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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & MS ASTHA CHANDRA
The above two appeals filed by the assessee are directed against the separate orders dated 12.03.2024 passed u/s 263 of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟) by the Ld. PCIT (Central), Pune for assessment years 2018-19 and 2019-20 respectively. For the sake of convenience, both these appeals were heard together and are being disposed of by this common order.
In both the appeals, the assessee has challenged the order of the Ld. PCIT assuming the jurisdiction u/s 263 of the Act.
ITA No.1007/PUN/2024 (A.Y. 2018-19)
3. Facts of the case, in brief, are that the assessee firm is engaged in business of real estate. It filed its return of income for assessment year 2018-19 on 13.10.2018 declaring total income of Rs.3,24,13,780/-. A search and seizure action u/s 132 of the Act was conducted in the case of the assessee on 10.01.2019. In response to the notice issued u/s 153A(a) of the Act on 14.08.2019 the assessee filed its return of income on 04.01.2020 declaring total income of Rs.3,24,13,780/-. The Assessing Officer completed the assessment u/s 153A of the Act on 22.04.2021 accepting the returned income of Rs.3,24,13,780/-.
4. Subsequently, the Ld. PCIT on examination of records noted that the Assessing Officer has not inquired into the applicability of the provisions of section 43CA of the Act and addition of interest cost of Rs.1,52,87,640/- to the cost of land despite the same being capitalized separately. He, therefore, was of the opinion that the order passed by the Assessing Officer has become erroneous and prejudicial to the interest of the Revenue for which he issued a notice u/s 263 of the Act to the assessee to explain as to why the order passed by the Assessing Officer should not be set aside in terms of provisions of Explanation (2) to section 263(1) of the Act. The relevant contents of notice read as under: “02. In the above mentioned case, on verification of case records for A.Y. 2018-19 it has been observed that the assessee company had filed return of income for AY 2018-19 on 13.10.2018 declaring total income at Rs. 3,24,13,780/-. The scrutiny assessment was completed u/s 153A r.w.s 143(3) of the Income Tax Act, 1961 (hereinafter referred as 'the Act') on 22.04.2021 by accepting the returned income.
On perusal of the assessment records it is seen that the assessee had sold the land at Survey No. 24 for a consideration less than the market value adopted for stamp duty purposes, the provisions of section 43CA of the Act are squarely applicable in the case of the assessee. Further, the assessee had already offered an amount of Rs.3,05,475/- u/s 43CA of the Act in respect of this transaction in its computation of income, the difference amount of Rs.38,32,312/- (Rs.41,37,787 Rs.3,05,475) remained to be taxed as per the provisions of section 43CA of the Act. The Assessing Officer (AO) failed to do the same during the course of the assessment proceedings. 3.1 Further, on perusal of the assessment records it is seen that the assessee had added interest of Rs. 1,52,87,640/- to the cost of the land. However, as the interest cost is capitalized separately therefore addition of interest in cost of land resulted in excess WIP by the like amount. This means that the interest cost which has been capitalized with the cost of land in WIP and finance cost which has been debited to the P&L are two separate expenses incurred by the assessee. The AO failed to verify this issue and the same was not raised by the AO during the course of the assessment proceedings. 04. In view of the above, it is seen that no verification on the aforesaid issues had 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. 05. 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 153A r.w.s 143(3) of the Act dated 22.04.2021 passed by the AO for A.Y. 2018-19 appears to be erroneous in so far as it is prejudicial to the interest of revenue. 06. In view of the facts and circumstances mentioned above, the assessment order passed u/s 153A r.w.s 143(3) of the Act in the case of M/s Shree Balaji Associates Pune LLP for A.Y. 2018-19 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 29.01.2024 at 03:00 PM in my office. 07. If you have authorized any representative to attend on your behalf, please ensure that the Power of Attorney with proper court fee stamp is filed on or before the date of hearing. If you do not wish to attend in person or through your authorized representative, you may file written submission along with necessary evidence in support of your contention before the due date of hearing. Further, it may be noted that no adjournment will be provided and in case on non appearance/non submission of reply, order will be passed on merits."
5. Rejecting the various explanations given by the assessee, the Ld. PCIT set aside the order passed by the Assessing Officer to his file for framing the assessment order afresh after examination / verification / enquiries by recording as under: “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 issues involved. The assessee firm has made point wise submission on the issues noted in the show-cause notice and in support of the same, the assessee firm has also relied on various case laws which have been perused 6. The assessee in its submissions has stated that the date of fixing of agreement was 18.08.2011 and the assessee had already received an amount of Rs.3,76,20,664/- on 25/11/2011, thus, provisions of section 43CA are not applicable in its case. However, it was further stated that the assessee had already offered an amount of Rs. 3,05,475/- u/s 43CA of the Act. Thus, both the submissions of the assessee are contradictory. It is seen from the records that the assessee had sold the land at less than the market value adopted for stamp duty purposes and therefore, the provisions of section 43CA of the Act are squarely applicable in the case of the assessee. It is seen that the assessee had offered only Rs. 3,05,475/- u/s 43CA of the Act instead of Rs. 41,37,787/- in respect of this transaction in its computation of income. Thus, the difference amount of Rs. 38,32,312/- (Rs.41.37,787 Rs.3,05,475) remained to be taxed as per the provisions of section 43CA of the Act. The AO failed to examine this issue properly during the course of the assessment proceedings. The AO should have verified/enquired/examined this issue. 6.1 On the issue of capitalization of interest cost of land and debiting the interest cost, the assessee has stated that interest cost has not been debited separately in P & L account. However, the AO failed to examine this issue during the course of the assessment proceedings. Thus, this issue requires thorough examination. 7. In view of the above facts, it is clear that the above issue has not been properly examined/verified/enquired upon by the Assessing Officer during the course of the assessment proceedings. It has been held by various Courts that lack of enquiry on the germane issue renders the assessment order being erroneous and prejudicial to the interest of revenue. In this connection the following judicial pronouncements are relied upon: The Hon. Supreme Court in Rampyari Devi Saraogi v CIT 67 ITR 84 while taking note of the fact that the AO had concluded the assessment in "undue hurry" by passing a short, stereotyped assessment order, without making any inquiries, upheld the revision done by the CIT. In the case of Deniel Merchants Pvt. Ltd. vs ITO dated 29.11.2017, the Hon'ble Supreme Court upheld the law as laid down by the High Courts in Subhlakshmi Vanijya Pvt. Ltd vs. CIT 155 ITD 171 (Kol), Rajmandir
Estates 386 ITR 162 (Cal) etc. and held that the CIT is entitled to revise the assessment order u/s 263 on the ground that the AO did not make any proper inquiry while accepting the explanation of the assessee insofar as receipt of share application money is concerned. In the case of Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC), Hon'ble Supreme Court held that where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263 was justified. In the case of Vedanta Ltd. Vs CIT[2021]124 taxmann.com 435(Bombay)/[2021] 279 Taxman 358 (Bom), it has been held that where assessment was completed without proper inquiries, Commissioner was competent to invoke revisional jurisdiction and direct Assessing Officer for fresh assessment. In the case of Nagal Garment Industries Pvt Ltd Vs CIT [2020]113taxmann.com 4 (Madhya Pradesh) [03-04-2017], it has been held that where Assessing Officer issued detailed questionnaire, in reply to which records were filed, but Assessing Officer did not apply his mind nor did he conduct an enquiry while accepting claim of assessee although he recorded in note-sheet that reply filed by appellant was not satisfactory and did not explain all facts, assessment order was to be revised The Hon'ble Delhi High Court in the case of CIT Vs Shri Braham Dev Gupta in and 1162/2017 has clearly decided that Pr. Commissioner of Income tax can invoke the provision of section 263 of Income Tax Act where AO has not made adequate enquiry and verification. In this matter, SLP of the assessee has also been dismissed by Hon'ble Apex Court. The Hon'ble ITAT Delhi in the case of Ankush Garg v CIT, Rohtak in & 2288/Del/2015 dated 21.05.2019, upheld the Pr. CITs action u/s 263 by holding that the order of the AO was cryptic, and was not passed after due examination and verification of certain issues and therefore, there was an error on the part of AO which led to a correct conclusion of the CIT that the order of the AO was not only erroneous but also prejudicial to the interest of Revenue. In the case of Pooja Gupta in ITA No 4057/Del/ 2018 dated 31.01.2019, the ITAT Delhi has discussed the validity of action under section 263 in respect of penny stock matters. The Tribunal has referred to the detailed SOP issued by the CBDT, CBDT Instruction dated 16.03.2016 on penny stock/LTCG, and other specified parameters in this order, and held that the order u/s 263 was justified since there was complete lack of inquiry with regard to the perspective for which the case was selected for scrutiny, and that the AO had merely relied on the assessee's submissions. The decision of the ITAT Delhi Bench in the case of Bhushan Steel Ltd., New Delhi vs ACIT dated 30 March, 2015 is relevant to note as it relates to the aspect of lack of inquiry at the end of the AO for valid initiation of proceedings under Section 263 of the Act. Hon'ble High Court OF Karnataka in the case of CIT vs. Infosys Technologies Ltd. 341 ITR 293 dated 04.01.2012 has held that section 263 is a section which enables the Commissioner to have a look at the orders or proceedings of the lower authorities and to effect a correction, if so needed, particularly if the order or proceeding is erroneous and prejudicial to the interest of the revenue, It is also held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, ITO should have made further inquiries before accepting the statements made by the assessee in his return. Hon'ble ITAT Delhi Bench in the case of Ramesh Kumar, for A.Υ. 2014-15 order dated 25.01.2019 has observed as under- On going through the facts, it can be observed that the Assessing Officer has not conducted any enquiry and this is a clear case of lack of enquiry not a case of inadequate enquiry. Further non application of mind by the Assessing Officer can be easily gauzed from the fact that the information available with the Assessing Officer has not been utilised during the assessment proceedings which makes the case fit for applying the provisions of explanation 2 (a) of section 263. Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs AddI. CIT 99 ITR 375 has clearly held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case. ITO should have made further inquiries before accepting the statements made by the assessee in his return.
8. Provisions of Explanation 2 of Section 263 (1), are reproduced here under: Explanation 2.-For the purposes 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 interests 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; (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.
9. In view of the above facts and circumstances of the case and keeping in view the judicial pronouncements as discussed above, it is held that the assessment order dated 22.04.2021 for A.Y. 2018-19 has been passed by the AO without making necessary examination/verification/enquiries on the issue mentioned above and accordingly, the same is held to be erroneous in so far as it is prejudicial to the interest of Revenue: 10. Accordingly, the said assessment order dated 22.04.2021 is hereby set aside to the file of the Assessing Officer for examining the above issues in detail while framing the fresh assessment order. The Assessing Officer shall make necessary examination, verification and enquiries in respect of the above issue after giving adequate and reasonable opportunity of being heard to the assessee.”
6. Aggrieved with such order of the PCIT, the assessee is in appeal before the Tribunal.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the assessee had sold the land at Survey No.24 for a consideration less than the market value adopted for stamp duty purposes for which the provisions of section 43CA of the Act are squarely applicable. Although there is a difference as per the provisions of section 43CA of the Act of Rs.38,32,312/-, the assessee had offered only an amount of Rs.3,05,475/- and the Assessing Officer has not bothered to inquire about the same. Similarly, the issue relating to the addition of interest of Rs.1,52,87,640/- to the cost of land despite debiting such interest as finance cost in the Profit and Loss Account remained to be examined by the Assessing Officer. Further, a perusal of the assessment order shows that it is a very brief order without touching the two vital issues pointed out by the Ld. PCIT.
We find the Hon‟ble Bombay High Court in the case of Vedanta Ltd. vs. CIT (2021) 124 taxmann.com 435 (Bom) has held that where the assessment was completed without proper inquiries, the Commissioner was competent to invoke revisional jurisdiction and direct the Assessing Officer for fresh assessment.
9. We find the Hon'ble Supreme Court in the case of Rampyari Devi Saraogi vs. CIT reported in 67 ITR 84 (SC) has held that where the Assessing Officer had concluded the assessment in “undue hurry” by passing a short, stereotyped assessment order, without making any inquiries, the CIT is justified in revising the order u/s 263 of the Act. The various other decisions relied on by the PCIT in the order also supports the case of the Revenue that the order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of the Revenue and therefore, the Ld. PCIT in our opinion is justified in invoking the revisional powers u/s 263 of the Act. However, the submission of the Ld. Counsel for the assessee that the Assessing Officer should restrict to only these two issues while passing a fresh order, is accepted. We, therefore, uphold the order of the Ld. PCIT restoring the issue to the file of the Assessing Officer for fresh adjudication of these two issues. The Assessing Officer shall pass appropriate order as per fact and law after affording due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee are accordingly dismissed.
10. The assessee has also taken an additional ground challenging the validity of the order passed by the Ld. PCIT when such order has been passed without prior approval u/s 153D of the Act. However, the Ld. Counsel for the assessee did not press this ground. Therefore, the additional ground raised by the assessee is dismissed.
In the result, the appeal filed by the assessee in is dismissed.
ITA No.1008/PUN/2024 (A.Y. 2019-20)
Facts of the case, in brief, are that the assessee filed its return of income on 30.10.2019 declaring total income of Rs.1,57,46,480/-. The case was selected for complete scrutiny and statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee, in response to which the AR of the assessee filed the requisite details from time to time. The Assessing Officer completed the assessment u/s 143(3) on 22.04.2021 determining the total income of the assessee at Rs.1,58,11,895/- by making addition of Rs.65,415/- u/s 69C r.w.s 115BBE of the Act on account of unexplained expenditure.
13. Subsequently, the Ld. PCIT on examination of the record noted that the assessee has declared net profit of Rs.2,10,15,755/- during the course of search action conducted u/s 132 of the Act on 10.01.2019. However, in the return of income filed for the year under consideration the assessee had declared net profit of Rs.1,56,45,352/- only. Further, the total cost incurred for Phase-I has increased from Rs.81,46,76,053/- as on 10.01.2019 (date of initiation of search) to Rs.90,12,74,680/- as on 11.02.2019 (date of completion of the project). Thus, the cost of the project increased to the tune of Rs.8,65,98,627/- during the span of one month and it was submitted by the assessee that the books of accounts of the assessee at the time of the search action were not updated. He observed that neither the assessee had submitted any details / evidence to substantiate the total cost nor the Assessing Officer had raised specific query during the course of assessment proceedings to verify the increase of „total cost incurred for Phase-I‟ from Rs.81,46,76,053/- to Rs.90,12,74,680/-. He, therefore, issued a show cause notice asking the assessee to explain as to why the order passed by the Assessing Officer should not be set aside. The relevant part of the notice reads as under: "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 30.10.2019 declaring total income at Rs. 1,57,46,480/-. The case was selected under Complete Scrutiny through CASS and the scrutiny assessment was completed u/s 153A r.w.s 143(3) of the Income Tax Act, 1961 (hereinafter referred as the Act') on 22.04.2021 by assessing the total Income at Rs. 1,58,11,895/- 03. On perusal of the assessment records it is seen that the assessee had declared net profit of Rs. 2,10,15,755/- during the course of search action conducted u/s 132 of the Act on 10/01/2019, However, consequently in the return of income filed for the year under consideration the assessee had declared the net profit of Rs. 1,56,45,352/- Further, it is seen that the main reason submitted by the assessee for decrease in the net profit in ITR vis-a-vis the declaration made during the course of search action is the increase of 'Total cost incurred for Phase I', which has increased from Rs. 81,46,76,053/- as on 10/01/2019 (date of initiation of search) to Rs. 90,12,74,680/- as on 11/02/2019 (date of completion of the project). Thus, the cost of the project increased to the tune of Rs. 8,65,98,627/- during the span of one month and the reason furnished by the assessee for the same was "Also, the books of accounts of the assessee at time of the search action were not updated." Further, neither the assessee had not submitted any details/evidences to substantiate the increase of the said total cost nor the Assessing Officer(AO) had raised specific query during the course of the assessment proceedings to verify the increase of 'Total cost incurred for Phase I' from Rs.81,46,76,053/- to Rs.90,12,74,680/-.
3.1.In view of the above, it is seen that the assessee had increased cost of the project to the tune of Rs. 8,65,98,627/- during the span of one month only and no supporting documents to substantiate the increase of the said total cost was submitted during the course of the assessment proceedings. Further, 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 153A r.w.s 143(3) of the Act dated 22.04.2021 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 153A r.w.s 143(3) of the Act in the case of M/s Shree Balaji Associates Pune LLP for AY. 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 IT. 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 29.01.2024 at 03:30 PM in my office.
If you have authorized any representative to attend on your behalf. please ensure that the Power of Attorney with proper court fee stamp is filed on or before the date of hearing. If you do not wish to attend in person or through your authorized representative, you may file written submission along with necessary evidence in support of your contention before the due date of hearing. Further, it may be noted that no adjournment will be provided and in case on non appearance/non submission of reply, order will be passed on merits."
Rejecting the various submissions made by the assessee and relying on various decisions, the Ld. PCIT set aside the order passed by the Assessing Officer with a direction to re-do the same by observing as under: “5. I have carefully considered the issue 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 issue noted in the show-cause notice and in support of the same; the assessee firm has also relied on various case laws, which have been perused. 6. On perusal of case records and submission made by the assessee, it is seen that the total cost incurred for Phase I has increased from Rs.81.46,76,053/- as on 10/01/2019 (date of initiation of search) to Rs.90,12,74,680/- as on 11/02/2019 (date of completion of the project). Thus, the cost of the project increased to the tune of Rs. 8,65,98,627/- within one month. Neither the assessee had submitted any details/evidences to substantiate the increase of the said total cost nor the Assessing Officer (AO) had examined/verified/inquired the same. The AO should have verified/enquired/examined this issue.
7. In view of the above facts, it is clear that the above issue has not been properly examined/verified/enquired upon by the Assessing Officer during the course of the assessment proceedings. It has been held by various Courts that lack of enquiry on the germane issue renders the assessment order being erroneous and prejudicial to the interest of revenue. In this connection the following judicial pronouncements are relied upon. The Hon. Supreme Court in Rampyari Devi Saraogi v CIT 67 ITR 84 while taking note of the fact that the AO had concluded the assessment in "undue hurry" by passing a short, stereotyped assessment order, without making any inquiries, upheld the revision done by the CIT. In the case of Deniel Merchants Pvt. Ltd. vs ITO dated 29.11.2017, the Hon'ble Supreme Court upheld the law as laid down by the High Courts in Subhlakshmi Vanijya Pvt. Ltd vs. CIT 155 ITD 171 (Kol), Rajmandir Estates 386 ITR 162 (Cal) etc. and held that the CIT is entitled to revise the assessment order u/s 263 on the ground that the AO did not make any proper inquiry while accepting the explanation of the assessee insofar as receipt of share application money is concerned. In the case of Malabar Industrial Co. Ltd. Vs CIT [2000] 109 Taxman 66 (SC)/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC), Hon'ble Supreme Court held that where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263 was justified. In the case of Vedanta Ltd. Vs CIT[2021]124 taxmann.com 435(Bombay)/[2021] 279 Taxman 358 (Bom), it has been held that where assessment was completed without proper inquiries, Commissioner was competent to invoke revisional jurisdiction and direct Assessing Officer for fresh assessment. In the case of Nagal Garment Industries Pvt Ltd Vs CIT [2020]113taxmann.com 4 (Madhya Pradesh) [03-04-2017], it has been held that where Assessing Officer issued detailed questionnaire, in reply to which records were filed, but Assessing Officer did not apply his mind nor did he conduct an enquiry while accepting claim of assessee although he recorded in note-sheet that reply filed by appellant was not satisfactory and did not explain all facts, assessment order was to be revised The Hon'ble Delhi High Court in the case of CIT Vs Shri Braham Dev Gupta in and 1162/2017 has clearly decided that Pr. Commissioner of Income tax can invoke the provision of section 263 of Income Tax Act where AO has not made adequate enquiry and verification. In this matter, SLP of the assessee has also been dismissed by Hon'ble Apex Court.
The Hon'ble ITAT Delhi in the case of Ankush Garg v CIT, Rohtak in & 2288/Del/2015 dated 21.05.2019, upheld the Pr. CITs action u/s 263 by holding that the order of the AO was cryptic, and was not passed after due examination and verification of certain issues and therefore, there was an error on the part of AO which led to a correct conclusion of the CIT that the order of the AO was not only erroneous but also prejudicial to the interest of Revenue. In the case of Pooja Gupta in 2018 dated 31.01.2019, the ITAT Delhi has discussed the validity of action under section 263 in respect of penny stock matters. The Tribunal has referred to the detailed SOP issued by the CBDT, CBDT Instruction dated 16.03.2016 on penny stock/LTCG, and other specified parameters in this order, and held that the order u/s 263 was justified since there was complete lack of inquiry with regard to the perspective for which the case was selected for scrutiny, and that the AO had merely relied on the assessee's submissions. The decision of the ITAT Delhi Bench in the case of Bhushan Steel Ltd., New Delhi vs ACIT dated 30 March, 2015 is relevant to note as it relates to the aspect of lack of inquiry at the end of the AO for valid initiation of proceedings under Section 263 of the Act. Hon'ble High Court OF Karnataka in the case of CIT vs. Infosys Technologies Ltd. 341 ITR 293 dated 04.01.2012 has held that section 263 is a section which enables the Commissioner to have a look at the orders or proceedings of the lower authorities and to effect a correction, if so needed, particularly if the order or proceeding is erroneous and prejudicial to the interest of the revenue, It is also held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case, ITO should have made further inquiries before accepting the statements made by the assessee in his return. Hon'ble ITAT Delhi Bench in the case of Ramesh Kumar, ITA No. 1982/Del/2018 for A.Υ. 2014-15 order dated 25.01.2019 has observed as under- On going through the facts, it can be observed that the Assessing Officer has not conducted any enquiry and this is a clear case of lack of enquiry not a case of inadequate enquiry. Further non application of mind by the Assessing Officer can be easily gauzed from the fact that the information available with the Assessing Officer has not been utilised during the assessment proceedings which makes the case fit for applying the provisions of explanation 2 (a) of section 263. Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs AddI. CIT 99 ITR 375 has clearly held that the Commissioner can regard the order as erroneous on the ground that in the circumstances of the case. ITO should have made further inquiries before accepting the statements made by the assessee in his return.
8. Provisions of Explanation 2 of Section 263 (1), are reproduced here under:
Explanation 2.-For the purposes 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 interests 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; (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.
9. In view of the above facts and circumstances of the case and keeping in view the judicial pronouncements as discussed above, it is held that the assessment order u/s 143(3) r.w.s. 153A dated 22.04.2021 for A.Y. 2019-20 has been passed by the AO without making necessary examination/ verification/ enquiries on the issue related to the increase in the cost of the project to the tune of Rs. 8,65,98,627/- within one month and accordingly, the same is held to be erroneous in so far as it is prejudicial to the interest of Revenue.
Accordingly, the said assessment order dated 22.04.2021 is hereby set aside to the file of the Assessing Officer for examining the above issue in detail while framing the fresh assessment order. The Assessing Officer shall make necessary examination, verification and enquiries in respect of the above issue after giving adequate and reasonable opportunity of being heard to the assessee.”
15. Aggrieved with such order of the Ld. PCIT, the assessee is in appeal before the Tribunal.
The Ld. Counsel for the assessee at the outset referring to pages 36 to 39 of the paper book drew the attention of the Bench to the information called for by the Assessing Officer u/s 142(1) of the Act for assessment years 2013-14 to 2019-20. Referring to query No.12 (page 38 of the paper book), he drew the attention of the Bench regarding the disclosure made during the course of search of Rs.2,10,15,755/- on account of project „New Town‟. Referring to pages 43 to 48 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the reply dated 11.02.2021 by the assessee to the Assessing Officer giving various details. Referring to pages 71 to 73 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the queries raised by the Assessing Officer in the notice issued u/s 142(1) of the Act wherein at query No.3 he has asked the assessee to furnish the working of profit of Rs.2,10,15,755/- given during the search action. Referring to pages 74 to 80 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the reply given by the assessee on 23.03.2021 which was received by the JCIT on 24.03.2021. Referring to para 3 of the said reply, he drew the attention of the Bench to the working of profit of Rs.2,10,15,755/- given during the search action.
Referring to pages 82 to 83 of the paper book, he drew the attention of the Bench to the queries raised by the Assessing Officer in the notice issued u/s 142(1) of the Act on 02.04.2021 wherein the Assessing Officer had specifically asked the following questions: “ANNEXURE During the search action u/s. 132 of the Act carried out in your case on 10/01/2019 and subsequent dated, you had worked out sales to be offered to tax for F.Y. 2018-19 by following Percentage Completion Method(PCM) of accounting and had submitted net profit amounting to Rs.2,10,15,755/- to be recognized in the case of assessee M/s. Balaji Associates (w.r.t. project New town). However, in perusal of the return of income and the financial attached, it is seen that you have declared net profit of Rs. 1,56,45,350/- instead of Rs. 2,10,15,755/-. Therefore, you are requested to explain the reason for showing less profit of Rs 53,70,405/- along with supportive documents to prove the same.”
Referring to pages 84 and 85 of the paper book, the Ld. Counsel for the assessee drew the attention of the Bench to the reply given by the assessee stating therein the net profit declared at Rs.1,56,45,352/- as against the net profit declared at Rs.2,10,15,755/- at the time of search. Similarly, the assessee had given the details of various expenses that increased the cost of the project to the tune of Rs.8,65,98,627/-. He accordingly submitted that it is not a case of lack of enquiry and at best it can be treated as inadequate enquiry. Relying on various decisions, he submitted that since the Assessing Officer in the instant case has passed the order after raising various queries to which the assessee has made its submissions and since it is not a case of lack of enquiry but at best can be treated as inadequate enquiry, therefore, the provisions of section 263 of the Act are not applicable. He accordingly submitted that the appeal filed by the assessee should be admitted. He also relied on the following decisions: 1. THE PCIT VS PRAKHAR DEVELOPERS PRIVATE LIMITED, ITA 182 OF 2023 (MADHYA PRADESH HC) 2. M/S. B.U BHANDARI SCHEMES VS. THE PCIT, ΤΟ 641/PUN/2018 (ITAT PUNE) 3. SHRI RAMAMOORTHY VASUDEVAN VS. THE PCIT, (ITAT PUNE) 4. MEHTAB ALAM SULTAN VILLA, JAJMAU VS, ACIT, KANPUR, ITA NOS 294/LKW/2014 (ITAT LUCKNOW) 5. CIT VS SUNBEAM AUTO LTD, ITA NO. 1399 OF 2006 (DELHI HC) 6. BISMILLAH TRADING CO. VS. INTELLLIGENCE OFFICER, SQUAD NO. II, [2001] 248 ITR 292 (KERALA HC) 7. CIT VS. GABRIEL INDIA LIMITED, ITR 145 OF 1980 (BOMBAY HC) 8. PCIT VS. M/S AMBIT MULTITRADE P. LTD. ITA 1399 OF 2016 (BOMBAY HC)
CIT VS. M/S. FINE JEWELLERY (INDIA) LTD, ITA 296 OF 2013, (BOMBAY HC) 10. M/S. ANGRE PORT PRIVATE LTD. VS. PCIT, (ITAT PUNE) 11. M/S DWARKADHIS BUILDWELL PVT.LTD. VS CIT, (ITAT DELHI) 12. SANJAY AMRUTRAO SATAV (HUF) VS. ITO, ITA NO.200/PUN/2021 (ITAT PUNE) 13. M/S S.R. TRUST VS. THE PCIT, ITA NO. 213/CHNY/2022 (ITAT CHENNAI) 14. PCIT VS. DELHI AIRPORT METRO EXPRESS PVT. LTD, ITA NO. 705/2017 (DELHI HC) 15. TORRENT PHARMACEUTICALS LTD. VS. DCIT, I.T.A. NO. 164/AHD/2018 (ITAT AHMEDABAD) 16. ZAHURAHMED ABDULRAZZAK VALJIWALA VS.PCIT ITA NO. 76/AHD/2022 (ITAT AHMEDABAD) 17. PCIT VS. M/S, FORUM AGRO FOODS PVT. LTD, ITA 564/2019 (DELHI HC) 18. MALABAR INDUSTRIAL CO. LTD. VS CIT, C.A. 3646 OF 1993, (SUPREME COURT)
The Ld. DR on the other hand relied on the order of the Ld. PCIT. He submitted that the Assessing Officer in the instant case has not called for the requisite details nor the assessee submitted any details / evidence to substantiate the increase of the total cost. He submitted that the Ld. PCIT has given justifiable reasons while setting aside the order of the Assessing Officer. He accordingly submitted that the order of the Ld. PCIT be upheld and the grounds raised by the assessee be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case has completed the assessment u/s 143(3) of the Act on 22.04.2021 determining the total income of the assessee at Rs.1,58,11,895/- as against the returned income of Rs.1,57,46,480/- by making the addition of Rs.65,415/- u/s 69C r.w.s. 115BBE of the Act. We find the Ld. PCIT set aside the order passed u/s 263 of the Act, the reasons of which have already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the Assessing Officer, during the course of assessment proceedings, had called for the various details to which the assessee had submitted its reply and after considering the reply, the Assessing Officer has passed the order. Therefore, it is not a case of lack of enquiry. It is his submission that since the Assessing Officer has passed the order after calling for relevant details, therefore, the order cannot be treated as erroneous and prejudicial to the interest of the Revenue merely because the Ld. PCIT does not agree with the order passed by the Assessing Officer.
We find some force in the arguments advanced by the Ld. Counsel for the assessee. We find the Assessing Officer in the instant case in Annexure to the notice issued u/s 142(1) of the Act for assessment years 2013-14 to 2019-20 had called for the following details as per the query Nos.12 and 13:
“12. During the course of search action at the office of premises of Annuj Goel Group at Ground floor, 5, San Mahu Complex, Bund Garden Road, Pune. statement of Mrs. Annuj Goel was recorded u/s 132(4) of the Act on 12.01.2019. On being asked about position of Work-in-Progress [WIP) of and method of accounting followed by the concerns of group. Mr. Annuj Goel stated that total WIP of the concerns was Rs 329,22,50.849/- and the concerns of the group is following Percentage Completion Method (PCM) of accounting. During the search, concerns of the group worked out sales to be offered to tax for FY 2018-19 by following PCM of accounting Accordingly, the concerns of the group submitted net profit amounting to Rs. 4.23.00.549/- to be recognized for the concerns of the group for FY 2018-19. Entity-wise workings of net profit of the concerns of the group for FY-2018-19 are as under:
Sr. Project Name of the entity F.Y. Amount of net No. profit 1 Fernhill Meenamani Ganga Builder 2018-19 0 LLP 2 Florentina Shree Balaji Realty 2018-19 56,37,525/- 3 Amber Shri Siddhivinayak Developers 2018-19 1,56,47,260/- 4 New Town Shree Balaji Associates 2018-19 2,10,15,755/- Total Net Profit 4,23,00,549/-
You are requested to explain whether above disclosure is disclosed by you in ITR filed for AY 2019-20. Please furnish the copy of same.
During the course of search at the office premises of Mr. Subhash S. Goel and his concerns at Ground Floor. 5, San Mahu Complex, Bund Garden Road, Pune, statement of Mr. Subhash Goel was recorded u/s 132(4) of the Act on 12.01.2019. In his statement, Mr. Subhash Goel was questioned to submit details of Work-In-Progress(WIP) of its all mojor concerns and details of revenue going to be recognized by following Percentage Completion Method of accounting by 31.03.2019. In reply to Q.No.36 & 37 of his aforesaid statement. he offered sales of Rs.208.82,98,161/ out of total WIP amounting to Rs.52,91,90,295/- to be booked by 31.03.2019. The recognition of sales consideration to tax for F.Y.2018- 19 was worked out considering the stage completion certificate of the projects as on 12.01.2019 submitted by concerned projects architect. Relevant part of the statement of Mr. Subhash Goel is reproduced hereunder for ready reference:
During the course of post-search/survey investigation, Mr. Subhash Goel was time and again requested to submit workings of net profit out of the sales consideration offered to tax for F.Y.2018-19. However, the same has not been submitted and it was merely argued that finalization of books of accounts of concerns of the group are in progress and after finalization of the same, due taxes will be paid before end of due date of filling of returns of income. In view of above, you are requested to state whether above declared income is offered in ITR of FY 2019-20. Also, furnish of working of profit as per percentage completion method.”
Similarly, we find the Assessing Officer vide Annexure attached to the notice issued u/s 142(1) of the Act dated 22.02.2021 vide query No.3 has asked the following queries: “ANNEXURE (1). Furnish details of working of profit as per percentage completion method (2). Furnish confirmation from party "Marvel landmarks Pvt. Ltd. (3). Furnish working of profit of Rs 2,10,15,755/- given during the search action (4). Furnish ledger A/C extract of following parties:
(i) Brokerage on sale of flat (ii)Asset written off (5)How 'asset written off of Rs.15,28,890/- is allowable expense. (6)How GST rebate is allowable expense and why corresponding income is offered for taxation. (7). Furnish ledger A/C extract of following parties (i)Chetan Sanitory stores (ii) Choice traders (iii) Raj enterprises (8)Furnish details of transporter with respect to each bill for purchase of material from following parties (i)R A Pawar (ii) Shree swami Samarth enterprise (iii) Tawakkal electrical (iv)Chetan Sanitoary stores (v)Choice traders (9). Furnish ledger Account extract of following parties (i) Tukaran construction (ii) Shree Balaji enterprise (iii) Sanjay Bhati (10). Furnish working of profit as per percentage completion method in detailed manner SWAPNE SHARADRIAD PATIL CENTRAL CIRCLE 2(3), PUNE
We find the assessee vide reply dated 23.03.2021 has given the working of profit of Rs.2,10,15,755/- during the search action. We find again the Assessing Officer vide annexure to the notice dated 02.04.2021 issued u/s 142(1) of the Act has raised the following query: “ANNEXURE During the search action u/s. 132 of the Act carried out in your case on 10/01/2019 and subsequent dated, you had worked out sales to be offered to tax for F.Y. 2018-19 by following Percentage Completion Method(PCM) of accounting and had submitted net profit amounting to Rs.2,10,15,755/- to be recognized in the case of assessee M/s. Balaji Associates (w.r.t. project New town). However, in perusal of the return of income and the financial attached, it is seen that you have declared net profit of Rs. 1,56,45,350/- instead of Rs. 2,10,15,755/-. Therefore, you are requested to explain the reason for showing less profit of Rs. 53,70,405/- along with supportive documents to prove the same.
SWAPNIL SHARADRAD PATIL CENTRAL CIRCLE 2(3), PUNE”
We find the assessee vide reply dated 10.04.2021, copy of which is placed at page 84 of the paper book has submitted as under: SHREE BALAJI ASSOCIATES PUNE LLP 6 FLOOR, SAN MAHU COMPLEX, OPP, POONA CLUB, BUND GARDEN ROAD, PUNE-411001 PAN: ABDFS39630 10th April 2021 To Deputy Commissioner of Income Tax Central Circle 2(3). Pune SUBJECT: ASSESSMENT OF INCOME FOR A.Y. 2019-20. REFERENCE: NOTICES ISSUED U/S 142(1) OF THE INCOME TAX ACT, 1961 Honorable Sir/Madam, This has reference to above mentioned subject for assessment of income for the Assessment Year 2019-20
REASON FOR DIFFERENCE IN REVENUE RECOGNITION WORKING AS SUBMITTED DURING SEARCH ACTION AND AS PER RETURN OF INCOME FILED: During the year under consideration, the assessee has undertaken construction of real estate project, "Ganga Newtown Search action was initiated on the assessee on 10/1/2019. During the search proceedings, the assessee has submitted estimated revenue recognition working determining Net Profit of Rs 2,10,15,755/- However at the time of finalization of books of accounts, the assessee has declared net profit of Rs. 1,56,45,352/-. Your honour has asked the assessee to explain the reason for such variance. The assessee wishes to state that the revenue recognition working submitted at the time of search action was a provisional working and based on estimated cost of project of Rs. 83.37 crore/ Also, the books of accounts of the assessee at time of the search action were not updated, hence the revenue recognition working submitted was based on an earlier estimated cost. However the actual cost incurred on the said real estate project upto 31/03/2019 amounted to Rs. 90,12,74,680/- (including provision of construction expense of Rs. 1 crore). The assessee has incurved expenditure of Rs 1 crores in the subsequent year for which provision was made. A copy of ledger extract of Provision for construction expense for FY 2010-2016 annexed for your honour's reference. (Refer annexure "A") Also the assessee had estimated that it would recognize revenue from sale of units having total area 12,544 sq mtrs. However, the assessee has recognized revenue from sale of units of flats having total area of 12.170 sq mtrs. Your honour will appreciate that the assessee has recognized higher revenue of Rs 34.15 crores in its books of accounts as per ITR as against Rs. 31.60 crores submitted at the time of search action Hence on account of above mentioned reasons there is variance between revenue recognition working submitted at the time of search action and final revenue recognition working based on which return of income is filed Kindly take note of the above information and oblige For Shree Balaji Associates Pune LLP, Sd/- (Authorized Signatory)”
From the above, it is seen that the Assessing Officer during the course of assessment proceedings has raised the queries to which the assessee has made its submissions and the Assessing Officer has passed the order thereafter. Under these circumstances, we have to see as to whether the Ld. PCIT/CIT can invoke jurisdiction u/s 263 on an issue for which specific queries were raised by the Assessing Officer and for which the assessee has given the detailed reply.
We find the Hon‟ble Bombay High Court in the case of CIT vs. M/s. Fine Jewellery (India) Ltd. (2015) 372 ITR 303 (Bom) at para 8 of the order has observed as under: “8. We find that the impugned order of the Tribunal does record the fact that specific queries were made during the Assessment proceedings with regard to details of expenditure claimed under the head “miscellaneous expenses” aggregating to Rs.2.94 crores. The respondent-assessee had responded to the same and on consideration of response of the respondent-assessee, the Assessing Officer held that of an amount of Rs.17.98 lakhs incurred on account of repairs and maintenance out of Rs.2.94 cores is capital expenditure. This itself would be indication of application of mind by the Assessing Officer while passing the impugned order. The fact that the assessment order itself does not contain any discussion with regard to the balance amount of expenditure of Rs.1.76 crores i.e. Rs.2.94 crores less Rs.17.98 lakhs claimed as revenue expenditure would not by itself indicate non application of mind to this issue by the Assessing Officer in view of specific queries made during the assessment proceedings and the Respondent- assessee's response to it. In fact this Court in the case of “Idea Cellular Ltd. Vs. Deputy Commissioner of Income Tax & Ors., [(2008) 301 ITR 407 (Bom.)]” has held that if a query is raised during assessment proceedings and responded to by the Assessee, the mere fact that it is not dealt with in the Assessment Order would not lead to a conclusion that no mind had been applied to it.”
We find the Pune Bench of the Tribunal in the case of M/s. Angre Port Private Ltd. vs. PCIT vide for assessment year 2011-12, order dated 13.10.2020 while setting aside the order passed by the PCIT u/s 263 of the Act has observed as under: “10. We have heard the rival submissions and perused the material available on record. The only issue that comes up for consideration before us is whether or not the Pr. CIT were justified in exercising the power of revision of the assessment order on the issue of allowability of legal and professional charges of Rs.10 lakhs incurred in connection with the acquisitions of New Ship Lift System. From the perusal of para 6 at page no.10 of the Paper Book, it is crystal clear that during the course of assessment proceedings, the Assessing Officer had called for the details regarding the true nature of legal and professional expenses of Rs.10 lakhs and the same was explained by the assessee on being satisfied the Assessing Officer had chosen not to make any addition. The fact that the assessment order does not discuss about this item of the expenditure does not mean that the Assessing Officer had not examined the issue. In the circumstances, it cannot be said that there was no enquiry by the Assessing Officer on this issue of allowability of legal and professional charges of Rs.10 lakhs. The Hon‟ble Jurisdictional High Court in the case of Aker Powergas Pvt. Ltd. (supra) clearly held that even though the legal expenses are incurred in connection with the capital asset, the same are allowable as revenue expenditure after referring to the decision of the Hon‟ble Madras High Court in the case of Bush Boake Allen India Ltd. (supra) wherein the Hon‟ble Madras High Court following the decision of the Hon‟ble Supreme Court in the case of India Cements Ltd. vs. CIT, 60 ITR 52 held that merely because the expenditure was incurred in connection with the capital assets, the same cannot be treated as capital in nature. It is settled principle of law that once the High Court lays down particular the proposition of law, the same is deemed to be in existence from the inception. Fact would clearly suggest that there was no material on record to hold that the legal and professional expenses of Rs.10 lakhs are not allowable as revenue expenditure. Therefore, the law enunciated by the Hon‟ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) is clearly applicable to the facts of the case and the Assessing Officer only took one of the possible views and, therefore, the Pr. CIT was not justified in exercising the power of revision. Accordingly, we quash the order passed by the Pr. CIT u/s 263 of the Act.”
We find the Ahmedabad Bench of the Tribunal in the case of Zahurahmed Abdulrazzak Valjiwala vs. PCIT vide order dated 10.11.2022 while setting aside the order passed u/s 263 of the Act by the PCIT has observed as under: “12. We have heard the rival contentions and perused the material on record. The issue for consideration before us is the scope of enquiry under Explanation 2(a) to section 263 and whether in the instant facts can it be said that the order is passed by Ld. AO is without making inquiries or verification which should have been made, and hence erroneous and thus requiring revision by Pr. CIT u/s 263 of the Act. 12.1 An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer‟s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various High Courts in this regard. 12.2 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon‟ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 on the ground of inadequate inquiry “12.….. 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 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 different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open. —— — 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 Incometax 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 conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that 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.
Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of „lack of inquiry‟.” 12.3 In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113) “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. 12.4 The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words: “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-à-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 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. 12.5 Before deciding the issue, it would be useful to refer to some Supreme Court decisions on this subject which would throw useful light on the scope of enquiry under Explanation (a) to section 263 of the Act. 12.6 Recently the Supreme Court of India in the case of Principal Commissioner of Income-tax, Surat-2 v. Shreeji Prints (P.) Ltd.[2021] 130 taxmann.com 294 (SC) dismissed SLP filed by the assessee against order passed by High Court holding that where assessee-company had received unsecured loans from two different companies and Assessing Officer had made inquires in detail and accepted genuineness of same, such view of Assessing Officer being a plausible view could not be considered erroneous or prejudicial to interest of revenue. The facts of this case were that respondent assessee has filed its return of income showing total income of Rs. 62,55,900/- which was assessed under section 143(3) of the Act, 1961 by an assessment order dated 14th March 2016. The respondent company received unsecured loans from M/s. Georgett Tradecom Pvt Ltd and M/s. Purba Agro Food Pvt. Ltd amounting to Rs. 2.49 Crore and the Assessing Officer allowed these unsecured loans. The Principal Commissioner of Income-tax invoked section 263 of the Act, 1961 for revising the assessed income of the respondent assessee. It was noticed by the PCIT that the unsecured loans obtained by the respondent assessee are shown as investment in the name of the assessee in the share application as well as in the balance sheet of the respective companies. The PCIT passed an order under section 263 of the Act directing the Assessing Officer to pass fresh assessment order under section 143(3) of the Act, 1961 on the aspect of unsecured loans shown by the respondent assessee. The Hon‟ble Supreme Court made the following observation while deciding in favour of the assessee: “Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue.” 12.7 The Supreme Court in another recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates*[2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revisional order making addition to assessee's income under section 69A in respect of onmoney receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of on- money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revisional order under section 263 on ground that Assessing Officer had failed
to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's onmoney transactions and Tribunal thus set aside revisional order passed by Commissioner. The High Court upheld Tribunal's order. The Supreme Court while dismissing the SLP filed by the Department held as under: “We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed” 12.8 The Supreme Court in the recent case of Principal Commissioner of Income- tax-2, Meerut v. Canara Bank Securities Ltd[2020] 114 taxmann.com 545 (SC), dismissed the Revenue‟s SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations: “Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The Assessing Officer has taken a plausible view. More importantly, if the Commissioner was of the opinion that on the available facts from record it could be conclusively held that income arose from other sources, he could and ought to have so held in the order of revision. There was simply no necessity to remand the proceedings to the Assessing Officer when no further inquiries were called for or directed” 12.9 The Supreme Court in the case of Principal Commissioner of Income-tax--8 Mumbai v. Sumatichand Tolamal Gouti [2019] 111 taxmann.com 287 (SC) held that where High Court upheld Tribunal's order holding that AO had made detailed enquiries while allowing assessee's claim for deduction of business expenditure and, thus, revisional order passed by Commissioner was not sustainable, SLP filed against High Court's order was liable to be dismissed. The facts of this case were that in course of assessment, Assessing Officer allowed assessee's claim for deduction of certain expenditure on purchase of CDs on Jain Religion by expending an amount of Rs. 10.4 crores, after due examination. The Commissioner passed revisional order holding that Assessing Officer had not carried out any enquiries as to nature of expenditure being capital or not. The Tribunal, however, allowed assessee's appeal holding that Assessing Officer had carried out detailed enquiries and taken a view which was a plausible view. Accordingly, Tribunal set aside revisional order passed by Commissioner. The High Court upheld order passed by Tribunal. The Supreme Court on consideration of above facts held that SLP filed against High Court's order was to liable to be dismissed. The Supreme Court made the following observations, while passing the order: “It is by now well settled that, the Commissioner can exercise revisional powers under Section 263 of the Act only when it is found that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. In the present case, the Tribunal noted the observations of the Assessing Officer in the order of remand to the effect that Jain munis do not advocate spread of religion through use of computers, source of electronic media is usually shunned, very small section of the community uses computer technology for religious purposes as plenty of printed literature is available in the market. All these factors led to the market value of the CDs declining dramatically. It was on account of these reasons, that the assessee had incurred substantial loss arising out of reduction in the value of stock lying at the end of the year. The Tribunal, therefore noted that the Assessing Officer had carried out detailed enquiries and taken a plausible view.” 12.10 We note that during the course of assessment proceedings, the Ld. AO had issued several notices and had made enquiries on the issue of cash deposited during demonetization period, issue regarding low GP/NP rate, details of sundry creditors, details of service tax deposited etc. in the notices mentioned in the preceding paragraphs, to which the assessee had also replied. So, in our view, this is not a case where no enquiry has been made by the assessee officer during the course of assessment proceedings. It is also not the case of the Pr. CIT that the Ld. AO failed to apply his mind to the issues on hand or he had omitted to make enquiries altogether or had taken a view which was not legally plausible in the instant facts. As held by various Courts, s 263 of the Act does not visualise a case of substitution of the judgment of the Principal CIT for that of the Assessing Officer , who passed the order unless the decision is held to be wholly erroneous. As noted in various judicial precedents highlighted above, the Principal CIT, 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-visit the entire assessment and determine the income himself at a higher figure. Now on the issue that the Ld. AO passed a cryptic order and did not discuss in detail regarding assessee‟s submissions on various queries raised vide the various notices, in our view it is a well settled position of law that if from the assessment records, it is evident that the Ld. AO has made due enquiries in response to which assessee has filed its submissions, then even if the assessment order does not discuss all aspects in detail with regards to claim of the assessee, it cannot be held that the order is erroneous and prejudicial to the interests of the Revenue. The above proposition has been upheld in the case of CIT v. Reliance Communication 69 taxmann.com 109 (Bombay), Smt. Anupama Bharat Gupta v. ITO in ITA 1685/Ahd/ 2018, Goyal Private Family Specific Trust [1988] 171 ITR 698, CIT v. Mahendra Kumar Bansal [2008] 297 ITR 99 (All.) (para 10) etc. We thus find no error in the order of Ld. AO so as to justify initiation of 263 proceedings by the Ld. Pr. CIT. The Grounds of appeal raised by the assessee are thus allowed.”
29. The various other decisions relied on by the Ld. Counsel for the assessee placed in the paper book also supports his case to the proposition that when the Assessing Officer had raised specific queries on an issue and the assessee had given the reply to the same and the Assessing Officer after considering the reply of the assessee has passed the order, then the order cannot be set aside by the Ld. PCIT by invoking jurisdiction u/s 263 of the Act since it is not a case of lack of enquiry or no enquiry but at best may be inadequate enquiry. Since the Assessing Officer in the instant case has raised specific queries regarding the issues pointed out by the Ld. PCIT and the assessee had replied to the same and the Assessing Officer after considering the reply of the assessee has accepted the submissions made by the assessee, therefore, it is not a case of lack of enquiry and therefore, respectfully following the decisions cited (supra), we hold that it is not a fit case for invoking the jurisdiction u/s 263 of the Act. We, therefore, set aside the order passed by the Ld. PCIT and allow the grounds raised by the assessee.
30. The assessee has also raised an additional ground challenging the order of the Ld. PCIT in invoking the jurisdiction u/s 263 of the Act when the order has been passed by the Assessing Officer after approval of the Addl. CIT u/s 153D of the Act. However, the Ld. Counsel for the assessee did not press this additional ground for which the Ld. DR has no objection. Accordingly, the additional ground raised by the assessee is dismissed.
In the result, the appeal filed by the assessee vide is dismissed and the appeal filed by the assessee vide is partly allowed.
Order pronounced in the open Court on 9th April, 2025.