M/S PANCHNATH ENTERPRISE,,RAJKOT-GUJARAT vs. THE PR. COMMR. OF INCOME TAX-1,, RAJKOT-GUJARAT

PER S. S. GODARA, JUDICIAL MEMBER

These three assessee’s appeals for assessment years 2006-07 to 2008-09 arise against the Pr.CIT-I, Rajkot’s separate orders; all dated 29.02.2016, revising as many corresponding re-assessments framed on 26.02.2014 thereby directing the Assessing Officer to finalise the same afresh, in exercising revision jurisdiction u/s.263 of the Income Tax Act, 1961; in short “the Act”. Heard both the parties. Case files perused.

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“3. During the assessment proceedings, the AO, vide notice u/s.142(1) of the Act dated 08/08/2013 had called for explanation for cash deposited in Bank

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accounts alongwith necessary evidences and cash book & Bank Book. From the records it is seen that your firm made a submission dated 23/08/2013 stating that- "Firm is engaged in the business of cheque/DD issuing & discounting business" and earned commission income from the said business activities. We received the fund from the customers and deposit the same in bank accounts and out of which we issue cheques/DD in their favour. Regarding sources of cash deposit cash book for the year under consideration will be produce in due course".

“8.3 In para 7.0 of the submission the assessee has reproduced the notice n/s. 142(1) dated 08.08.2013 issued by the AO during the reassessment proceedings. It is stated that in compliance to the same reply dated 08.08.2013 was filed by the assessee and a copy of the reply is also enclosed with this submission. This contention of the assessee is not ratable as nowhere it was pointed that notice u/s. 142(1) was not issued by the AO. In fact, in the show cause notice u/s. 263 of the Act dated 07.10.2015, there is a mention of the notice u/s. 142(1) dated 08.08.2013 also of the assessee's reply dated 23.08.2013. The issue show caused in notice u/s.263 of the Act dated 07.10.2015 was with regard to the prudency behind the assessee charging nominal commission and getting DD issued on behalf of its customers as the prevailing commission charges of the banks was much more than what the assessee was apparently charging.

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8.4 In para 8.0 of the submission the assessee has submitted point wise explanation to the issues show caused in the show cause notice u/s. 263 of the Act dated 07.10.2015. This part of the assessee's submission is reproduced hereunder:

Sr. No. Hon’ble CIT’s observation. Explanation (I) Books of accounts including cash book i) Consequent to the proceedings were neither produced/nor verified by AO that took place on 02.09.2013, the before considering the cash deposits as AO further issued a notice u/s explained. 142(1) on 13.01.2014 calling the details of Bank accounts No.624805009255 & 80605004905 fixing hearing on 20.01.2014.

ii) The AR attended on 20.01.2014 and furnished the reply and

iii) The AR vide para 1 of letter dated 25.02.2014 has explained the deposits made in the bank account specifically on following manner: As regard the business activities, it is submitted that ours is a Partnership Firm (hereinafter referred as "Firm") situated at Rajkot engaged in business as commission agent in Cheque/DD issuing & discounting business and earned commission income from the said business activities. Firm received the fund from the customers and deposit the same in bank accounts and out of which it issues cheques/DD in their favour. Firm only earned commission income against cheques/DD discounting/issuing. Thus, the Firm is working as a commission agent. iv) The above clarification related to the deposits made in the bank account is confirmed by the AO at para 3 of the assessment order stating that ; On 25.02.2014, Advocate Shri Ajay Anandpara from M/s Ranpura Desai & Co, has attended the hearing and filed the required details which is verified and kept on record". v) This clearly shows that the AO has verified the cash book along with other records and found nothing adverse in respect of deposits made in the bank account as explained at para 1 of letter dated 25.02.2014.

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vi) Thus, there is not even a procedural lapse on the part of AO to attract any action u/s 263 of the Act on the issue.

vii) However, in order to avoid long drawn litigation, the assessee will produces all the books of accounts including the cash book and allied records for verification on the date given by your honour.

(II) The assessee has disowned bank account i) In the course of assessment No. 80605004905 with ICICI Bank. The proceedings the issue was raised by AO did not make any effort to find out the AO and the same was explained correct account number from the authority at para 3 of reply dated 25.02.2014. concerned who gave such account number In order to verify the correctness of to AO. Thus, without necessary assessee's contention, the AO verification and investigation, acceptance carried out the inquiries with the of cash deposits in the bank account as bank and found that no such explained makes the assessment order account bearing No. 80605004905 erroneous and prejudicial to the interest of is held by the assessee with ICICI revenue. Bank.

ii) As regards your honour's observation that the AO did not make any effort to find out correct account number from the authority concerned who gave such account number to AO and on such observation to treat the assessment as erroneous and prejudicial to the interest of revenue is rather misplaced. If such proposition is allowed to be put in to action, then there would be no finality to any proceedings under the Act.

iii) It may not be out of place to mention here that on presumption, no order can be held to be erroneous or prejudicial to the interest of revenue. Thus, the AO had carried out necessary inquiry on the issue and nothing was left behind. The deposit of cash and issue of cheque/DD is explained at (a) above. As stated above, the Investigation Wing also did not find any objectionable material. To put the matter straight this can be get ascertained from the Wing to lay the issue at rest.

(III) As against the commission receipts of Rs. i) This is the matter of factual event 2,16,320/- bank charges expenses were Rs. that took place in the course of 3,89,430/- which is abnormally high as business. The assessee vide para 2 compared to commission receipts. of letter dated 25.02.2014 explained [In fact the assessee has received chq/DD the rate of charging for commission issue commission of Rs. 2,16,320/-and and discounting.

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other commission on discounting at Rs. ii) The assessee is a partnership 1891227-totaling to Rs. 4,05,442/-]. firm and runs the business on small scale with minimum requirement of place, employees and the capital. Considering the limited overhead expenses as compared to the nationalized and scheduled bank, and the competition in the business, the charged were kept at lower rate at par with the other such business entities. As regards the expense on bank charges, the same are in actual and duly supported.

(IV) The assessee charges discounting charges i) The facts have duly been verified @ Rs. 0.50 per 1000 rupees and for as explained at para 1 of letter issuance of cheque/DD at Rs. 0.30 to Re. 1 dated 25.02.2014 wherein the per Rs. 1000/-where as the ICICI bank procedure of receipt of funds from charges Rs. 3/- for issuance. This is quite the customers, its deposit in bank strange. The AO did not call for the details account and issuance of cheque/DD of the receipts of the assessee and was explained. expenses on account of bank charges and did not verify the genuineness of receipts ii) As stated supra, the assessee has and expenses. to incur very limited expenses for running of business; hence as compared to the Bank they are able to keep the charges at lower rate as in this line all the business entities are charging more or less at the same rates. There is nothing strange in this regard as alleged and that cannot be a reason to attract the provisions of section 263 of the Act. The AO has verified all the expanses as stated in the body of the assessment order.

8.5 The assessee has contended in explanation to ground no. (I) that books of accounts were produced on 20.01.2014. However, as per the records, is no written submission whereby the books of accounts were produced. Further, it is stated that the firm was engaged in the business of commission agent from cheque/DDD issuing and discounting. It is further suited that this clarification was confirmed by the AO in the assessment by mentioning that the assessee's representative attended the hearing filed the required details which is kept on record. The assessee's contention herein is not tenable as no where it is mentioned that the details for were not filed by the assessee. The revision of the order is because the source of the cash was not properly verified. As can from the record no inquiry has been made from the persons who as per the assessee's claim had given the cash. The AO ought to have made inquiry by ensuring that the identity of the persons was identified, confirmation was obtained and any further inquiry depending on the nature of entry which, has not been done.

8.6 With regard to the issue show caused in respect of the ICICI bank Account No. 80605004905, the assessee has contended that the AO had carried out

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inquiries with the bank and found that no such account bearing No. 80605004905 is held by the assessee with ICICI Bank.

The AO had called for information from the ICICI Bank Ltd., Jaihind Press Branch, Rajkot vide letter u/s. 133(6) of the Act dated 13.01.2014. In compliance to the same, ICICI Bank Limited's branch/office situated at 433, Nalanda Society, Kalawad Road, Rajkot-360005, vide letter dated 12.02.2014, has replied that "based on information furnished by your office, we are unable to trace the details desired by your office for account no 10605004905. In view of the same kindly furnish us with more details such as correct account no. etc. to enable us to verify our records and revert to your office". The bank's reply is not clear with regard to whether no such account existed with that particular branch or with any of the country wide tranches of ICICI Bank Limited. However, the AO has not pursued the matter.

Considering that information was received in this case from the ), Ahmedabad and also considering that as per the information huge amount of cash aggregating to Rs.5,01,39,964/- has been deposited the period of 08.08.2005 to 19.01.2008, the AO ought to have pursued with the Bank's Regional or Head office to categorically state that /account existed. It is however seen that the AO has satisfied himself reply dated 13.01.2014 submitted by the ICICI Bank, Kalawad Road Rajkot. Also the AO has not confirmed from office of the DDIT(Inv)-II(1), Ahmedabad for providing more details in respect to the branch or correctness of the account number.

8.7 In the explanation submitted in respect of Ground No. (III) & (IV) of the show cause letter, the assessee has not been able to justify the prudency behind charging nominal commission for rendering cheque/DD issuing services to the persons and itself paying more commission to the bank. It was specifically pointed out in the notice u/s. 263 of the Act dated 07.10.2015 that the prevailing bank charges for Demand Draft was much •ore than what the assessee charged. In this regard in its submission the assessee has given reference of para 2 of its letter dated 25.02.2014 submitted during the assessment proceedings. As regards the assessee's letter dated 25.02.2014, a perusal of para no. 2.0 states "As regards details of commission charge, it is submitted that Firm charges commission of 0.50 paise per Rs. 1,000/- on cheques/DD discounting and 0.30 paise to 1.00 per Rs.1000 on cheques/DD issuing". Neither in the submissions made during the reassessment proceedings nor in reply to the show cause notice u/s. 263 of the Act has the assessee been able to justify the prudency behind charging less than commission than it itself had to pay to the bank. The assessee ought to have Explained the prudency behind such activity but has failed to do so.

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the period of 10.02.2005 to 31.03.2008 and deposited in the bank accounts as discussed above which includes cash received and deposited in bank during the financial year 2005-06 relevant to the A.Y. 2006-07. In this regard cash book needs to be verified and each entry needs to be pursued so that at least genuineness of the transaction is verified.

“Explanation 2 For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, - (a) The order is passed without making inquiries or verification which should have been made; (b) The order is passed allowing any relief without inquiring into the claim; …….” The proceedings u/s. 263 of the Act is covered by the Explanation inserted by the Finance Act, 2015. In my opinion the order u/s. 143(3) r.w.s. 147 of the Act in this case was passed without making proper inquiries or verification with regard to issues discussed in this order.

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“10. Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression „prejudicial to the interest of the Revenue‟ is of wide import and is not confined to merely loss of tax. The term „erroneous‟ means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law.

"The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He

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cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct."

"These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return."

"We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income- tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue

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expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between " lack of inquiry" and " inadequate inquiry" . If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113): " . . . From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is „erroneous in so far as it is prejudicial to the interests of the Revenue‟. It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the 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 starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well- accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See

Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10) . . . 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 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 the 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 re-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 formed 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

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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 . . .

We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be „ erroneous‟ simply because in his order he did not make an elaborate discussion in that regard."

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when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous. 18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase „prejudicial to the interest of 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 interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue. 19. In the present case, the findings recorded by the Tribunal are correct as the CIT has not gone into and has not given any reason for observing that the order passed by the Assessing Officer was erroneous. The finding recorded by the CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondents computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of the Assessing Officer on merits or the decision taken by the Assessing Officer on merits and then hold and form an opinion on merits that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. In the second set of cases, CIT cannot direct the Assessing Officer to conduct further enquiry to verify and find out whether the order passed is erroneous or not.”

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Pr.CIT inter alia observes in his order that the assessee incurred bank charges expenses of Rs.3,89,430/- as against cheque deposit/demand draft issue receipts of Rs.2,63,320/- only. Coupled with this, he directs the Assessing Officer to carry out necessary inquiry/verification qua assessee’s ICICI bank account as well. All this makes learned Pr.CIT to conclude that the re-assessment in question completed on 26.02.2014 is both erroneous as well as prejudicial to the interest of the Revenue since suffering from lack of proper inquiry r.w.s. 263 explanation (2) applicable w.e.f. 01.06.2015. Learned Departmental Representative vehemently contends during the course of hearing that the Assessing Officer’s re-assessment hereinabove suffers from error and it also causes prejudice to the Revenue’s interest making it a fit case for invoking Section 263 jurisdiction. We see no merit either of the above arguments as well as learned Pr.CIT’s multifolded reasoning. The first question before us is as to whether the Assessing Officer had actually examined source of assessee’s cash deposits or not whilst framing the above re-assessment. We observe first of all that this issue of source of cash deposit is no more res integra in view of the fact that Revenue’s another arm i.e. “DGCEI’ (supra) has already conducted a thorough investigation in coming to conclusion that the assessee firm engaged in shroff business had deposited cash sums forming undisclosed and unaccounted production / sale of frit manufacturers in Gujarat. The said authority forwarded the necessary report/documents to the DDIT as well for initiation of appropriate proceedings under the income tax law. The said “DDIT” therefore directed the Assessing Officer to reopen the assessments in assessee’s case on 04.03.2013 alongwith Annexure A (assessee’s name indicating the relevant accounting period, bank account details, amount of cash deposits, PAN numbers and jurisdiction mentioned therein) as follows:

“No. DDlT/lnv/Ahd/REIC/12-13 Date:04.03.13 CONFIDENTIAL-URGENT-TIME BARRING To, The Income Tax Officer, Ward-5(2) Income Tax Office, Aayakar Bhavan, Race Course Road, Rajkot,

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Sub: Cases discussed in REIC Meeting held on 26/08/10- Search operations conducted by DGCEI against Tiles Manufacturers. *********** Please refer to the above 2. The Office of DGCEI, Zonal Unit, Ahmedabad had investigated under- valuation and clandestine manufacture/clearance of Ceramic Glaze Mixture (Frit) by Manufactures of Frit in Gujarat. During the course of investigation, the DGCEI came across certain bank accounts operated by Shroffs in which huge cash was deposited. The details of such bank accounts held in ICICI Bank is enclosed as Annexure-A along with this letter. Since the jurisdiction in these cases lies with your office, you are requested to re-open the case u/s 148 of the IT Act for examining the source of cash deposited in the said accounts and other necessary action at your end. In case the jurisdiction does not lie with your office, you are requested to forward this letter to concerned Assessing Officer for reopening the case U/s 148 of the I.T. Act as the matter is getting barred by limitation on 31/03/13. Yours Faithfully End: As above (HIMANSHU SHARMA) Deputy Director of Income-tax (Inv) Unit-ll(l), Ahmedabad Copy to: The Addl. D1T (Inv), Unit-11, Ahmedabad for kind information. The Addl. CIT , Range-5, Rajkot. Deputy Director of Income-tax (Inv) Unit-II(1), Ahmedabad”

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and issued cheques/demand drafts to the concerned parties. All of its relevant books/capital accounts, bank statement formed part of record during re-assessments. It had duly responded to Assessing Officer’s notices u/s.131/133C in giving all details of the concerned parties. One of such notice dated 20.01.2015 indicates that the Assessing Officer had asked the assessee to furnish all relevant particulars of the parties named therein. We make it clear that this is not an isolated case. Records reveal many such notices and reply(ies) at assessee’s behest followed by similar reopening initiated against the concerned parties. We observe in these facts that the Assessing Officer had very well examined and accepted assessee’s case that it had deposited cash sum in shroff business in lieu of charging minimal commission(supra) for the purpose of issuing cheque/demand draft to the very parties against whom the ITO, Ward-1(1)(4) set into motion similar Section 148 proceedings. We thus are of the opinion that the Assessing Officer had found the assessee to be in shroff business in tune with the above two investigation wings’ inquiries in order to frame the consequential re-assessment(s) accordingly. We thus conclude that the said re-assessment framed on the basis of investigation wing’s observations and after application of mind, is neither erroneous nor prejudicial to the interest of the Revenue so far as the instant first question of non-examination of the source of cash deposits is concerned. We further make it clear that the Assessing Officer had initiated Section 148 proceedings only for limited purpose of assessment of assessee’s taxable income escaping from being assessed than a regular scrutiny statement involving very wide scope. We thus accept assessee’s arguments qua learned Pr.CIT’s main reason that the Assessing Officer had not examined source of assessee’s cash deposits after due verification. This reason is accordingly held to be not sustainable in given facts and circumstances of the case.

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maintained with them. The assessee’s case throughout is also that it had not opened the said account. There is no other evidence on record that the assessee had maintained the said bank account. It thus emerges that there is no material available with the department so as to take us a conclusion that the said account in fact belongs to the assessee. We thus are of the view that the Assessing Officer had rightly not added the corresponding cash deposits in assessee’s hands in absence of any concrete evidence. We therefore observe that there is neither any error nor consequential prejudice caused to the Revenue’s interest in these facts and circumstances so far as the above bank account is concerned.

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“19. The law interpreted by the High Courts makes 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, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon'ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon'ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 that there must be a point of finality in all legal proceedings and the stale issues should not be reactivated beyond a particular stage and the lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-a-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that

ITA Nos. 139 to 141/Rjt/16 [M/s. Panchnath Enterprise vs. Pr.CIT ] A.Y. 2060-07 to 2008-09 - 19 -

the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.”

We thus conclude that the impugned re-assessment sought to be revised in given facts and circumstances of the instance case is neither erroneous nor does it cause any prejudice to the interest of the Revenue. Learned Pr.CIT’s order under challenge directing the Assessing Officer to frame afresh assessment therefore is accordingly held to be not sustainable. The same stands reversed. We accordingly reverse the same to restore the re-assessment in question dated 26.02.2014.

[Pronounced in the open Court on this the 27th day of February, 2018.]

Sd/- Sd/- (PRADIP KUMAR KEDIA) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 27/02/2018