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Facts
The assessee challenged an order passed by the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The PCIT had initiated revision proceedings to review the assessment order passed by the Assessing Officer (AO) for the assessment year 2019-20, alleging that the AO had failed to properly examine unsecured loans.
Held
The Tribunal held that the PCIT failed to satisfy the twin conditions of Section 263, namely that the assessment order must be both erroneous and prejudicial to the interest of the revenue. The Tribunal found that the AO had conducted inquiries and formed a plausible view, and the PCIT's disagreement constituted a mere change of opinion, which is impermissible for invoking revisionary powers.
Key Issues
Whether the PCIT correctly invoked Section 263 of the Income Tax Act, 1961, when the Assessing Officer had conducted inquiries and formed a plausible view regarding unsecured loans, and if the PCIT's action was based on a mere change of opinion rather than demonstrable error and prejudice to revenue.
Sections Cited
263, 143(3), 133A, 142(1), 69B, 68, 119
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Income Tax Appellate Tribunal, JAIPUR BENCHES, “B” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;djvihyla-@ITA No. 1535/JPR/2024
fu/kZkj.ko"kZ@Assessment Year: 2019-20 Hariram Hospital cuke The Pr.CIT Vs. Bye Pass Road Hariram Hospital (Central ) Bhiwadi, Alwar – 310 019 (Raj) Jaipur LFkk;hys[kk la-@thvkbZvkjla-@PAN/GIR No.: AAFFH 5746 M vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assesseeby : Shri Himanshu Goyal, CA jktLo dh vksjls@Revenue by: Mrs. Alka Gautam, CIT-DR lquokbZ dh rkjh[k@Date of Hearing : 26/03/2025 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 17 /04/2025 vkns'k@ORDER PER : RATHOD KAMLESH JAYANTBHAI, AM By way of present appeal the assessee challenges the finding so recorded in the order of the learned Principal Commissioner of Income Tax, Central, Jaipur[ for short PCIT]. That order under challenge was passed on 18-03-2024 and relates to the assessment year 2019-20 passed while exercising the power vested upon the PCIT as per provision of section 263 of the Income Tax Act, 1961 [ for short Act ]. That order was passed by the HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR PCIT while reviewing the order passed by the assessing officer on 27-09- 2021 in the matter of assessment order passed u/s 143(3) of the Act.
2. In this appeal the assessee raised the following grounds of appeal :- ‘’1. That on the facts and in the circumstances of the case and in law, the Ld. Principal Commissioner of Income Tax (PCIT) has erred in issuing an order u/s 263 dated 18 03 2024 which is illegal wild unsustainable in law
2. The Ld. PCTT erred in law and tact in invoking the revisionary jurisdiction u/s 263 of the Income Tax Act, 1961. The learned PCIT's order is not justified on the following grounds:- (a) That the ld. PCIT failed to satisfy the mandatory twin conditions u//s 263 of the Act i.e. that the order passed by the AO must be both erroneous and prejudicial to the interest of the Revenue. The assessment order was neither erroneous in law nor caused any prejudice to the interest of revenue. (b) That the invocation of Section 263 is based on a mere change of opinion, which is impermissible under the law. The AO had conducted enquiries, examined the facts and formed a plausible view and the ld. PCIT’s disagreement with this view does not justify revision. (c) That the ld PCIT relied on materials that were not part of the ‘’record’’ as defined u/s 263. The term ‘’record’’ is restricted to documents and evidence available during the assessment proceedings and reliance on extraneous materials invalidates the invocation of jurisdiction. (d) That the ld PCIT initiated proceedings u/s 263 without conducting an independent examination of the records or applying their mind independently as required under the law. (e) That the ld PCIT failed to demonstrate how the assessment order was erroneous or prejudicial to the Revenue. Their findings were based on assumptionrather than corroborative evidence which does not meet the statutory requirements of Section 263. (f) That the ld PCIT did not establish any specific deficiencies or errors in the inquires conducted by the AO. The AO had conducted appropriate inquiries and their conclusions were reasoned and lawsful. (g) That the power u/s 263 cannot be used to substitute the judgement of the ld PACIT for that of the AO unless the AO’s order is patently unsustainable in law, which is not the case here.
3. That the objections raised by the assesse during the revision proceedings were not disposed of by the ld. PCIT through a reasoned or speaking order which is a procedural lapse and violates principles of natural justice.
HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR 4. That the ld PCIT erred in law and fact in treating the unsecured loans as not genuine and invoking Section 263 of the Income Tax Act, 1961 on the following grounds . a. That the unsecured loans were obtained from family members and the interest- free nature of these loans is consistent with customary familial financial arrangements ensuring the genuineness of the transactions. b. That the assessee submitted all necessary documentary evidence including PAN, bank statements, confirmations from lenders and their income tax returns to establish the identity, creditworthiness and genuineness of the transactions fulfilling all statutory obligations. c That the learned PCIT overlooked the principle that the opening balances of unsecured loans do not require re-verification during the year under consideration as these balances pertain to earlier periods that were not disputed. d. That the ld. PCIT incorrectly applied the doctrine of ‘’source of source’’ which is not the responsibility of the assesseee as per settled judicial principles. The assessee is required to only to establish the primary source of the loans which was duly done. e.That theld.PCIT reliance on extraneous materials and allegations without corroborative evidence or enquiries from third party lenders unjustly disregards the ample evidence provided by the assessee. f. That the assessee complied with all notices issud u/s 142(1) provided complete information and no adverse remarks were made by the AO indicating proper application of judicial mind. g. That the burden of proof to establish the non-genuineness of the loans lies with the Revenue authorities. The PCIT has failed to discharge his burden by presenting any credible evidence to support their claim.
5. That the revision u/s 263 is prejudicial to the interest of the assessee as it unnecessarily subjects them to further scrutiny without any substantive basis. The prolonged assessment process adversely impacts the business operation of assessee, which the appellate authority are urged to consider.’’ 2.1 At the outset of hearing of the appeal, the Bench noticed that there is delay of 207 days in filing the appeal by the assessee for which the HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR assessee has filed an application dated 05-03-2025 for condonation of delay giving therein following reasons: ‘’1. That the present appeal has been filed against the order under Section 263 of the Income Tax Act, 1961, passed by the Learned Principal Commissioner of Income Tax (PCIT) dated 18.03.2024, for the assessment year 2019-20.
That as per the provisions of the Income Tax Act, 1961, an appeal should have been filed within 60 days from the date of receipt of order i.e. by 17.05.2024. However, due to unavoidable circumstances, the appeal was filed on 10.12.2024, resulting in a delay of 207 days. This delay was neither intentional nor due to negligence but occurred due to bona fide reasons beyond the control of the appellant.
That the delay occurred primarily due to confusion arising from multiple orders passed by the Ld. PCIT under Section 263. The appellant received four separate orders, each with different notice numbers, which created uncertainty about which order was to be challenged before this Hon’ble Tribunal. 4.All four orders were issued on the same date, i.e. 18.03.2024 and their respective reference numbers are as follows (copies enclosed in Annexure-1): ITBA/REV/F/REV5/2023-24/1062871952(1) ITBA/REV/F/REV5/2023-24/1062877810(1) ITBA/REV/F/REV5/2023-24/1062867261(1) ITBA/REV/F/REV5/2023-24/1062869589(1)
To clarify which order was final and appealable, the appellant made multiple attempts to seek clarification from the office of the Ld. PCIT. The appellant personally visited the department and made repeated inquiries but received no clear response. Since no guidance was forthcoming, the appellant formally submitted a letter dated 30.07.2024, requesting confirmation on the correct order for appeal and seeking a declaration that the other three orders be treated as invalid(Annexure-2). Despite follow-ups, the department did notprovide any response leading to further uncertainty and delay.
6. That due to this procedural confusion, the appellant inadvertently ended up filing the appeal on 10.12.2024 against the last issued order, ITBA/REV/F/REV5/2023-24/1062871952(1), which unfortunately was beyond the prescribed time limit.
It is respectfully submitted that the delay in filing this appeal was not due to negligence or any deliberate action on the part of the appellant but was a result of a genuine and sufficient cause. The Hon’ble courts have consistently held that HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR condonation should be granted when there is a reasonable and bona fide explanation for the delay, as justice should not be denied on mere technical grounds. 8. It is also a settled principle that the term "sufficient cause" should be construed liberally to ensure that substantive justice prevails over procedural technicalities. In this regard, reliance can be placed on the following judgments:
Apex Court in the case of Collector, Land Acquisition v. Mst. Katiji and Ors. (167 ITR 471):-When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay Supreme Court in the case of Esha Bhattacharjee v. Raghunathpur Nafar Academy (2013) 12 SCC 649:-The Court stressed that there should be a liberal (so as to encapsulate the conception of reasonableness), pragmatic, justice-oriented approach. The expression ‘sufficient cause' as it appears in the Act, must be interpreted and understood in the proper spirit as these terms are elastic enough to be applied liberally in the interest of justice. Basawaraj v. Land Acquisition Officer, (2013) 14 SCC 81:-"9. Sufficient cause is the cause for which the defendant could not be blamed for his absence. The meaning of the word "sufficient" is "adequate" or "enough", inasmuch as may be necessary to answer the purpose intended. Therefore, the word "sufficient" embraces no more than that which provides a platitude, which when the act done suffices to accomplish the purpose intended in the facts and circumstances existing in a case, duly examined from the viewpoint of a reasonable standard of a cautious man. In this context, "sufficient cause" means that the party should not have acted in a negligent manner or there was a want of bona fide on its part in view of the facts and circumstances of a case or it cannot be alleged that the party has "not acted diligently" or "remained inactive". State of Nagaland v. LipokAo, AIR 2005 SC 2191:-The expression "sufficient cause" should be considered with pragmatism in justice-oriented approach rather than technical approach for explaining every day's delay. Prashant Projects Ltd. v. Dy. CIT [2013] 37 taxmann.com 137/145 ITD 202 (Mum - Tribunal):-The expression 'sufficient cause' is not defined in the Act, but it means a cause which is beyond the control of an assessee. For invoking the aid of the section 249, any cause which prevents a person approaching the CIT(A), within time is considered as sufficient cause. In doing so, it is the test of reasonable man in normal circumstances which has to be applied. The test whether or not a cause is sufficient is to see whether it could have been avoided by the party by the exercise HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR of due care and attention. In other words, whether it is bona fide cause? What may be sufficient cause in one case may be otherwise in another. What is of essence is whether it was an act of prudent of reasonable man. Subsequent decision of a court cannot constitute sufficient cause. The Mumbai ITAT in the case of Sterlite Industries (India) Ltd. v. Addl. CIT/Jt. CIT [2006] 6 SOT 497 (Mum.)]:- Laid down the following proposition on power of ITAT to condone delay: “The expression ‘sufficient cause or reason’ as provided in subsection (5) of section 253 of the Act is used in identical position in the Limitation Act, 1963 and the CPC. Such expression has also been used in other sections of the Income-tax Act such as sections 274, 273, etc. Keeping in mind the authoritative pronouncement of the Supreme Court, it is an admitted position that the words ‘sufficient cause’ appearing in sub-section (5) of section 253 of the Act should receive a liberal construction so as to advance substantial justice. It must be remembered that in every case of delay, there can be some lapse of the litigant concerned. That alone is not enough to turn down the plea and to shut the doors against him. If explanation does not smack of mala fide or does not put forth a dilatory strategy, the Court must show utmost consideration to such litigant. Further, the length of delay is immaterial, it is the acceptability of the explanation and that is the only criteria for condoning the delay.”
Your Honor, it is imperative to emphasize that neither the assessee nor its consultant had any deliberate or negligent intent in the delayed filing of this appeal. The assessee derives no benefit whatsoever from such a delay. The confusion was entirely due to the issuance of multiple notices under Section 263 of the Income Tax Act, 1961, which created significant uncertainty regarding which order to appeal against.
The issuance of four different orders on the same date with different reference numbers, led to procedural complications causing the assessee to seek clarification from the PCIT’s office. Despite best efforts, no response was received, leaving the assessee in a state of uncertainty. The delay was thus beyond the control of the assessee and purely due to an administrative lapse on the department’s part.
We earnestly plead that this Hon’ble Tribunal condone the unintentional delay in filing the appeal to prevent undue hardship to the assessee. Denying the assessee an opportunity to present its case merely due to a technical delayarising from a situation created by the revenue department itselfwould be against the principles of natural justice. It is a settled legal principle that procedural technicalities should not override substantive justice.
HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR 12. In this connection, the appellant places reliance upon the following judgments, which reinforce the principle that no assessee should be deprived of rightful adjudication due to an inadvertent and non-deliberate delay: Shri Pawan S. Jalan Versus Acit, Cir. 5 (3) , Ahmedabad,2019 (2) TMI 1068 Condonation of delay - bonafide mistake at the end of the chief accountant - delay in filing the appeal before the Commissioner - Held that:- Sub-section 5 of Section 253 of the Act contemplates that the Tribunal may admit an appeal or permit filing of memorandum of cross-objections after expiry of relevant period, if it is satisfied that there was a sufficient cause for not presenting it within that period. This expression “sufficient cause” employed in the section has also been used identically in sub- section 3 of section 249 of Income Tax Act, which provides powers to the ld. Commissioner to condone the delay in filing the appeal before the Commissioner. Similarly, it has been used in section 5 of Indian Limitation Act, 1963. M/S. Platinum Properties Versus TheDcit, Central Circle-1, Mumbai, 2014 (12) TMI 800 Assessee has explained a reasonable cause for not filing the appeal within the period of limitation as there was an inadvertent mistake at the office of the Chartered Accountant - by not filing the appeal within the period of limitation, the assessee cannot have any ulterior purpose - No prudent person would act in such a manner that his action can be detrimental to his own interest - By not filing the appeal on time, the assessee could not have derived any benefit - whenever substantial justice and technical considerations are opposed to each other, case of substantial justice has to be preferred and justice oriented approach has to be taken while deciding the matter on condonation of delay - the reasons explained by the assessee are not malafide. Vijay Vishan Meghani vs. DCIT (Bombay High Court) (2017) 398 ITR 250 None should be deprived of an adjudication on merits unless the Court of law or the Tribunal/Appellate Authority found that litigant deliberately and intentionally delayed filing of appeal. Nimesh Kanubhai Topiwala Vs DCIT (ITAT Surat)
Held that the delay in filing appeal before ldCIT(A)/ NFAC is not deliberate or intentional or gross negligence on part of assessee, therefore, considering the principle that when technical consideration and cause of substantial justice are pitted against each other, the cause of substantial justice may be preferred, therefore, delay in filing appeal before the ld. CIT(A) is condoned. And the order of ld CIT(A) is set aside. IN THE ITAT BANGALORE BENCH 'C' Sri Suhas Suresh Shet v. Income-tax Officer, International Taxation [2022] 140 taxmann.com 96 HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR The principles that emanate from the above said decisions are that, in the matter of condonation of delay in filing appeals beyond the limitation period, the courts are empowered to condone the delay, provided the litigant is able to demonstrate that there was "sufficient cause" in preferring appeal beyond the limitation period. The Courts have also held that the expression "sufficient cause" should receive liberal construction so as to advance substantial justice. Hence, the question of condonation of delay is a factual matter and the result would depend upon the facts of the case and the cause shown by the assessee for the delay. It has also been opined that generally delays in preferring appeals are required to be condoned in the interest of justice, where no gross negligence or deliberate inaction or lack of bona fides is imputable to the party seeking condonation of the delay. In view of the foregoing, we are of the view that the assessees have shown sufficient cause for the delay in filing the appeals before the Tribunal. Accordingly, we condone the delay in filing these two appeals before the CIT(A) and remit the entire issue in dispute to decide it on merits to the file of CIT(A) in accordance with law. HL Malhotra & Company Pvt. Ltd. Vs DCIT, New Delhi (ITA No. 211/2020 &CM Appeals 32045-32047/2020 dated 22 December, 2020) wherein delay of 498 days in filing was condoned by the Hon’ble Delhi High Court and it was held that in absence of anything male fide or deliberate delay as a dilatory tactic, the Court should normally condone the delay as the intent is always to promote substantial justice following the Hon’ble Supreme Court decisions in the case of Collector, Land to 318/JP/2020 Sh. Rakesh Garg Vs ITO 12 Acquisition, Anantnag&Anr. VsMst. Katiji and others (1987) 2 SCC 107 and N. Balakrishnan Vs M. Krishnamurthy 1998 (7) SCC 123. In G. Ramegowda, Major and others v. Special Land Acquisition Officer, Bangalore (1988) (2 SCC 142), Venkatachaliah, J. (as his Lordship then was), speaking for the Court, has opined thus: the expression 'sufficient cause' in Section 5 must receive a liberal construction so as to advance substantial justice and generally delays in preferring appeals are required to be condoned in the interest of justice where no gross negligence or deliberate inaction or lack of bona fides is imputable to the party seeking condonation of the delay. SoneraoSadashivrao Patil &Anr. v. Godawaribai [MANU/MH/0022/2000: 1999 (2) Manu 273]: "The primary function of a court to is to adjudicate the disputes between the contesting parties and to advance substantial justice. The rules of limitation are not made to harm the valuable rights of the parties. The discretion is given to the Court to condone delay and admit the appeal in order that judicial power and discretion in that behalf should be exercised to advance substantial justice. The requirement of explanation of every day's delay does not mean that a pedantic approach should be HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR taken. The courts are required to take pragmatic approach while interpreting the concept of sufficient cause. Too much rigour of the law is not justice but the denial of it. It is to be borne in mind the maxim 'Summum Jus, Summa Injuria'. Extreme law is extreme injury. In the matter of condonation of delay, the duration of delay is insignificant.
It is respectfully submitted that various courts, including the Hon’ble Supreme Court and High Courts, have consistently held that when an assessee has a bona fide reason for the delay and there is no malafide intent, the delay should be condoned in the interest of justice. In view of the above facts and legal precedents, it is humbly prayed that this Hon’ble Tribunal be pleased to condone the delay of 207 days and admit the appeal for adjudication on merits, ensuring that substantial justice is not defeated due to procedural constraints. It is submitted that by acceding to this humble request, the revenue is not going to be prejudiced but on the other hand your honor would advance substantial justice to the appellant.
2.2 On the other hand, the ld.DR objected to such inordinate delay and submitted that the Court may decide the issue as deemed fit and proper in the case.
2.3 We have heard both the parties and perused the materials available on record. In this case, it is noticed that there is delay of 207 days in filing the appeal by the assessee for which the main submission of the assessee is that the ld. Pr. CIT(Central), Jaipur had passed four different orders of same date i.e. 18-03-2024 and it was difficult for the assessee to decide as to which order is the final order and appealable before the ITAT. The assessee made efforts to know the exact order passed by the ld. PCIT (Central), Jaipur HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR from the Department but the assessee did not receive any response and thus the delay took place in late filing the appeal and it was not the negligence on the part of the assessee or any deliberate action which shows the sufficient cause in preventing the assessee in late filing the appeal. Hence, in this view of the matter, the delay in filing the appeal by the assessee is condoned and the appeal is now adjudicated on merit.
3.1 Brief facts of the case are that a survey action 133A of the Income Tax Act, 1961 was carried out on 28-08-2018 at business premises of the assessee firm. The assessee filed its original return of income on 30-10- 2019 declaring total income of Rs.9,63,910/-. The assessment u/s 143(3) of the Act was completed on 27-09-2021 at assessed income of Rs.40,80,265 (after making addition of Rs.31,16,355/- on account of unexplained investment u/s 69B of the Act).
3.2 The ld. PCIT on examination of examination of assessment records observed that the AO had not examined the veracity of the unsecured loans taken by the assessee during the year. Thus, the proceedings u/s 263 of the Act were initiated by way of notice issued dated 6-09-2022 and subsequent notices were issued on 26-09-2022 and 2-11-2022. Against on change of incumbency, another notice of hearing was given to the assessee through HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR ITBA Portal on 4-03-2024 fixing the case of hearing on 11-03-2024. In this case, the ld. AR of the assessee Shri Himanshu Goyal and Ms Shweta Daga, AR appeared before the ld. PCIT and submitted more or less the same facts and documentary evidence. The ld. PCIT has mentioned the gist of the submission of the assessee in her order as under:-
That a survey under Section 133A of the Income Tax Act was conducted at the premises of Hariram Hospital (Assessee), on 28.08.2018 The assessee filed its return of income declaring an income of Rs. 9,63,910/ under Section 139(1) of the Act on 30.10.2019. Thereafter the said return was selected for compulsory scrutiny. That the assessing officer had made detailed query in regard of the unsecured loans in the notice issued u/s 142(1) of the Income Tax Act 1961 and in prompt compliance with the said notice, the assessee, in its detailed response dated 15.02.2021, diligently provided all the requisite information, fulfilling the AO's directions Importantly, subsequent to this submission, no further information related to unsecured loans was sought by the Assessing Officer Additionally, it is noteworthy that another notice under section 142(1) was issued on 19.02.2021, which did not solicit any information related to unsecured loans Subsequent to this the assessment order was issued dated 27.09.2021, wherein the income of the assessee was assessed at Rs. 40,80,265/-. The significant addition of Rs 31,16,355 was made on account of an unexplained investment under Section 69B towards the construction of the hospital building That in response to the initial notice dated 06.09.2022 initiating revision proceedings under Section 263, the assessee raised objections and requested the discontinuation of the proceedings, seeking additional time to submit the required documents (Annexure-1 Paper Book Page No 1-4) Subsequent notices were issued on 26.09. 2022 and 02. 11. 2022 & in reply to these notices, the assessee furnished bank statements payment confirmations from parties and income tax returns providing evidence to establish the identity, genuineness and creditworthiness of the transaction (Annexure-2 Paper Book Page No. 5-38) That it is important to state that out of the total unsecured loans of Rs.51,90,000/- only an amount of Rs.25,20,000 has been received during the year under consideration. The details of the said loans is as under:-
HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR Party Involved Opening Loan received Closing Balance (Rs. during the Balance (Rs.) year (Rs.) Devendra Singh 10,50,000 4,00,000 14,50,000 Dr.Rajendra 8,20,000 4,50,000 12,70,000 Singh HUF Fateh Singh N/A 1,50,000 1,50,000 Yashasvi N/A 4,00,000 4,00,000 Pharmacy Neeraj Bhamla 1,00,000 3,00,000 4,00,000 Dr.Dilmohan 4,00,000 1,50,000 5,50,000 Singh Sarita Singh 3,00,000 N/A 3,00,000 Murti Devi N/A 70,000 70,000 Santri Devi N/A 6,00,000 6,00,000 Out of the total amount of Rs.51,90,000 only amount of Rs. 25,20,000/- was received during the year it is important to bring to your notice the relationship of the assessee with the parties who provided loan to the assessee. Sr. No. Party Involved Relation with the entity 1. Devendra Singh Nephew of Dr.Rajendra Singh and proprietor of Golden Medical Store 2. Dr. Rajendra Singh HUF HUF of Dr. Rajendra Singh 3. Fateh Singh Father of Dr.Rajendra Singh 4. Yashasvi Pharmacy Proprietor of Dr. Prashant, S/o Dr. Rajendera Singh 5. Neeraj Bhamla Nephew of Dr. Rajendra Singh 6. Dr.DilmohanSingh Brother-in-law of Dr.Rajendra Singh 7. Sarita Singh Sister-in-lawofDr.Rajendra Singh and wife of Dr. Dilmohan Singh 8. Murti Devi Mother-in-lawof Dr. Rajendra Singh 9. Sarita Devi Mother of Dr.Rajendra Singh That the unsecured loans under scrutiny are unequivocally interest-free and predominantly sourced from family members and close relatives. Hence the assessing officer had never doubted the veracity of the unsecured loans as the AO had venfied all the documents The issuance of the notice u/s 263 is against the principles of law set down with respect to issuance of notice under section 263 of the Act. Your attention is drawn to section 263 of the Act which reads as under The A.R of the assessee has in the submission tried to establish that the Assessment order passed by the Assessing officer is not erroneous but the action HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR now initiated is just a change of opinion hence cannot be subject to the revision u/s 263 of the Income Tax Act 1961 The A.R further placed reliance on the decisions as under 1 SMT LATA PHULWANI CIO RAMANAND GOYAL & CO VERSUS THE PRINCIPAL CIT-2, JAIPUR, 2020 (10) TMI 407-ITAT JAIPUR 2 CIT Vs Kelvinator of India Limited (Supreme Court of India) Civil Appeal Nos. 2009-2011 of 2003 3 Smt. Anupama Asawa Versus PCIT 2023 (2) TMI 201-ITAT INDORE 4 Shri Laxmi Narayan, L/H Shravan Lal Meena Late Sh. Bhagwanta Meena, Sio Shri Dungar. And Sh. Mahadev Balai v. CIT, Jaipur II and the ITO. Ward 7(2) (2017] 11 TMI 1822, Raj. HC 5 ELLORA INFRATECH PVT LTD VERSUS PRINCIPAL COMMISSIONER OF INCOME TAX-03, 2023 (10) TMI 773 ITAT DELHI, 6 Salora International Ltd. v. Add CIT (2005) 2 SOT 705 (Delhi) (Trib.) 7 GANPATI INTERNATIONAL VERSUS THE PCIT-III LUDHIANA, 2023 (3) TMI 1231 ITAT Indore 8 M/S Hari Om Stones. C/o Sh. Om Prakash v. Pr. CIT Alwar [2018] 4 TMI 393- ITAT Jaipur 9 CIT vs. Varinder Rawlley, OF 2007, Hon'ble High Court of Punjab & Haryana’’ It is noted by the ld. PCIT in her order that ld. counsels of the assessee stated that during the survey, verification of all material facts was done and that the survey team verified the books of accounts and correctness of entries regarding unsecured loans, but nothing wrong was found. The assessee further asserts that during the assessment proceedings, the assessee firm was asked to furnish complete details in the case of Devendra Singh to check the genuineness and creditworthiness of the loans and the HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR same was submitted. The assessee claimed that the AO derived satisfaction from the submissions made before him. Hence, there is no mention about the issue in the assessment order. The ld. PCIT further observed that the decisions relied upon by the A.R of the assessee have been considered, howeverwere not acceptable as the ld. AR is stating the present action is a change of opinion, whereas the assessing officer had not at all formed an opinion in the regard of the unsecured loans. Thus the ld PCIT felt that the assessing officer had not asked any question or made any investigation to examine the veracity of the unsecured loans taken by the assessee during the year. The ld. AO has just asked the question in regard to Shri Devendra Singh. Further on the examination of the record, it is seen that the assessee had not submitted confirmation of loan Bank account statement of Devender Singh during the assessment proceedings. The ld. PCIT also mentioned in her order that as per details available on record it is noticed that a specific questionnaire covering the issues from the survey proceedings had been issued by the ld. AO but necessary documents required to reach at conclusion in regard to the unsecured loans had not been sought and not placed on record. In respect of unsecured loans genuineness of the transactions, identity and creditworthiness of the lenders had not been S.N. Name Remarks 1. Rajendra Singh HUF The Bank account statement reveals that there is cash deposit just before forwarding of loan to assessee 2. Fateh Singh He is not filing of return of income and the bank account is given on the date when transfer of fund to assessee is reflected. Statement of prior period not submitted.
3. Murti Devi Only confirmation given, no bank account statement submitted. Further, she does not file return of income.
Neeraj Bhamla He has filed returnof Rs.3,08,000/- and forwarded loan of Rs.3,00,000/-. On perusal of bank account it is seen that there are cash deposits in bank few days before forwarding loan to assessee. Further bank account from which loan of Rs.1,00,000/- has been forwarded does not have entries prior to the loan giving date 5. Santri Devi Bank account from which loan of Rs.6,00,000/- has been forwarded, does not have entries prior to the loan giving date. She does not file return of income, hence source is not verifiable.
Prasahant Singh A.R. has just filed acknowledgement copy Prop.ofVashasvi of return. From this, it is not able to see the Pharmacy financial status of the proprietary concern. Further, there are continus credit into the bank account ad the details of sourceof credit not narrated. Further on 12-03-2019, there is cash deposit ofRs.1,50,000/- and again on 19-03-2019 there is cash deposit. The loans have been forwarded on 5-03- 2019 and 15-03-2019.
HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR 7. Murti Devi No documents submitted 8. Dr. Dilmohan Singh No documents submitted 9. Devendra Singh A.R. has just filed acknowledgement copy of return. From this, it is not able to see the financial status of the proprietary concern. Further, there are continuous credit into the bank account and the details of source of credit not narrated. Further on 22-02-2019, there is cash deposit of Rs.1,00,000/- and again on 1-03-2019 there is cash deposit of Rs.2,00,000/-. The loans have been forwarded on 2-03-2019 and 15-03-2010 Thus the Ld. PCIT noted that the source of loan is not clearly verifiable and noted that the AO allowed the claim of the assessee with regard to the unsecured loan availed by the assessee without application of mind and this lack enquiry and consequent non-deriving of reasoned interference by the AO has prima facie caused prejudice to the interest of the Revenue in view of the decision of Hon’ble Supreme Court in the case of Malabar Industrial Ltd. vs CIT 243. Conclusively, the ld. PCIT set aside the assessment order and restored to the file of the AO to examine unsecured loan taken by the assessee after allowing reasonable opportunity to the assessee giving the following findings; ‘’11 Considering all the facts and circumstances of the case and for the reasons discussed above, the assessment order dated 27/9/2021 for A.Y 2019-20 passed by the AO is held to be erroneous in so far as it is prejudicial to the interest of the revenue for the purpose of section 263 of the Act. The said order has been passed by the AO in a routine and casual manner without applying proper mind on the issue HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR involved. The AO has not verified the details which were required to be verified under the scope of scrutiny. The order of the AO is, therefore, liable to revision under the explanation (2) clause (a) of section 263 of the Act. The assessment order is set aside and restored to the file of Assessing officer to examine unsecured loans taken by the assessee afresh in the light of the observation made in this order after allowing reasonable opportunity to the assessee 3.3 During the course of hearing, the ld. AR submitted that he had submitted all the details before the ld. PCIT and the case laws as mentioned in his order. He further submitted that the assessment order is neither erroneous nor prejudicial to the interest of the Revenue and it was passed by the AO after due enquiry and application of mind and thus the revision order deserves to be quashed in its entirety. The Ground wise submissions as made by the ld. AR of the assessee is reproduced as under:-
‘’Submissions Ground No. 1 That on the facts and in the circumstances of the case and in law, the Ld. Principal Commissioner of Income Tax (PCIT) has erred in issuing an order u/s 263 dated 18.03.2024 which is illegal, void and unsustainable in law. The assessee respectfully submits that the impugned revisionary order passed under section 263 is bad in law, as the Ld. PCIT has failed to satisfy the twin conditions laid down under section 263(1) of the Act namely, (i) that the order passed by the AO is erroneous and (ii) that such error is prejudicial to the interest of the Revenue. In particular, the assessee submits that the Ld. PCIT has not demonstrated which of the conditions stated in Explanation 2 to Section 263 has been breached by the AO in the original assessment. As per Explanation 2, an order can be deemed erroneous in so far as it is prejudicial to the interest of the revenue only if: Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 82[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,— HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR (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. In the present case, the Ld. PCIT has neither cited nor invoked any of these clauses, nor has he recorded a finding as to which of these limbs were violated by the AO. This renders the revisionary order without legal foundation and mechanically passed. It is settled law that Explanation 2 does not give unbridled powers to the Commissioner to revise any order merely on a subjective belief. This principle has been clearly upheld in Ajay Agarwal v. ACIT [2025] 171 taxmann.com 91 (Jaipur - Trib.), where the Hon’ble ITAT held that: “In view of aforesaid factual and legal discussions, in our considered view, the twin condition as required to revise the assessment order is not met out in the present case. Even the amendment made to explanation 2 of section 263 does not confer blind powers and it is held that despite there being an amendment, enlarging the scope of the revisionary power of the ld. PCIT u/s 263 to some extent, it cannot justify the invoking of the explanation 2 in the facts of the present case. Before referring to that Explanation, one has to understand what the true meaning of the Explanation in the context of application of mind by a quasi-judicial authority was. Even that newly inserted Explanation 2 to Section 263 does not authorize or give unfettered powers to Commissioner to revise each and every order, if in his (subjective) opinion, same has been passed without making enquiries or verification which should have been made. While passing that order ld. PCIT failed to demonstrate that which of the conditions given in that explanation 2 to section is breached by the ld. AO. Thus, in the totality of facts and circumstances, it is not at all a case where the subjected assessment order should be alleged to be erroneous in so far as prejudicial to the interests of the revenue. There is neither error of law nor of facts. There is no erroneous assumption by the AO of either the facts or of law, as alleged by the ld. PCIT and therefore, the order passed by the ld. Pr. CIT is set aside and the ground of appeal raised by the assessee is allowed” Thus, without satisfying the threshold laid down in Explanation 2 and in absence of any error of fact or law shown in the AO’s order, the invocation of section 263 is without jurisdiction and liable to be quashed. Ground No. 2&
3. That on the facts and in the circumstances of the case and in law, the Ld. PCIT has grossly erred in invoking jurisdiction under Section 263 of the Act without satisfying the twin mandatory conditions of the provision and in doing so has erroneously acted upon a mere change of opinion, relied on materials beyond HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR the assessment record, failed to conduct an independent inquiry or demonstrate specific error or prejudice, thereby rendering the entire exercise bad in law, perverse and liable to be quashed. At the outset, the assessee respectfully submits that the impugned revisionary order passed under Section 263 of the Income Tax Act is wholly unsustainable in law as the twin conditions prescribed under the main provisions of Section 263(1)that the assessment order must be both erroneous and prejudicial to the interests of the Revenuehave not been satisfied.The law is wellsettled that unless both these conditions co-exist, the Principal Commissioner does not have jurisdiction to revise the order passed by the Assessing Officer under section 143(3). A plain reading of the show cause notice and the final order dated 18.03.2024 issued by the Ld. PCIT reveals that no specific clause of Explanation 2 to Section 263 has been invoked or relied upon. The language used in both documents is vague and lacks any legal or factual clarity.It merely states that the AO had not properly examined certain unsecured loans, without demonstrating how such non- examination resulted in prejudice to the Revenue or was contrary to law. This is especially surprising considering that: The assessment was framed under Section 143(3) after due scrutiny. The AO had issued a specific notice under Section 142(1) dated 29.01.2021 seeking details of the loan from Shri Devendra Singh. The assessee duly submitted the required confirmations, PAN, address, and other supporting documents vide reply dated 15.02.2021. No further inquiry or dissatisfaction was expressed by the AO on this issue. Additionally, it is significant that the AO made an addition under Section 69B on an entirely separate issue, which clearly indicates that he was actively applying his mind to the information on record and was not acting mechanically. In such a scenario, it is respectfully submitted that merely because the Ld. PCIT disagrees with the conclusion of the AO, it does not empower him to invoke revisionary jurisdiction. The law is abundantly clear that the PCIT cannot substitute his own opinion merely because he considers a different view to be more appropriate. This legal position has been laid down in a catena of decisions. In Smt. Lata Phulwani v. PCIT-2, Jaipur [2020 (10) TMI 407 – ITAT Jaipur], it was held that when an inquiry has in fact been conducted and the AO has reached a conclusion even if the assessment order does not narrate the details of such inquiry then the invocation of Section 263 is unsustainable if the record of the proceedings clearly reflects such inquiry. “Thus the Hon’ble High Court has held that the ld. CIT can cancel the order of the AO and require the concerned AO to pass a fresh order in accordance with the law after holding a detailed enquiry. But when the enquiry in fact has been conducted and the AO has reached a particular conclusion, though reference to such enquiries has not been made in the order of assessment, but the same is apparent from the record of the proceedings, the invocation of jurisdiction by the ld. CIT was unsustainable. The Hon’ble High Court has laid out a fine distinction between the orders where no enquiry has been made by the AO from the order based on inadequate enquiry.
HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR Therefore, where the AO has made an enquiry and taken a possible/permissible view, then the said order cannot be treated as erroneous and prejudicial to the interests of the revenue unless the view taken by the AO is unsustainable in law. The Hon’ble Supreme Court in case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) has held that an order of ITO cannot be treated as prejudicial to the interests of the revenue if the ITO adopted one of the course permissible in law and it has resulted in loss of revenue or two views are possible and the ITO has taken one view with which the ld. CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law” That the Hon’ble Delhi High Court in ITO v. D.G. Housing Projects Ltd. [343 ITR 329] has also held that the expression “prejudicial to the interest of the Revenue” must be read in conjunction with “erroneous” and that merely because the Commissioner does not agree with the AO’s decision, the same cannot be revised unless the view taken by the AO is unsustainable in law. The court further clarified that if two views are possible and the AO has taken one such view then even if there is a loss of revenue, that is not sufficient ground to invoke Section 263. “18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Income Tax, [2000] 243 ITR 83 / 109 Taxman 66 (SC), had observed that the phrase 'prejudicial to the interest of Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue. Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters, the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.” That the ld. PCIT, while invoking section 263 has merely stated that the AO failed to properly examine the issue of unsecured loans but has not demonstrated in what manner the AO’s order is erroneous or how it causes prejudice to the revenue. This approach of the PCIT is impermissible under the law, as held by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (243 ITR 83), where it was categorically observed that unless the assessment order is both erroneous and prejudicial to the interest of revenue, section 263 cannot be invoked. A mere possibility of prejudice or a different opinion held by the Commissioner is not sufficient ground for revision. In the recent decision of Shri Alok Vijawat v. PCIT, Udaipur [2025 (3) TMI 252 – ITAT Jaipur], the Hon’ble Tribunal reiterated the settled position that the jurisdiction under Section 263 can be invoked only when the assessment order is both erroneous and prejudicial to the interest of the Revenue. These twin conditions are HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR pre-requisites and must co-exist. If either condition is absent, the invocation of Section 263 is untenable in law 1. From the orders of the lower authorities and the submissions of the assessee, it is found that the pre-requisites to the exercise of jurisdiction by the CIT u/s 263, is that the order of the AO is established to be erroneous in so far as it is prejudicial to the interest of the Revenue. The ld. PCIT has to be satisfied the twin conditions, namely the order of the AO sought to be revised is erroneous; and it is prejudicial to the interests of the Revenue. If any one of them is absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, Sec.263 cannot be invoked. It is noted that this provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous as also prejudicial to revenue’s interest, that the provision will be attracted. The Bench noticed that an incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being erroneous. The phrase ‘prejudicial to the interest of the revenue’ has to be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue as a consequence of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue,or where two views are possible and AO has taken one view with which the ld. PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. We draw strength from the order of the Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. v/s CIT (2000) 243 ITR 83 (SC). We also refer to the case of CIT v/s Max India Ltd. (2007) 295 ITR 282 (SC) wherein it is held that ; "The phrase "prejudicial to the interests of the Revenue" in S. 263 of the Income Tax Act, 1961, has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law. This view has been reiterated in judgments such as Ellora Infratech Pvt. Ltd. v. PCIT [2023 (10) TMI 773 – ITAT Delhi], where the Tribunal held that the satisfaction of the AO with the documentary evidence provided by the assessee regarding identity, creditworthiness and genuineness of loans is a matter within his domain and the PCIT cannot question that unless it is shown that no inquiry was conducted at all or that the view taken was perverse. The ITAT, while setting aside the revisionary order emphasized that the AO’s approach may not match the perfection expected by the Commissioner but that alone does not render it erroneous.
HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR “There is another aspect to put challenge to supervisory jurisdiction. From the text and tenor of the revisional order, it is manifest that the transactions of loans from various lenders required proper and fuller inquiry and examination by the AO in the expectation of the Pr.CIT. In this regard, we notice that it is demonstrated on behalf of the assessee that requisite enquiries were made by Assessing Officer towards identity, capacity and genuineness of unsecured loans received during the year. The issue was very much present to the mind of the AO. Having regard to the prerogative vested with the AO towards the extent and manner of inquiry for drawing satisfaction, it is difficult to hold that the action of the AO is unintelligible. AO has not committed any error in not chasing ‘will of the wisp’ in the absence of any brazen circumstances available. In the light of aforesaid discussion, the basis of issuance of show cause notice u/s 263 of the Act does not appear to be tenable in law in the peculiar set of facts. Consequently, the assumption of jurisdiction u/s 263 of the Act on this ground too, will have to be regarded as without authority of law. Assessee appeal allowed.” Similarly, in Ganpati International v. PCIT-III, Ludhiana [2023 (3) TMI 1231 – ITAT Indore], it was held that the PCIT’s desire for “deep-rooted” inquiry cannot be a valid ground if the AO has already made relevant inquiries and formed a plausible opinion based on the material before him. The Tribunal observed that the PCIT was merely substituting his view for that of the AO, which is outside the scope of Section 263. “Revision u/s 263 by CIT -unsecured loans received - as per CIT deep rooted enquiries were required to be made, which had not been done by the AO - HELD THAT:- It is not the case of the Ld. PCIT, that the Assessing Officer had not made any enquiry while accepting the unsecured loans as genuine PCIT is, thereby, trying to substitute the plausible view taken by the AO with his own view. This course of action is not permissible under the revisionary provisions under section 263. The grievance of the Assessee is found to be justified and it is accepted as such. Looked at from any angel, the order under appeal is unsustainable in the eye of the law, and we hold so. The impugned order is, hence, reversed, whereas the assessment order is revived. Assessee appeal is allowed.” The same approach was followed by the Hon’ble ITAT Jaipur in M/s Hari Om Stones v. Pr. CIT, Alwar [2018 (4) TMI 393], where it was held that when the AO has examined the issue and passed a reasoned assessment order under Section 143(3), the Pr. CIT cannot invoke revision merely on the ground that a more detailed inquiry should have been done. The AO’s judgment, unless shown to be illegal or perverse, must be respected. “Thus, these facts suggest that the Assessing Officer has taken into consideration the material before him and after due application of law and of facts and then reached at the conclusion to conclude the assessment U/s 143(3) of the Act. It was not a case where Assessing Officer completed the assessment without conducting necessary and proper enquiries. The issue raised by the ld. Pr.CIT has been considered by the Assessing Officer at the time of assessment and the assessee has submitted evidences and details in support of its claim made in P&L account. Therefore, in our considered view, the order passed by HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR the Assessing Officer U/s 143(3) of the Act on 24/3/2014 was not an erroneous order, which could be said to be prejudicial to the interest of the revenue. Considering the ratio laid down in various case laws relied upon, we set aside the order passed by the ld. Pr.CIT.” It is further submitted that the assumption of revisionary power cannot be based on a mere change of opinion. The Assessing Officer had taken a possible and plausible view after due verification and just because the PCIT may have a different perspective on the same issue, that cannot be a ground to term the order erroneous. The revisionary order is also vitiated by lack of application of mind. The show cause notice and final order are both vague and lack clarity. No independent inquiry was conducted by the PCIT to verify the correctness of the AO’s findings or to establish any real prejudice to the revenue. This is in direct contravention of the principles laid down by various courts which require the Commissioner to act as a quasi-judicial authority and not merely issue mechanical directions. Ground No. 4 & 5 That the learned PCIT has erred in law and on facts in invoking revisionary jurisdiction under Section 263 of the Income Tax Act, 1961 by treating the unsecured loans received by the assessee as non-genuine. The action is unsustainable as the Assessing Officer had already conducted due inquiries and accepted the explanation furnished. That the unsecured loans in question, aggregating to Rs. 51,90,000/- were received from close family members and known associates. These loans were interest-free and routed entirely through proper banking channels, which is consistent with customary familial financial practices.The table mentioned below meticulously outlines the relationships between the parties involved in the unsecured loan of Rs. 51,90,000/- and Dr. Rajendra Singh, a partner at Hariram Hospital.
S.No. Party Involved Relation with the entity 1. Devendra Singh Nephew of Dr. Rajendra Singh and proprietor of Golden Medical Store 2. Dr Rajendra Singh HUF of Dr. Rajendra Singh HUF 3. Fateh Singh Father of Dr. Rajendra Singh 4. Yashasvi Pharmacy Proprietorship of Dr. Prashaant, son of Dr. Rajendra Singh 5. Neeraj Bhamla Nephew of Dr. Rajendra Singh 6. Dr. Dilmohan Singh Brother-in-law of Dr. Rajendra Singh HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR 7. Sarita Singh Sister-in-law of Dr. Rajendra Singh and wife of Dr. Dilmohan Singh 8. Murti Devi Mother-in-law of Dr. Rajendra Singh 9. Santra Devi Mother of Dr. Rajendra Singh The assessee submitted documentary evidence for each lender, including PAN details, bank statements reflecting the transactions, confirmation letters and income tax returns where applicable. These documents collectively established the identity, genuineness and creditworthiness of each lender. It is a settled legal principle that the assessee is not required to establish the source of the source of the funds. In the present case, the learned PCIT incorrectly invoked this doctrine, which has been consistently rejected by courts in favor of requiring only the proof of the immediate source. By insisting on explaining the source of funds of the lenders, the Ld. PCIT has gone beyond the mandate of law and imposed an undue burden on the assessee. Furthermore, a portion of the loans pertained to opening balances carried forward from earlier years. It is respectfully submitted that such opening balances are not subject to re-verification during the current year, particularly when no issues were raised in the past assessments. The Ld. PCIT has erred in disregarding this settled principle and treating old balances as unexplained. TheLd PCIT has not brought any material on record to contradict the evidence submitted by the assessee. No adverse inference has been drawn by conducting independent inquiries from the lenders, nor has any material evidence been cited to indicate that the transactions are not genuine. The revision is thus based merely on conjecture and a subjective difference in opinion. Lastly, the revision order causes undue hardship to the assessee and is prejudicial to its interest. Subjecting the assessee to a fresh round of assessment on a settled matter, without any new facts or evidence, results in unwarranted harassment and delays in the finality of assessments. The business operations of the assessee are adversely impacted due to such protracted proceedings, which defeats the very purpose of efficient tax administration.Accordingly, the revision order passed by the learned PCIT under Section 263 deserves to be quashed. In light of the above facts and legal position, it is respectfully submitted that the action of the PCIT in invoking revisionary jurisdiction under section 263 is arbitrary, unjustified and legally untenable. The assessment order is neither erroneous nor prejudicial to the interests of the revenue and was passed after due inquiry and application of mind. The revision order deserves to be quashed in its entirety.’’ 3.4 During the course of hearing, the ld. DR supported the order of the ld.PCIT.
3.5 We have heard both the parties and perused the materials available on record. The assessee is a partnership firm engaged in service sector in the name and style of ‘’Hariram Hospital’’. For the relevant year under consideration the assessee filed its return of income on 30.10.2019, declaring a total income of Rs. 9,63,910/-. It is pertinent to note that a survey under Section 133A of the Act was conducted at the business premises of the assessee on 28.08.2018. Consequently, being a survey case the assessee’s return was compulsorily selected for scrutiny. It is noted that during the course of assessment proceedings, the AO issued a detailed notice under Section 142(1) dated 29.01.2021, specifically calling for details regarding the unsecured loan obtained from Shri Devendra Singh. The AO required the assessee to furnish the ledger account, confirmation, PAN and postal address of the said lender. The assessee, in complete and timely compliance, furnished all such details in its reply dated 15.02.2021. Notably, after receiving the said response no further query or clarification was sought by the AO regarding any other loan party. It is noted that the assessment was thereafter completed under Section 143(3) of the Act on 27.09.2021.
HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR The AO made aaddition of Rs. 31,16,355/- under Section 69B of the Act on account of unexplained investment. However, no adverse inference whatsoever was drawn in relation to the unsecured loans received by the assessee indicating that the AO had duly applied his mind and was satisfied with the explanation and documentary evidence provided. Subsequently, the Ld. PCIT issued a show cause notice u/s 263 proposing to revise the assessment, on the ground that the AO had failed to verify the genuineness of unsecured loans. In response, the assessee raised objections against initiating revision proceedings under Section 263 and filed a detailed reply, explaining that the loans were received from close family members, were interest-free in nature and were supported by confirmations, PANs, ITRs and bank statements of the lenders thereby fully discharging the initial burden of proof laid down under Section 68 of the Act. It was also clarified that some of these loans represented opening balances from earlier years, which had already been accepted and assessed without dispute.Despite the above, the PCIT proceeded to invoke jurisdiction under Section 263 and passed the impugned order directing fresh examination by the AO. From the available records, it is noted that ld. PCIT’s order suffers from serious legal infirmities and factual inaccuracies:
HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR Firstly, the order fails to satisfy the twin conditions mandated under Section 263 that the assessment order must be both erroneous and prejudicial to the interests of Revenue. In the present case, neither of these pre-conditions were met. Secondly, the PCIT has invoked Section 263 based on a mere change of opinion, which is impermissible under law when the AO has already made inquiries and taken a plausible view. Third, the PCIT failed to point out any specific deficiency or error in the inquiries conducted by the AO and merely substituted his own judgment, which is not permissible unless the AO’s conclusion is patently unsustainable. Fourth and most importantly, the PCIT has not even invoked or referred to any specific clause of Explanation 2 to Section 263 in the show cause notice. This is a serious jurisdictional defect.
It is noticed that the AO made an addition of Rs.31,16,355/- u/s 69B of the Act on an entirely separate issued which clearly indicates that he was actively applying his mind to the information on record and was not acting mechanically. We also noticed that the ld.PCIT did not agree with the conclusion of the AO and it does not empower him to invoke revisionary jurisdiction. The law is abundantly clear that ld. PCIT cannot substitute his own opinion merely because he considers a different view to be more appropriate. The bench noted that in the order ld. PCIT write that “It is also noted that a questionnaire had been issued with regards to issues arising out of survey proceeding, but meaningful questions leading to a satisfactory HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR inference were not asked.” Thus, we note that ld. PCIT wants the ld. AO should have made the enquiry the way she wants and that is not permitted under the law. This legal position has been laid down in catena of decisions. (i) Smt. Leela Phulwati vs PCIT-2, Jaipur (ITA No.246/JP/2020 dated 6-10- 2020. (ii) Shri Alok Vijiawat vs PCIT,Udaipur [2025 (3) TMI 252 – ITAT, Jaipur] (iii) Ganpati International vs PCIT-III, Ludhiana [2023 (3) TMI 1231 – ITAT Indore wherein it was held the PCIT’s desire for “deep-rooted” inquiry cannot be a valid ground if the AO has already made relevant inquiries and formed a plausible opinion based on the material before him. The Tribunal observed that the PCIT was merely substituting his view for that of the AO, which is outside the scope of Section 263. “Revision u/s 263 by CIT -unsecured loans received - as per CIT deep rooted enquiries were required to be made, which had not been done by the AO - HELD THAT:- It is not the case of the Ld. PCIT, that the Assessing Officer had not made any enquiry while accepting the unsecured loans as genuine PCIT is, thereby, trying to substitute the plausible view taken by the AO with his own view. This course of action is not permissible under the revisionary provisions under section 263. The grievance of the Assessee is found to be justified and it is accepted as such. Looked at from any angel, the order under appeal is unsustainable in the eye of the law, and we hold so. The impugned order is, hence, reversed, whereas the assessment order is revived. Assessee appeal is allowed.” (iv) The same approach was followed by the Hon’ble ITAT Jaipur in M/s Hari Om Stones v. Pr. CIT, Alwar [2018 (4) TMI 393], where it was held that when the AO has examined the issue and passed a reasoned assessment order under Section 143(3), the Pr. CIT cannot invoke revision merely on the ground that a more detailed inquiry should have been done. The AO’s judgment, unless shown to be illegal or perverse, must be respected. “Thus, these facts suggest that the Assessing Officer has taken into consideration the material before him and after due application of law and of facts and then reached at the conclusion to conclude the assessment U/s 143(3) of the Act. It was not a case where Assessing Officer completed the assessment without conducting necessary and proper enquiries. The issue raised by the ld. Pr.CIT has been considered by the Assessing Officer at the time of assessment and the assessee has submitted evidences and details in support of its claim made in P&L account. Therefore, in our considered view, the order passed by the Assessing Officer U/s 143(3) of the Act on 24/3/2014 was not an erroneous HARIRAM HOSPITAL, ALWAR VS PCIT (CENTRAL), JAIPUR order, which could be said to be prejudicial to the interest of the revenue. Considering the ratio laid down in various case laws relied upon, we set aside the order passed by the ld. Pr.CIT.”
In the light of the above facts and circumstances of the case and decisions cited (supra), the order passed as to Section 263 upon the assessee does not hold good and same deserve to be quashed.Thus, the appeal of the assessee is allowed. 4.0 In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 17-04-2025.
Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼jkBksMdeys'kt;UrHkkbZ ½ (DR. S. SEETHALAKSHMI) (Rathod Kamlesh Jayantbhai) U;kf;dlnL;@Judicial Member ys[kklnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 17/04/2025 *Mishra, Sr. PS आदेश की प्रतिलिपिअग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू The Appellant- Hariram Hospital, Bhiwadi, Alwar 1. 2. izR;FkhZ@ The Respondent- Them Pr. CIT (Central), Jaipur 3. vk;djvk;qDr@ Theld CIT 4. विभागीय प्रतिनिधि] आयकरअपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZQkbZy@ Guard File By order,
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