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Income Tax Appellate Tribunal, “B” BENCH, PUNE
Before: SHRI S.S.GODARA, JM & SHRI DR. DIPAK P. RIPOTE, AM
आदेश / ORDER PER S. S. GODARA, JM :
These twin assessee’s as many appeals; both for AY 2015-16, arise against the PCIT- 2 Nashik’s, separate orders dated 31.03.2020 & 30.03.2020 in case Nos. ITBA/REV/F/REV5/2019-20/1026905261(1) & 1026901742(1); respectively, in proceeding u/s.263 of the IT Income Tax Act, 1961; in short "the Act‖.
Cases called twice. None appears at assessee’s behest. They are accordingly proceeded ex-parte. Heard the Revenue. Case files perused.
Learned CIT DR at the outset invited our attention to PCIT’s identical revision directions in both these cases as follows :-
“2. On a perusal of the case records for the AY 2015-2016, it appeared to me that though the main issues of selection of scrutiny were verification of large agricultural income in comparison to total income and Large value sale of Futures (derivativesj in a recognized stock exchange reported in Securities Transaction Tax Return (STT Code 5),the assessment proceedings in this case were completed u/s. 143(3) of the Act without making proper enquiries and verifications which was expected on the facts and in the circumstances of the case. In this regard, the following points were noticed:
The assessee has shown gross agricultural (i) receipts of Rs.69,45,111/- being sale of cotton, banana and others. This comprises of sale of cotton Rs.15.16 lakhs, banana Rs.27.67 lakhs and others Rs.26.61 lakhs against the same, after claiming various expenditure surplus of Rs.38.96 lakhs is shown. The a common agriculture account is submitted where a common agriculture account is also submitted in which besides agriculture income of Rs.69.45 lakhs, agriculture income in Rambhau Account in 3 different banks amounting to Rs.37.39 lakhs is added to arrive at gross agriculture income of Rs.106.84 lakhs. Again this gross income, expenditure from agriculture notebook of Rs.30.48 lakhs is reduced. Besides, interest expenditure in the accounts of assessee amounting to Rs.1.1 lakh and in the accounts of his wife amounting to Rs.1.00 lakhs is reduced to arrive at agriculture profit of Rs.74.24 lakhs out of which share of assessee is shown at Rs.29.44 lakhs. This is the same income which is disclosed in return of income. In support of the same, copies of 7/12 extracts, sale patties of agricultural produce, have been furnished.
However, on verification of the supporting documents/evidences furnished, it is noticed that the AO has failed to carry-out inquiries regarding “other” crops claimed to have been cultivated but not reflecting in the 7/12 extracts, and also failed to carry out third party verification in respect of the bills furnished regarding sale of agricultural produce, despite the nature of sale patties. The AO has failed to make any efforts to carry-out necessary verification which was warranted in view of the huge quantum of agricultural income disclosed by you as also the fact that the case was selected for scrutiny to verify the same.
Further, it is also noticed that the AO has failed to (ii) carry-out proper enquiries as regards the details of your family, sources for incurring personal expenditure /household expenditure and expenditure incurred on agricultural activity.
3. In view of the above facts, the assessment order passed u/s. 143(3) of the Act dated 27/12/2017 by the then ITO, Ward- 2(5), Jalgaon, was prima-facie found to be erroneous and prejudicial to the interests of Revenue, because the assessment was made not only without proper verification but also not applying the relevant provisions of the Act properly. Accordingly, a show-cause notice u/s.263 of the Act was issued on 11/03/2020 on e-mail through ITBA System calling upon the assessee to attend and/or make written submissions on 17/03/2020 at 11.30 am. The Systems shows that the said notice was served through e-mail on 11/03/2020.
4. In response to the show-cause notice, assessee furnished written reply through his Authorized Representative Shri Pukhraj Banwat, ITP by e-mail dated 23/03/2020. In the submission, it has been claimed that- During the course of assessment proceedings, the (i)
AO had taken all the necessary documents such as 7/12 extracts, bank statements, details of crops taken & sold amount- wise, details of expenditure incurred, copy of diary maintained by the assessee for receipt & expenditure, balance sheet, Income & expenditure account, agricultural account, etc. Further the Talathi has been requested to give detail goshwara of crops taken to be submitted before this Office.
The assessee has kept whatever possible record (ii) for the agricultural income & expenditure. It has been argued that the assessee has 58 bighas of land which is fully irrigated and the average income per bigha is around Rs.1.28 lacs. The assessee himself is cultivating the land and taking maximum possible crops by adopting most modern techniques of cultivation.
(iii) The AO has visited and seen the method of cultivation and variety of crops taken at a time and also appreciated the same and also taken photographs of the crops.
Therefore, it has been requested not to re-open the proceedings.
On a perusal of the submissions, it is can be seen that the reply of assessee is very general and it has not furnished any specific explanation as regards the various issues as pointed-out in the show-cause notice u/s.263 referred to above. With regard to issue i.e. details regarding “other” crops claimed to have been cultivated but not reflecting in the 7/12 extracts and verification in respect of the bills furnished regarding sale of agricultural produce. It is stated by the assessee that during the course of assessment proceedings, the AO had taken all the necessary documents such as 7/12 extracts, bank statements, details of crops taken & sold amount-wise, details of expenditure incurred, copy of diary maintained by the assessee for receipt & expenditure, balance sheet, Income & expenditure account, agricultural account, etc. Further the Talathi has been requested to give detail goshwara of crops taken to be submitted before this Office. I have examined the submission of assessee vis a vis assessment records and observed that:
A) The AO has not even raised any question for furnishing of sale patties related to sale of agricultural goods sold i.e. “other" crops though they are not recorded on the 7/12 extract.
B) Further, from the examination of sale patties submitted by assessee, it is seen that even name and address of the issuing persons are not appearing. In these circumstances, the AO was expected to ask further details which are verifiable and carry out carry out third party verification of these sale patties which is claimed to have part of gross agricultural receipts, at least on test check basis.
C) On verification of order sheet entry dated 21.12.2017 that during assessment proceedings, it is stated that assessee has not maintained any record related to agricultural activity i.e. bills vouchers related to expenditure incurred on cultivation of crops i.e. labour payment, purchase of seeds, fertilizers and pesticides etc. Assessee has prepared common agricultural account of the family and on that basis the net agricultural income of the assessee has been disclosed in the ratio of land holding of the assessee.
D) Further, the AO has not obtained the basis on which the agriculture income is distributed among 4 persons, he has also not obtained details of various expenditure.
E) Moreover his submission before undersigned has stated that the talathi has been requested to give details of goshawara. This itself fortify the reasons raised in SON on the basis of which the undersigned prima facie was satisfied the AO did not make proper verification and enquiries expected of in the facts and circumstances of the case and proposed the action under section 263 of income tax act.
In view of the above facts and discussions, it is an clear that the assessment proceedings in this case have been completed without making proper verifications and enquiries about the agriculture income declared by the assessee. Therefore, the provisions of Explanation 2(a) to Section 263 of the Act are squarely applicable in this case. The same are reproduced as under for the sake of convenience:
"263. (1) The Principal Commissioner or Commissioner……..
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;…………………..
8. Even before the explanation 2 to section 263 was inserted w.e.f. 01.06.2015, it was always a consistent interpretation of various Courts, that not making proper enquiry or failure to make due verification by the Assessing Officers gives jurisdiction under section 263, now the legal position itself has been made it clear by inserting Explanation (2) to Section 263 of the I.T. Act, which is declaratory nature of providing clarity on the issue. Therefore, all the judicial pronouncements in which the applicability of provisions of section 263 has been upheld on the ground of due verification and inquiries not being carried out by the AO will be clearly applicable. Moreover, the scope of due verification and inquires which comes out from earlier judicial pronouncements can only enhance by the insertion of explanation (2) to section 263 of the IT Act, 1961.
8.1. On the legality of invoking jurisdiction u/s.263 of the I.T. Act, on the ground that the A.O. failed in making due verification and enquiry, the various judicial pronouncements made even before insertion of explanation 2 to section 263 of the IT Act, 1961 discussed hereunder will make it very clear that this is a fit case for invoking the provisions of Section 263 of the Act. a) It was held by Hon’ble Bombay High Court in the case of Ballarpur Industries Ltd. (85 Taxmann.com 10) that "it is now settled in view of Malabar Industries (supra) that non-enquiry before allowing the claim would make the order of the Assessing Officer amenable to jurisdiction under Section 263 of the Act. The non-enquiry by the Assessing Officer gives jurisdiction under Section 263 of the Act. It was further held that the Assessing Officer cannot abdicate his responsibility of examining the claim for deduction before allowing it. Absence of examination of the claim made by the assessee while passing an assessment order and allowing the claim made, would render the order of the Assessing Officer erroneous and coupled with the fact that in this case it is admitting prejudicial to the interest of the revenue, exercise of the revisional jurisdiction under Section 263 of the Act by the Commissioner of Income Tax proper and valid”. b) In the case of Rajalakshmi Mill Ltd vs. ITO, Coimbatore [2009] 31 SOT 353 (Chennai) (SB), the ld. Tribunal held that “it is not necessary for the Commissioner to make further enquiries before cancelling the assessment order of the Assessing Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Assessing Officer should have made further inquiries before accepting the statements made by the assessee in his return. ”
In the case of Dr. Rabindra Kumar Singh vs. CIT c) (Central), Patna [2011] 131 ITD 39 (Ranchi), the Id. Tribunal held as under:
Section 263 seeks to remove the prejudice caused to the revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suomoto proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous and prejudicial to the interest of the revenue on the ground that, in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return.
8.2. In fact, the Courts have gone even one step ahead and held that filing of details on the issue doesn’t preclude CIT from acquiring jurisdiction u/s 263 of I.T. Act. Moreover, accepting replies without further enquiry or without taking the enquiries to the logical and also results into the order being erroneous and prejudicial to the interest of revenue. In this regard, the following judgments are relevant: In the case of Ballarpur Industries Ltd., where the a) claim of deduction u/s.80HHC was allowed by the Assessing Officer, it was claimed that the Assessing Officer has applied his mind and examined the assessee’s claim for deduction u/s.80HHC of the Act before granting the same. It is held by the Hon’ble Bombay High Court that the words "due verification" would include within its ambit not only inadequate inquiry/verification but also no enquiry/verification. It was further observed that “the Assessing Officer cannot abdicate his responsibility of examining the claim for deduction before allowing it. Absence of examination of the claim made by the assessee while passing an assessment order and allowing the claim made, would render the order of the Assessing Officer erroneous”.
The Hon’ble Bombay High Court in the case of b) Jeevan Investment & Finance (P) Ltd. (88taxmann.com552 Bombay) where the Assessing Officer raised query regarding method of valuation of unquoted shares and in response, assessee merely stated that said shares were valued at cost without submitting method of valuation held, order of Assessing Officer accepting loss on sale of said shares without making further enquiry was erroneous and prejudicial to the interest of revenue. It was observed that merely asking a question which goes to the root of the matter and not carrying it further is a case of non-enquiry, if the query is not otherwise satisfied while responding to another query. In the instant case, the Assessing Officer raised query regarding valuation of shares in question to which response was only that the unquoted shares were valued at costs. No method of valuation of the shares was submitted to the Assessing Officer during the proceedings, leading to the assessment order. It, therefore, appeared that the Assessing Officer after having asked a pertinent question of the method of valuing unlisted shares did not pursue that line of enquiry. Thus, this was a case of non-enquiry and not inadequate enquiry. Therefore, the order of the Assessing Officer was certainly erroneous and prejudicial to the revenue. It clearly comes out from the above order that having asked the pertinent question and not pursuing the line of enquiry also makes the order erroneous and prejudicial to the interest of revenue.
In Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR c) 375 (Del). Hon’ble Delhi High Court held that “an Income Tax Officer, in contradistinction to a civil court, which is neutral, is not only an adjudicator but also an investigator. He cannot, therefore, remain passive in the face of a return which is apparently in order but calls for further enquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as provoke an enquiry. It is because it is incumbent on him to further investigate the facts stated in the return when the circumstances would make such an enquiry prudent that the word 'erroneous' in s. 263 includes a failure on his part to make such an enquiry. The order is erroneous because such an enquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct”.
In the case of Ambika Agro Suppliers vs. ITO, d) Jalgaon [2005] 95 ITD 326 (Pune), the Id. Tribunal held that" On a perusal of the assessment order, it was clear that the Assessing Officer had not discussed nor even examined the above issues keeping in view the relevant provisions of law…….. However, the Assessing Officer had not conducted any enquiry. Mere filing of an explanation was not sufficient and at the same time, it could not be inferred that the Assessing Officer had applied his mind. There was also no proper verification in respect of creditors from whom the assessee had accepted unsecured loans. No specific enquiries to prove the genuineness of these loans had been conducted by the Assessing Officer. The Assessing Officer had simply obtained account extracts of these parties as appearing in the books of the assessee and accepted the loan as genuine. No confirmation letters were filed from these parties. The assessment order was also silent as to whether the Assessing Officer had made enquiries for verifying the identity of the creditors, their capacity to advance the loan and genuineness of the transactions. Failure to make enquiries in that regard rendered the assessment order passed by interests of the revenue. ”
In the case of Rameshchandra Maleram Varma vs. e) DCIT [2002] 121 Taxmann 29 (Ahd.)(Mag.) it was held that the Commissioner was justified in passing order under section 263 of the Act where the Assessing Officer had not examined the above issues or had not conducted any enquiry. It was held that mere filing of an explanation was not sufficient given that there was also no proper verification in respect of creditors from whom the assessee had accepted unsecured loans and no specific enquiries to prove the genuineness of these loans had been conducted by the Assessing Officer where he had account extracts of these parties as appearing in the books of the assessee and accepted the loan as genuine. The ratio decided of these judicial authorities are equally applicable here.
In the case of Mahalakshmi Liquor Promoters (P) f) Ltd vs. Commissioner of Income Tax [2013] 29 taxmann.com 70, the ld. Tribunal, found that there was no enquiry by the Assessing Officer on the issues raised by the CIT. It was held that the lack of enquiry or inadequate enquiry by the Assessing Officer was a valid reason for revision of the assessment order. The ld. Tribunal further held that it can safely be said that an order passed by the Assessing Officer becomes erroneous and prejudicial to the interests of the Revenue under section 263 if it is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim called for.
The Ld. Tribunal, therefore, concluded that “an order becomes erroneous because inquiries, which ought to have been made on the facts of the case, were not made and not because there is anything wrong with the order if all the facts stated or the claims made in the return are assumed to be correct. Thus, it is mere failure on the part of the Assessing Officer to make the necessary inquiries or to examine the claim made by the assessee in accordance with law, which renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing more is required to be established in such a case. If the Assessing Officer passes an order mechanically without making the requisite inquiries or examining the claim of the assessee in accordance with law, such an order will clearly be erroneous in law as it would not be based on objective consideration of the relevant materials. It is therefore, the mere failure on the part of the Assessing Officer in not making the inquiries or not examining the claim of the assessee in accordance with law that per se renders the resultant order erroneous and prejudicial to the interest of the revenue. Nothing else is required to be established in such a case to show that the order sought to be revised is erroneous and prejudicial to the interests of the revenue, "(emphasis supplied)
Conclusion: Thus, it clearly comes out from the explanation (2) to section 263 of the IT Act, 1961 and the above judgments that not conducting due verification amounts to the order being erroneous and prejudicial to the interest of revenue. Similarly, adopting the pertinent line of enquiry but not taking it to the logical end also renders the order erroneous and prejudicial to the interest of revenue. Accordingly, I am of the considered opinion that the assessment order dated 27/12/2017 passed by the AO u/s. 143(3) of the Act is erroneous and prejudicial to the interest of Revenue, because the assessment has been made without applying the proper provisions of Law while verifying the issues discussed in para 5 above and therefore comes within the ambit of Section 263 of the Act.
Therefore, invoking the provisions of Section 263 of the Act, the assessment order u/s.143(3) of the IT Act, 1961 dated 27/12/2017 passed by the Assessing Officer is hereby set-aside and he is directed to frame the assessment de novo after verifying various issues including the issues raised in this order after ascertaining the all relevant facts and applying the law properly. Needless to say that the Assessing Officer shall give the assessee reasonable opportunity of being heard and pass a speaking order after taking into consideration the explanation and supporting evidence submitted by the assessee.”
Mr. Meena next submits that very nature of revision proceedings had arisen in both these assessee’s’ cases in succeeding assessment year 2016- 17 wherein the learned co-ordinate bench’s common order in their respective appeals ITA 177 and 176/PN/21 dated 06.05.2022 has upheld the same. And further that there is no distinction on facts in these twin assessment year since learned PCIT herein has pin-pointed specific application of section 263 revision proceeding on account of Assessing Officer’s failure in having accepted agricultural income claims without adequate enquiry(ies) during scrutiny. The very factual position emerges on perusal of the learned co- ordinate bench order to this effect. Faced with the situation we adopt judicial consistency to affirm the learned PCIT’s identical revision directions terming the corresponding twin assessments as erroneous ones causing prejudice to interest of the Revenue. Ordered accordingly.
Delay of 478 and 112 days in these appeals stand condoned since falling in Covid-19 pandemic outbreak period.
5. These twin assessee’s many appeals are dismissed in above terms. A Copy of this common order be placed in the respective files.
Order pronounced in the Open Court on this 21st day of September, 2022.