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Income Tax Appellate Tribunal, PUNE BENCHES “A”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
This appeal filed at the instance of assessee pertaining to the Assessment Year 2019-20 is directed against the order dated 12.03.2024 passed by PCIT(Central), Pune u/s.263 of the Income-tax Act, 1961 (in short ‘the Act’).
2. The solitary ground raised by the assessee reads as under :
“On the facts and circumstances prevailing in the case and as per provisions and scheme of the Act it be held that the order passed by the Principal Commissioner of Income Tax by invoking the provision of section 263 of the Act is without jurisdiction and hence is improper, unwarranted, unjustified and contrary to the provisions of law and facts prevailing in the case. The order passed u/s.263 be set-aside. The Appellant be granted just and proper relief in this respect.
Brief facts of the case are that the assessee is a Limited Liability partnership engaged in Real Estate business. Search u/s.132 of the Act conducted on 10.01.2019 in the case of assessee. The assessee e-filed return of income on 30.09.2020 declaring income of Rs.28,60,630/-. The case selected for scrutiny followed by validly serving of notices u/s.143(2) and 142(1) of the Act. Various details were called for regarding the documents found during the course of search as well as statement given. Information was also called about the on- money received on the immovable properties held as stock in trade sold during the year. Based on these observations, ld. AO made addition amounting to Rs.3,36,95,925/- and after duly taking approval from Addl.CIT u/s.153D of the Act assessed the income at Rs.3,65,56,555/- Subsequently, ld. PCIT having jurisdiction u/s.263 of the Act called for the assessment records of the assessee for A.Y. 2019-20 and after perusal of the assessment records noticed that there are huge unsecured loans standing in the books. However, ld. AO has not called for the necessary details to verify the Identity and Creditworthiness of the unsecured loans and genuineness of the transaction. Ld.PCIT issued following show cause notice :
“02. In the above mentioned case, on verification of case records for A.Y. 2019-20 it has been observed that the assessee company had filed return of income for AY 2019-20 on 30.09.2020 declaring total income at Rs.28,60,630/-. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as 'the Act') on 20.04.2021 by assessing the income at Rs.3,65,56,555/-.
3. On perusal of the assessment records it is seen that it is seen that total unsecured loans outstanding in the books of the assessee as on 31/03/2019 were at Rs.52, 19,93,434/-. Out of the same, an amount of Rs.11,97,71,081/- is shown as unsecured Loans from related parties and an amount of Rs.40,22,22,353/- is shown as unsecured loans from other parties. Further, it is seen that during the course of assessment proceedings only the details of the unsecured loans taken have been called for & placed on record.
However, the confirmation along with the details supporting their creditworthiness, identity and genuineness were not obtained for further verification.
3.1 Further, on perusal of the assessment records, it is seen the assessee had submitted confirmations of 70 cases and stated that the unsecured loan parties were not providing the other relevant documents as called for. Since, the assessee had only submitted confirmation in 70 cases and not submitted the copies of returns of income of the unsecured loan parties &bank account statements of the unsecured loan parties reflecting transfer of the amounts received in any of the cases. The assessee had failed to establish the genuineness of the unsecured loan transactions and creditworthiness of these parties. The AO should have verified this issue and tax the unexplained credits of unsecured loan transactions of Rs.11,59,98,119/- as per the provisions of section 68 of the Act. However, the same was not done and the AO failed to do the same during the course of assessment proceedings.
4. In view of the above, it is found that no verification on the aforesaid issue has been done in the assessment proceedings by the AO. As per explanation (2) to section 263(1) of the Act an order without making inquiries or verification which should have been made is deemed to be erroneous in so far as it is prejudicial to the interest of revenue.
Considering the above facts of the case it is seen that the AO has not examined and verified the above issues and therefore income has been under assessed. Therefore, assessment order u/s 143(3) of the Act dated 20.04.2021 passed by the AO for A.Y. 2019- 20 appears to be erroneous in so far as it is prejudicial to the interest of revenue.
In view of the facts and circumstances mentioned above, the assessment order passed u/s 143(3) of the Act in the case of M/s Meenamani Ganga Builders LLP for A.Y. 2019-20 prima facie appears to be erroneous in so far as it is prejudicial to the interest of revenue in terms of the provisions of Explanation-(2)(a) to Section 263(1) of the Income Tax Act. I, therefore, intend to set aside/ modify the assessment order within the meaning of section 263 of the I.T. Act, 1961. An opportunity of being heard is therefore, given to you. You are requested to attend in person or through your authorized representative on 20.02.2024 at 01:00 PM in my office.”
The assessee in its reply submitted that details of unsecured loans were called for by the AO which were duly supplied. Majority of the unsecured loans are the opening balances of various parties brought forward from last year and also in some cases new loans have been received during the year from old and new parties. It was also stated that some of the unsecured loans are from the related parties which have already been subjected to search action and the very same AO has concluded the proceedings. It was also stated that for the preceding assessment years which were part of the search period, assessment proceedings have been carried out and therefore the opening balances of unsecured loans as on 01.04.2018 already stands examined. It was also stated that some part of the unsecured loan amounts is for the outstanding interest which has been paid subsequently. It was also pleaded that since the AO has called for the records and examined the same and therefore, no revisionary proceedings should have been carried out.
5. However, ld.PCIT was not satisfied with the submissions and gave reference to Explanation 2 of section 263(1) of the Act which provides that the AO needs to make enquiries or verification which should have been made before allowing any relief. Ld. PCIT also referred to various decisions holding that where assessment has been completed without proper enquiries, CIT/PCIT is competent to invoke revisional jurisdiction and direct the AO for fresh assessment. The observation of ld.PCIT in para 5 of the impugned order is reproduced below :
5. I have carefully considered the issues raised in the show cause notice issued u/s 263 of the Act and also the submission made by the assessee firm on the issue involved. The assessee firm made point wise submission on the issues noted in the show-cause notice and in support of the same; the assessee firm also relied on various case laws which have also been perused. It is seen from the records that total unsecured loans outstanding as on 31.03.2019 in the books of account of the assessee were at Rs.52,19,93,434/- (Rs.11,97,71,081/- is shown as unsecured Loans from related parties & Rs.40,22,22,353/- is shown as unsecured loans from other parties). During the course of assessment proceedings, only vide notice u/s 142(1), details of the unsecured loans taken have been called for & placed on record by the Assessing Officer. However, the assessee had not submitted the complete details as called for. Thus the contention of the assessee that it had submitted the documents as required by the AO is found not acceptable. The AO failed to make further inquiries to obtain confirmation along with details supporting their creditworthiness, identity and genuineness. Further, in response to the notice u/s 133(6) of Act dated 07.10.2022, the assessee had only submitted confirmation from 70 parties and did not submit corroborating evidence. Also, no verification/ examination on the aforesaid issue has been done during the assessment proceedings by the AO. The AO should have verified/enquired/examined this issue.
6. Ld.PCIT accordingly held that the assessment dated 20.04.2021 is erroneous and prejudicial so far as prejudicial to the interest of Revenue as the AO has passed the assessment without making necessary examination/ verification/enquiries on the issues related to the genuineness of unsecured loans.
Now aggrieved assessee is in appeal before this Tribunal.
Ld. Counsel for the assessee at the outset submitted that the assessment order in question has been framed after taking valid approval u/s.153D of the Act and the revisionary power invoked by the ld. PCIT deserves to be held as invalid as the approval granted u/s.153D has not been revoked. He placed reliance on the decision of Coordinate Bench in the case of Nalanda Engicon Pvt. Ltd. Vs. DCIT in to 329/Pat/2024, dated 12.09.2024. On merits, he referred to the following written submissions placed on record :
“3. On merits as well, revision proceedings cannot be initiated on the ground that inadequate Inquiry was carried out by the Ld. AO: 3.1. In the year under consideration (i.e. AY 2019-20), the closing balance of loans as appearing in the books of the Appellant comprised of loans outstanding with regards to 203 parties, the details of which were provided by the Appellant vide his submission made during the assessment proceedings.
2.3.2. Further, the assessment proceeding of the years preceding to AY 2019-20 (i.e. AY 2016-17 to AY 2018-19) were carried out by the Ld. AO and the order under section 143(3) r.w.s. 153A of the Act for these years are duly passed. And, in all these years the query of unsecured loans was raised and that no addition with regard to same was made by Ld. AO. (Copy of all these order attached at Pg. 1-39 of this Written Note)
2.3.3. Also, the Ld. PCIT had not raised any issue with regard to unsecured loan that lead the assessment order erroneous and prejudicial to the interest of revenue for the all these assessment years (copy of order passed for AY 2018-19 submitted during the course of hearing). It was only for the assessment year under consideration (i.e. AY 2019-20) the Ld. PCIT proposed revision of assessment order on the ground that genuineness and creditworthiness of these unsecured loans were not verified by Ld. AO 2.3.4. It is pertinent to mention that the Ld. PCIT ordered revision proceeding for AY 2017-18 on the other ground and not on the ground of verification of genuineness and creditworthiness of the unsecured loans. However, subsequently the Ld. AO passed the order for AY 2017-18 u/s. 153A r.w.s. 263 of the Act on 24.12.2024 without making any addition whatsoever.
2.3.5. Hence, it can be said that the identity, genuineness and creditworthiness of unsecured loans for all these assessment years (i.e. AY 2016-17 to AY 2018-19) are verified and accepted by the Ld. AO and also accepted by Hon'ble PCIT, Consequently, it can be said that the identity, genuineness and creditworthiness of unsecured loans shall be validly acceptable for AY 2019-20 as well.
2.3.6. During the course of hearing before Your Honours on 28/01/2025, a statement demonstrating the break-up of 203 unsecured lenders (copy attached once again at Pg. 40-46 of this Written Note); the genuineness and creditworthiness of which were alleged to be not verified by Ld. AO was provided by the Ld. AR of the Appellant.
2.3.7. The break-up of these 203 unsecured lenders is divided into following:
Sr. Particulars Number of Pg. No. lenders number a) Details of loans which existed in FY 2017-18 60 40-41 (i.e. AY 2018-19) and witnessed no increase in the assessment year under consideration b) Details of loans which existed in FY 2017-18 131 42-44 (i.e. AY 2018-19) and b) increase in the assessment year under consideration was only on account of interest c) Details of loans which existed in FY 2017-18 6 45 (i.e. AY 2018-19) and c) Increase in the assessment year under consideration was only on account of additional loan availed d) Details of loans which were availed in FY 6 46 2018-19 (i.e. AY 2019-20 and did not existed in the preceding years Total 203 2.3.8. It can be observed that from the above table that majority of the unsecured loans in AY 2019-20 are arising from prior years wherein no further addition in loan being made or that the increase is in view of interest during the year.
2.3.9. Further, out of the remaining 12 lenders from whom actual loan has been availed during the year under consideration, six lenders were existing as on the end of the preceding year (i.e., AY 2018-19) of which two of the lenders namely Amit Jaiprakash Goel and Shree Balaji Associates, Pune LLP was subjected to search proceeding and is assessed with the same Ld. AO. Also, out of other six lenders from whom loan was taken for the first time during the year under consideration, one of the lender M/s. Goel Ganga Developers (India) Pvt. Ltd. was also subjected to a search on the same date as the search carried out on the Appellant and is assessed with same Ld. AO of that of the Appellant.
2.3.10. In conclusion, considering all the above factors, it can be reasonably said that the Ld. AO and Ld. ACIT, in the course of the assessment proceedings, could have concluded that no further enquiry was necessary with respect to the outstanding loans reflected in the books of the Appellant since for all these years he himself had assessed the income of Appellant and all the required information /documents are available. Therefore, it cannot be stated that there was no application of mind on behalf of the Ld. AO in drafting of the assessment order for the year under consideration.
2.3.11. Without prejudice to above, during the course of the assessment proceedings various notices were issued to the Appellant, which were duly complied from time to time. One such notice was issued to the Appellant on 08.03.2021, wherein the Appellant was specifically asked to furnish confirmations of unsecured loans along with conditions as mentioned u/s 68 of the Act. In response to which the Appellant furnished details available.
2.3.12. Consequently, notice u/s 263 of the Act was received by the Appellant on the grounds that order passed under section 153A of the Act is prejudicial to the interest of the revenue, so far as the genuineness, Identity and creditworthiness of the lenders are concerned.
2.3.13. In this regards, it is submitted that once a specific enquiry was raised to the Assessee with regards to the matter concerned, and thereafter submission was made by the Assessee which was perceived as acceptable to the Ld. AO. Moreover, when for all the preceding assessment year the issue of unsecured loan is verified and accepted, it cannot be held that 'no enquiry' was carried out into the matter by the Ld. AO for the year under consideration.
2.3.14. In view of the above facts, it can be seen that an enquiry was explicitly raised by the Ld. AO in respect of the loans during the year under consideration and the documents were verified. The view adopted by the Ld. AO during the assessment proceedings with regard to the said issue cannot be reviewed on mere change of opinion.
2.3.15. It may be noted and appreciated that an order cannot be termed as erroneous unless it is not in accordance with law. Further, it has been established by various Courts that if the Ld. AO makes assessment in accordance with law, the same cannot be declared as erroneous by the CIT/ PCIT merely because the opinion or judgement of the CIT/PCIT differs from that of the Ld. AO.
2.3.16. To substantiate the above, we place reliance on the following judicial pronouncements:
A. Bhikhabhai Rajabhai Dhameliya Vs. Principal Commissioner of Income-tax [2023] 151 taxmann.com 493 (Surat-Trib.)
B. Principal Commissioner of Income Tax Vs. Vaishnodevi Refoils & Solvex [2018] 96 taxman.com 469 (SC)
C. G.L. Foods Vs. Income Tax Officer, Range-IV (4) [2011] 16 taxman.com 271 (Lucknow)
3. Prayer:
In light of the above facts and judicial pronouncement, Your Honours is prayed that the revision proceedings u/s. 263 of the Act should be quashed for the following reasons: a) Assessment Order passed under section 153A/143(3) of the Act cannot be revised under section 263 of the Act without revising the approval obtained under section 153D of the Act. The said view is upheld by Hon'ble Madhya Pradesh High Court in case of Principal Commissioner of Income-tax Vs. Prakhar Developers (P.) Ltd (supra) and jurisdiction Hon'ble ITAT, Pune in cases discussed in Para 2.1.6 above of this Written Note. b) The judicial pronouncement relied by the Ld. DR are distinguishable on facts and legal grounds more particularly discussed in Para 2.2.4 above of this Written Note. c) Considering the facts, that all the unsecured loan is verified and accepted in terms of provision of section 68 of the Act for the preceding years (i.e. AY 2016-17 to AY 2018-19) and that majority of the unsecured loans are flowing from the preceding years wherein no further loan was taken during the year or that closing balance of loan increased due to interest, it can be reasonably said that the Ld. AO and Ld. ACIT, in the course of the assessment proceedings, could have concluded that no further enquiry was necessary with respect to the outstanding loans reflected in the books of the Appellant since for all these years he himself had assessed the income of Appellant and all the required information / documents are available. d) Once a specific enquiry was raised to the Appellant with regards to the matter concerned and when for all the preceding assessment year the issue of unsecured loan is verified and accepted, it cannot be held that 'no enquiry' was carried out into the matter or no application of mind on behalf of the Ld. AO and LD. ACIT was done in passing of the assessment order for the year under consideration. e) An order cannot be termed as erroneous unless it is not in accordance with law. Further, it has been established by various Courts that if the Ld. AO makes assessment in accordance with law, the same cannot be declared as erroneous by the CIT/ PCIT merely because the opinion or judgement of the CIT/PCIT differs from that of the Ld. AO.”
8.1 He further stated that the issue of unsecured loans has been examined in detail by the AO as the specific information was called in the notice u/s.142(1) of the Act dated 08.03.2021 and in reply on 16.04.2021 the assessee furnished the details along with the ledger account, confirmations, stating that the issue of unsecured loans has been examined by the AO and therefore since there is adequate enquiry, ld. PCIT erred in invoking revisionary powers. Reliance placed on following decisions :
Sr. Particulars No. 1 Principal Commissioner of Income-tax Vs. Prakhar Developers (P.) Ltd [2024] 162 taxmann.com 48 (Madhya Pradesh) 2 Shri Ramamoorthy Vasudevan Vs. The Pr. Commissioner of Income Tax (Central) (ITA Nos.967 & 968/PUN/2016) (Pune- Trib) 3 M/s. B.U. Bhandari Schemes Vs. The Pr. Commissioner of Income Tax-Central (ITA 637 to 643/PUN/2018)
4 Smt. Abha Bansal Vs. Principal Commissioner of Income-tax, (Central), Gurgaon [2021] 132 taxmann.com 231 (Delhi-Trib) 5 Gyan Infrabuild (P.) Ltd. Vs. Principal Commissioner of Income-tax (Central) [2024] 162 taxmann.com 664 (Patna- Trib) 6 Devender Kumar Gupta Vs. Principal Commissioner of Income-tax [2024] 166 taxmann.com 95 (Delhi-Trib) 7 Bhikhabhai Rajabhai Dhameliya Vs. Principal Commissioner of Income-tax [2023] 151 taxmann.com 493 (Surat-Trib.) 8 Principal Commissioner of Income Tax Vs. Vaishnodevi Refoils & Solvex [2018] 96 taxman.com 469 (SC) 9 Principal Commissioner of Income Tax-4 Vs. Vaishnodevi Refoils & Solvex [2018] 89 taxmann.com 80 (Gujarat) 10 G.L. Foods Vs. Income Tax Officer, Range-IV (4) [2011] 16 taxman.com 271 (Lucknow)
On the other hand, ld. Departmental Representative vehemently argued supporting the order of ld PCIT stating that Identity and creditworthiness of the cash creditors and genuineness of the transaction cannot be examined merely on the basis of confirmation letters and ld. AO ought to have carried out further more inquiries as contemplated in section 68 of the Act. Ld. DR further made reference to the following written submissions :
“1. Brief facts of the case: 1.1 The assessee is a firm engaged in the business of real estate. A search action u/s 132 of the Income Tax Act, 1961 was conducted on 10.01.2019. Consequently, the assessment was completed u/s 143(3) r.w.s 153A of the Income Tax Act, 1961 on 20.04.2021 by assessing total income at Rs.3,65,56,555/- as against the ROI filed by the assessee at Rs.28,60,630/-. Further, the Ld. CIT has set aside the assessment order holding that creditworthiness, identity and genuineness of 203 parties from whom unsecured loan of Rs.52,19,93,434/-(Rs. 11,97,71,081/-unsecured loans from related partners and Rs.40,22,22,353/- from other parties) was taken by the assessee was not verified. Therefore, Ld. PCIT with elaborate discussion at Para 5 of the order u/s 263 of the Act dated 12.03.2024 has pointed out clearly specifying the issue involved, error of the AO and the revenue loss involved in the matter.
1.2 The appellant has taken a ground that, once the order u/s 143(3) r.w.s 153A was passed by the Ld. AO after taking approval of Additional Commissioner of Income Tax u/s 153D, CIT had no power to revise the same order u/s 263 of the Act.
1.3 However, it should be considered that, the power of the commissioner u/s 263 of the Act is in the nature of supervisory jurisdiction. The same is there to correct an error which is prejudicial to the interest of revenue. The wording of sec 263 of the Act states that,
"263, (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioned or/ Commissioner may call for and examine the records of any proceeding under this Act, and if he considers that any order passed therein by the (Assessing) Officer (or the Transfer Pricing Officer, as the case may be, Is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, (including,- i. an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or ii. an order modifying the order under section 92CA; or iii. an order cancelling the order under section 92CA; and directing a fresh order under the said section).
1.4 The above section slates that, any order can be revised u/s 263 of the Act if it is erroneous and prejudicial to the interest of revenue. The basic foundation of section 263 of the Act is that the PCIT/CIT is empowered to revise any order passed by the assessing officer if such order is erroneous and prejudicial to the interest of revenue. Hence, if the contention of assessee is accepted the all the orders passed u/s 153A or 153C which are passed after approval of the Joint Commissioner will go out of the ambit of Sec 263 of the Act.
1.5 Further, as regards to the Clause (a) to Explanation 1, it may be stated that the said Explanation was inserted through Taxation Laws (Amendment) Act, 1984. As clarified through CBDT's Circular No. 394 dated 14.09.1984, this Explanation declares, for the removal of doubts, that for the purposes of the said sub-section, an order passed by the Income-tax Officer shall include an order of assessment made on the basis of/directions issued by the Inspecting Assistant Commissioner under section 144A or section 144B of the Income-tax Act. This Explanation further provided that an order made by the Inspecting Assistant Commissioner in exercise of the powers or in performance of the functions of an Income-tax Officer conferred on, or assigned to, him under section 125(1)(a) or section 125A(1) of the Income-tax Act, shall also be regarded as an order passed by the Income-tax Officer. This Explanation intended to clarify the aforesaid position with a view to removing further controversy and litigation on these points. Thus, the said Explanation is only in clarificatory nature and to reiterate the existing position that the assessment orders issued on the basis of directions of JCIT can also be revised.
1.6. It is also submitted that the phrase used in Explanation I to Section 263 of the Act which states that,
Explanation 1- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, -
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include –
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A:
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on or assigned to, him under the orders or directions issued by the Board or by the Principal Chief commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorized by the Board in this behalf under section 120; 1.7 The term "include" means beside the other orders, the orders mentioned in sub-clause (i) and (ii) can also be revised u/s 263 of the Act. This explanation nowhere mentions that only the orders passed on the basis or directions issued u/s 244A of the Act can be revised u/s 263 of the Act. The said explanation is only in clarificatory nature and to reiterate the existing position that the assessment orders issued on the basis of directions of JCIT can also be revised.
1.8 It is also submitted that there is no statutory provision barring the jurisdiction of Principal Commissioner to invoke sec 263 of the Act to revise the assessment order passed after obtaining the approval u/s 153D of the Act.
Reliance in this regards is placed on the following decisions:
Hon'ble Supreme Court T.N. Civil Corporation vs CIT
"4. In any event we are of the view that having regard to the subsequent amendments to the Act issued from time to time there was no scope for limiting the phrase order passed by the Income-tax Officer' In section 263 to exclude orders passed by the Income-tax Officer on the directions of a superior authority either under section 144A or 144B."
Hon'ble Karnataka HC in case of Devas Multimedia Pvt Ltd v. PCIT
18. It is undisputed that Draft Assessment Order was notified by the AO in view of the fact that assessee's business involved International Money Transaction. Petitioner/assessee was entitled to have an opportunity to look into Draft Assessment Order. He had option either to accept or to submit objections on variations. If objections were filed, in such an event, the AO is required to forward Draft Assessment Order and objections raised by the petitioner assessee before the DRP to examine the objections raised by the assessee. DRP drew proceedings and forwarded to the AO. Consequently, AO passed the Final Assessment Order. In this background, where assessment order has attained finality and respondent/Principal commissioner is not permitted to invoke Section 263 of Act 1961 or not, sub-clause (c) of Explanation 1 of Section 263 of Act 1961 stipulates that there is a prohibition in respect of a particular circumstance, where respondent/Principal Commissioner shall not invoke Section 263 of Act 1961 whereas similar Clause is not forth coming in respect of the matter examined by DRP against Draft Assessment Order of the AO along with objections of the Assesses. Therefore, the contention of the petitioner that respondent does not have power to invoke Section 263 of the Act insofar as examination of Final Assessment Order along with Assesse's objection pursuant to the DRP decisions is untenable. No-doubt DRP panel consists of three Commissioners and Principal Commissioner examining or sitting over decision of the DRP may not be appropriate. At Mr same time, one cannot lose sight (VT of a statutory provision like Section 263 of Act 1961, unless and until Section 263 of Act 1961 prohibits to examine the Final Assessment order, pursuant to the DRP decision. One cannot go beyond the statutory provision and so also 'read' or 'add' words by the Courts while interpreting a statutory provision. Time and again, Supreme Court and other Courts have held that in a matter of interpretation of statutory provisions, Court cannot add any words or sentence'. Even if there is any ambiguity, at the best Court can read down or struck down such statutory provision. In the present case, reading of Section 263 of Act 1961, it is crystal clear that there is no bar for the Principal Commissioner to invoke Section 263 of Act 1961 to examine the Final Assessment Order passed by the AO pursuant to the DRP decision.
Hon'ble Punjab and Haryana HC in case of Osho Forge Ltd v. CIT
In the said case, the Hon'ble High Court dealt with the issue of remand order passed by the assessing officer in compliance to the revision order u/s 263 of the Act. The Hon'ble HC while observing the supervisory hierarchy in the department held that while passing assessment order read with revision order u/s 263 of the Act, there is no question of seeking an approval from the Joint Commissioner or the Additional Commissioner Officer lower in rank than Commissioner for complying with the directions given by the Commissioner. Thus, the Hon'ble High Court upheld the validity of revision order u/s 263 of the Act even though the original assessment order was passed with the approval of JCIT u/s 153D of the Act. In fact, in para 11 of the decision, the Hon'ble Court also took the note of the fact that approval of under Section 153D was not set aside by the Ld. PCIT.
Hon'ble Delhi ITAT Kapil Mehta vs PCIT (Central)
"6.17 Therefore, natural corollary would be show that all orders of search and seizure passed under Section 153A or under Section 153C of the Act are required to be passed after prior approval of the Joint Commissioner except as provided under Section 154BA(12). Therefore, if the argument of the Ld. AR is to be accepted then in such cases where the assessment has been framed under Section 153A or Section 153C, the same will go out of the ambit of the provisions of section 263 of the act and such a view is directly contarary to the decision of the Hon'ble Supreme court in T.N. Civil Corporation Vs. CIT 260 ITR 82, Hon'ble Punjab & Haryana High Court Osho Forging Ltd. Vs. CIT(supra) and Hon'ble Delhi High Court in NIIT LTD. Vs. Union of India(supra).
6.19 Therefore, on provisions of Section 263 of the Act give un- fettered right to the Commissioner of Income tax to revise any order passed by the Assessing Officer."
Hon'ble Kolkata ITAT in the case of Philips India Ltd. V. PCIT
*9.1 A Perusal of the above case-law shows that, it can be said that the DRP is also discharging a function of an assessing officer and the assessment order still remains that of the Assessing Officer, through it incorporates the proceedings. If the propositions of law laid down in this case law applied to the case at hand, then even the directions given by the DRP and incorporated in the assessment order can be a subject matter of revision u/s 263 of the act, even in the absence of an enabling provisions such as sub-clause(a) to the Explanation 1 to section 263 of the Act, which clarificatory in nature.
Hence the argument that an enabling provision such as explanation 1(a) to Section 263 of the Act, is required for the Ld. Pr. CIT to revise an order passed u/s 143(3)/144C of the Act. In our view not correct as this explanation only clarifies the powers that the inherently held by the Pr. CIT u/s 263 of the Act. In any event, the argument of the assessee cannot be applied to those issues which were not considered by the DRP."
1.9 Further reliance is placed in the case of -
"1. Hon'ble Supreme Court of India in the case of Param transport pvt. Ltd. PCIT 2019] 102 taxmann.com 328
Hon'ble high court of Kerela in case of KV abdul Azeezi Vs. CIT. Central Kochi, [2018] 89 taxmann.com 320 (Kerela)
3. Hon'ble the ITAT Nagpur Bench in case of Shri Gopal Ramesh Kumar sales Pvt. Ltd. Vs. ACIT [2002] 140 taxman 628 [Nagpur-Trib]
4. Hon'ble the ITAT Panji Bench in the case of Dr. William Britto Vs. CIT, Karnataka [2015] 56 Taxman 170 [Panji- Trib]"
1.10 Applying the above decisions to the present case, it can be concluded that the Pr. CIT has power to revise any order u/s 263 of the Act. There is no such restriction that if the order is passed after approval u/s 153D of Additional Commissioner, the same cannot be revised. Hence, the order passed u/s 263 of the Act in the present case revising the assessment order u/s 153A of the Act is within jurisdiction and may be not quashed. The referred judgment(supra) in the case of Kapil Mehta Vs. PCIT (central) Delhi (Trib) and Dr. William Britto Vs. CIT, Karnataka [2015] 56 taxmann 170 (Panji-Trib) are specially relied upon as both the judgements are directly on the subject matter involved with regard to additional ground raised by the appellant. Both the judgements has clearly interpreted the power of PCIT u/s 263 of the act with elaborate discussion on the legal aspects.
Hence, in view of the above discussion, the order passed u/s 263 is justified and may not be quashed.
The above submission may be kindly considered.”
The assessee has also filed rebuttal to the submissions made by the ld. DR and also dealt with each of the judgment referred by the ld. DR and has distinguished the same stating that they are not applicable on the facts of the instant case and these submissions are forming part of the synopsis filed by the assessee on 30.01.2025 from page 6 to 14 of the submissions.
We have heard the rival contentions and perused the record placed before us. Assessee is aggrieved with the invocation of revisionary power by ld. PCIT and has also raised the ground that ld. PCIT erred in holding the assessment order dated 20.04.2021 as erroneous so far as prejudicial to the interest of Revenue as the issue of unsecured loans appearing in the financial statements have not been properly examined by the AO.
Before proceeding to examine the issues stated above, we find that the provision of Section 263 of the Act has direct bearing on the issue raised before us, therefore, it is pertinent to take note of this section which reads as under:
“Revision of orders prejudicial to revenue. 263. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer 81a[or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, 81b[including,— (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section.] Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer 82[or the Transfer Pricing Officer, as the case may be,] shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer 82[or the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; 82[(iii) an order under section 92CA by the Transfer Pricing Officer;] (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer 82[or the Transfer Pricing Officer, as the case may be,] had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 82[or the Transfer Pricing Officer, as the case may be,] 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 Chief Commissioner or Chief Commissioner or 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; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. [Explanation 3.—For the purposes of this section, "Transfer Pricing Officer" shall have the same meaning as assigned to it in the Explanation to section 92CA.] (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court. Explanation.—In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the ld. Pr. CIT taken u/s 263.
Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) has laid down following ratio with regard to provisions of section 263 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 ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO 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 ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)
. [Emphasis Supplied]
Hon’ble Apex Court in the case of CIT vs. Max India Limited as reported in 295 ITR 0282 has held that:
“2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase "prejudicial to the interest of the Revenue" under s. 263 has to be read in conjunction with the expression "erroneous" order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law.”
In the light of above, provisions of section 263 as well as the judgment of Hon’ble Apex Court in the case of Malabar Industries Company Ltd.(supra), we now proceed to examine the facts of the instant case. We notice that as on 31.03.2019 unsecured loans from 203 parties amounted to Rs.52,19,93,434/- and the same included unsecured loans from related parties at Rs.11.98 crore approx and the remaining from the other parties at Rs.40.22 crore approx. Now the assessee was subjected to search on 10.01.2019 and this was the year of search for which the return of income was filed on 30.09.2020. For the year under appeal, ld. AO had to carry out detailed assessment proceedings and apart from search material he is required to examine all other financial transactions carried out during the year. Now the AO issued notice u/s.142(1) of the Act and asked the assessee to furnish various details of which at Sl.No.2 the assessee was required to furnish copy of confirmation of unsecured loan along with conditions as mentioned u/s.68 of the Act. For sake of convenience, section 68 of the Act is reproduced below :
“Cash credits.
Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : [Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,— (a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:
Provided further that] where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: [Provided also] that nothing contained in the first proviso 86[or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.”
In the above provision, it is stated that for any sum found credited in the books maintained for the previous year if the assessee is unable to furnish explanation about the nature and source of the said credit to the satisfaction of the AO then section 68 can be invoked and addition for unexplained cash credit can be made in the hands of assessee. Satisfaction of the AO depends on various enquiries. The assessee in the instant case has furnished the details of unsecured loans which mainly contains balance of unsecured loans brought forward from preceding years as well as loans taken during the year from the old parties as well as new parties and the interest charged thereon. The assessee has also furnished the confirmation letters which contain the names and addresses of the cash creditors along with their PAN Numbers. Now after receiving these details, there is no further inquiry carried out by the AO. In the assessment order also, the discussion is only with regard to the on-money transactions found during the course of search. At this juncture, we would like to take note of the Hon’ble Apex Court in the case of Kale Khan Mohd. Hanif Vs. CIT (1963) 50 ITR 1 where the Hon’ble Court laid down the proposition with regard to examination of nature and source of cash credit u/s.68 and Hon’ble Court held that three limbs needs to be examined, namely Identity of the cash creditor, creditworthiness of the cash creditor and genuineness of the transaction. Now in the instant case, merely confirmation letters have been filed which can at most give the details of Identity of the cash creditor. So far as credit worthiness and genuineness of the transaction is concerned, ld. AO has to call for the details from the assessee about the financial statements including income-tax return and bank statement of the cash creditor and also the nature of transaction as to whether it is in the regular course of business and also to verify that it is a genuine transaction.
In the instant case, from perusal of the assessment order, we find that no such enquiry has been initiated by the AO. Rather it seems that the confirmation letters from the assessee have been treated as full compliance for the explanation of nature and source. It can be rather inferred that only ld. AO has called for the details of unsecured loans but his actual work of investigation and carrying out the enquiry along with issuing of notice u/s.133(6) or 131 of the Act (if considered necessary) starts only once the information about unsecured loans has been received. But ld. AO in the instant case has not moved a bit and only accepted the details filed by the assessee as complete compliance to discharging of burden by the assessee as contemplated in section 68 of the Act. These facts have been rightly observed by the ld. PCIT and he has therefore exercised the revisionary powers vested u/s.263 and directed the AO to frame the assessment again taking into the observation regarding unsecured loans mentioned (supra) in the finding of ld.PCIT. We are conscious of the fact that most of the unsecured loans are the balance brought forward from preceding years and that part of new loans have been received from the old parties but then all these facts can be very well examined by the AO in the light of settled judicial precedents and so far as unsecured loans from new parties as well as existing parties are concerned, necessary enquiry has to be conducted by the AO before being satisfied that section 68 of the Act need not be invoked in the case of assessee for the cash credits received during the year and appearing in the books of account.
During the course of hearing before us, ld. Counsel for the assessee has referred to plethora of decisions and so also the ld. DR as well as the ld.PCIT has referred to. We have taken note of all these decisions and judgements and after duly examined the facts we have reached this conclusion that ld. PCIT has rightly invoked jurisdiction u/s.263 of the Act and has also rightly held the order of the AO as erroneous and prejudicial to the interest of Revenue so far as the issue of unsecured loans remain to be verified during the year.
Before parting, we would also like to deal with the contentions of ld. Counsel for the assessee that assessment order has been framed after taking due approval u/s.153D of the Act and without revoking the order u/s.153D of the Act, ld. PCIT erred in invoking section 263 of the Act and setting aside the assessment order. We have gone through the assessment order and notice that ld. AO has nowhere dealt with the issue of unsecured loans. He has only dealt with the issues arising out of the search action and the on-money received by the assessee and therefore we are of the considered view that approval u/s.153D of the Act has been taken only with regard to the observation of the AO about the issues arising out of the search but since there is no discussion about the unsecured loans issue nor any specific enquiry has been carried out by the AO during the course of assessment proceedings, we find that the approval order u/s.153D has been issued without taking into consideration the issue of unsecured loans and therefore this contention of the assessee that section 263 of the Act cannot be invoked in case of assessment order passed after approval u/s.153D of the Act has not merit considering the facts and circumstances of the case. We accordingly confirm the finding of ld.PCIT directing the AO to examine the issue of unsecured loans in the set-aside proceedings. Grounds of appeal raised by the assessee are dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced on this 21st day of April, 2025.