singh Anand

and Gupta Traders. Hence, it was contended that such expenses are

reflected in the ledger account, which have been debited to capital

account of the assessee. The copy of account is placed at Paper Book

Page No. 53 of Kamaldeep Singh and of Gupta Traders at Paper Book Page

No.54. The details of suit recovery are given at Paper Book Page No. 55 to

and verification. The learned counsel for the assessee further referred

Paper Book Page No. 65 of which copy of Ahatas account showing monthly

income from Ahatas totaling to Rs.4,73,200 for the year under

consideration. The details of same were submitted along with books of

accounts during the course of assessment proceedings. Therefore, the

assessment order passed after verification and enquiry is not erroneous

and prejudicial to the interest of the Revenue. The Pr.CIT has not

specified that which enquiries were ought to have made. The ld. Counsel

for the assessee further submitted that the Pr.CIT in his notice himself

mentioned that the assessee examination of records showed the

discrepancies, which means that the details were on record and were

Satish Kumar v. Pr.CIT- Jalandhar/I.T.A.No. 258/ASR/2019/A.Y. 14-15 Page 19 of 20

examined by the AO. Further, Explanation 2 to section 263 was inserted

with effect from 01.06.2015, hence, same is not applicable for the

assessment year under consideration as it is not retrospective in nature.

Therefore, the assessment order passed after verification and enquiry is

not erroneous and prejudicial to the interest of the Revenue. Merely just

because the view taken by the AO was not found acceptable does not

mean that the AO has failed to make requisite enquiries. If the answer is

affirmative then second question arises whether the acceptance of the

claim by the AO was a plausible view or on the facts of the finding on the

facts that the said finding of the AO can be termed as sustainable in law.

We find that vide questionnaire, the assessee was asked regarding Toll

Plaza expenses consisting computer and weigh bridge expenses, court fee

expenses, which were appropriated in new contractor account, the court

fee expenses and recovery suit expenses were relating to business of the

assessee licence fee, Ahatas income is duly shown as para copy of ledger

account filed. The assessee had furnished his reply, which is found placed

in the Paper Book Pages as referred above. Therefore, the AO had made

enquiries under Limited scrutiny assessment. We find that the AO has

made due enquiries and had taken a plausible view, hence, same, cannot

be disturbed by Pr.CIT in the name of further, verification and framing

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fresh assessment. Since the AO has made during enquiry and examined

the issues, hence, invocation of Explanation 2 of section 263 is not

justified no it is applicable for the assessment year under consideration

as it was inserted with effect from 01.06.2015. The Pr. CIT has not done

any enquiry and not suggested what enquiries were to be carried out. In

view of this matter, and relying on above mentioned judicial

pronouncements, 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 and setting aside assessment for

making denovo and accordingly, we quash the impugned order passed

under section 263 of the Act and allow the appeal of the assessee.

Sd/- Sd/- (N.K.CHOUDHRY) (O.P.MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER Amritsar: Dated: December 19, 2019/opm Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/ Guard file of ITAT. By order

Assistant Registrar, ITAT