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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA, JM This appeal is preferred by the assessee against the order passed u/s 263 of the Income Tax Act, 1961 (hereinafter called ‘the Act’) vide dated 3.10.2016 passed by the Ld. Principal Commissioner of Income Tax, Noida {PCIT} pertaining to assessment year 2013-14.
2.0 The brief facts of the case are that the assessee was engaged in the business of medical transcription services, software development services and information technology related services. The assessee furnished its return of income on 29.9.2013 declaring Nil income for assessment year 2013-14. The aforesaid return was selected for scrutiny and came to be asssessed at the returned income on 28.3.2016 u/s 143(3) of the Act. Notice was issued on 18.1.2017 u/s 154 of the Act and, reply thereon was furnished on 8.2.2017. The Ld. PCIT, thereafter, issued show-cause notice dated 1.3.2018 u/s 263 of the Act on the following basis:
“2. On examination of the records, it has been noticed that:- (i) During the year, fresh capital of Rs. 9,02,09,297/- has been shown introduced by Shri Shaleen Bajapai, partner of the assessee firm. Shri Shaleen Bajpai has shown income of Rs. 37,205/- only in his return of income filed for AY 2013-14. Vide reply dated 02.1.2015, the source of this capital introduction has been explained by the assessee out of repayment of loan from M/s Jagdish Data Systems Private Ltd. at Rs 3,81,58,000/- and out of withdrawals from the capital account of Shri Shaleen Bajpai with M/s Jet Tech System at Rs 5,12,86,000/- However, vide reply dated 31.01.2017, placed on record, the assessee has submitted that Rs. 3,93,58,000/- has been introduced on account of repayment of loan from M/s Jagdish Data Syatems Private Ltd. and Rs. 5,35,28,000/- has been introduced out of capital withdrawal from M/s Jet Tech System. Thus, it is clear that the figure of capital introduction submitted by the assessee is not reconciled and the AO has not examined the source of introduction of huge capital during the year thoroughly. The AO has filed to even obtain the balance sheet or statement of affairs of Shri Shaleen Bajpai for last three years, who has shown substantial capital introduction in his capital account. 3. In View of Para 2 above, the assessment order passed by the A.O seems to be erroneous in so far as it is prejudicial to the interest of revenue since the Assessing Officer has not examined the issue as mentioned above during the scrutiny assessment proceedings.”
2.1 In response to the show-cause notice, the assessee, in its reply contended that revision u/s 263 was not warranted as the order of assessment was neither erroneous nor prejudicial to the interest of revenue. It was submitted that the Assessing Officer (AO) had issued a detailed questionnaire and the assessee, vide letter dated 2.12.2015, had duly explained the source of capital introduced by the partner and this was supported by evidences filed along with the said reply. The Ld. PCIT however rejected claim of the assessee and proceeded to hold that the order of assesment was passed without proper enquiry and was, therefore, erroneous and prejudicial to interest of revenue. The AO was directed to pass an assessment order de-novo after examining all the issues/aspects involved in the case after affording reasonable opportunity to the asssessee.
2.2 Aggrieved with the order passed by the Ld. PCIT, the assessee is now before this Tribunal (ITAT) and has challenged the proceedings u/s 263 of the Act by raising the following grounds of appeal:
“1. That the impugned assessment order is neither erroneous nor prejudicial to the interest of revenue as held by the Pr. CIT.
That on the facts and circumstances of the case, the learned Commissioner of Income Tax is erred in law giving directions u/s 263 of the Income Tax Act as the A.O. has framed the impugned order u/s 143(3) after making proper enquiry.
That the Ld. Pr. CIT has given direction u/s 263 of the Act without making any enquiry as required under the law, in spite of written request by the appellant in reply to show cause notice.
That the Pr. CIT has failed to appreciate that the impugned assessment order was selected for scrutiny under CASS only for verification of capital introduced by the partner. Accordingly, the A.O. after raising necessary query by way of notice u/s 142(1) and on being satisfied about the source of capital introduced by the partner, framed the impugned order. Therefore, the order cannot be perverse.
That on merit, Sh. Shaleen Vajpayee, the partner of the firm has introduced capital out of withdrawal of his capital/loan accounts in his other business entities, (subject to scrutiny u/s 143(3) of the Act) by account payee cheques under the same jurisdiction.
Without prejudice to the above the learned Commissioner of Income Tax has erred in law and facts while directing the A.O to make de- novo assessment.
That any other grounds of appeal may be added/deleted or amended at the time of hearing.
Therefore it is prayed that the directions u/s 263 of the Act, may please be declared as void or any other suitable order as the Hon’ble Bench may deem fit be passed.”
3.0 Before us the Ld. Authorised Representative (AR) submitted that the impugned order was passed without satisfying the statutory provisions in the Act. It was submitted that it is not a case of lack of enquiry and also it is not a case of inadequate enquiry whereby an unsustainable view has been formed by the Assessing officer. It was submitted that it is well settled law that credit in the capital account of a partner cannot be brought to tax as income of the assessee u/s 68 of the Act. Reliance was placed on following judicial pronouncements: i) 257 Taxman 440 (SC) Pr. Cit v. Vaishnodevi Refoils & Solvex affirmed the judgment in the case of Pr. CIT v. Vaishnodevi Refoils & Solvex reported in 253 Taxman 135 (Guj) ii) 49 ITR 723 (Bom) Orient Trading Co. Ltd. v. CIT iii) 245 ITR 160 (MP) CIT v. Metachem Industries iv) 252 ITR 344 (P&H) CIT v. Barna Electro Corporation v) 11 TMI 630 (P&H) CIT v. Metal & Metals of India vi) 208 CTR 459 (P&H) CIT v. Rameshwar Dass Suresh Pal Cheeka vii) 53 Taxman 135 (Guj) Pr. CIT v. Vaishnodevi Refoils & Solvex viii) 141 ITR 706 (All) CIT v. Jaiswal Motor Finance ix) 218 ITR 508 (All) India Rice Mills v. CIT x) 221 ITR 239 (All) Surendra Mahan Seth v. CIT xi) 263 CTR 612 (All) Zafa Ahmad and Co. v. CIT xii) 268 ITR 381 (Pat) CIT v. Md. Perwez Ahmad and Others xiii) 282 CTR 200 (Pat) CIT v. Anurag Rice Mills xiv) 268 ITR 381(Pat) CIT v. Md. Parwez Ahmad xv) 400 ITR 120 (Jhar.) Prayag Tendu Leaves Processing Co. v. CIT xvi) 291 ITR 232 (Mad.) CIT v. Taj Borewells xvii) dated 20.12.2017 Shri Gems v. ITO xviii) ITA No. 3734/D/2018 dated 29.3.2019 AMS Roadlines v. DCIT 3.1 It was also submitted by the Ld. AR that the issue is squarely covered by the order of the Hon’ble High Court of Jharkhand in case of Prayag Tendu Leaves Processing Co. vs. CIT reported in 400 ITR 120, wherein in an identical situation the Hon’ble High Court has held that action under section 263 of the Act is invalid. It was further submitted that the reply dated 2.12.2015 and the order of assessment dated 28.3.2016 establish that invocation of section 263 was without merit. It was, therefore, prayed that it be held that section 263 was not validly invoked.
4.0 On the other hand the Ld. CIT DR supported the action of the Ld. PCIT that on facts the impugned action u/s 263 of the Act was in accordance with law.
5.0 We have considered the rival submissions and have also perused the material on record. It is seen that in the instant year the assessee firm had raised capital from one of the partners namely Shri Shaleen Vajpayee to the tune of Rs. 9,02,09,297/-.
During the assessment proceedings a query regarding the same was raised by the AO and the assessee, vide reply dated 2.12.2015, had stated as under:
“1.Details of source of addition of capital with evidence (in response to point no. 8 your Questionnaire)- The assessee is a partnership firm. During the year capital was introduced by one of its partenrs, Shaleen Vajpayee to commence operations of the firm. An addition of approx Rs. 9 crores (Rupees Nine Crores) was made by the said partner the source of which is explained below:- i) Receipt of loan repayment from M/s Jagdish Data Systems Pvt. Ltd.- An amount of approx 4 crore was invested in the firm out of the repayments of loans advanced to M/s Jagdish Data System Pvt. Ltd. during earlier years. 7 ii) Withdrawal of capital from M/s Jet Tech System – Capital to the tune of approx 5 crore was introduced in the assessee firm out of withdrawal of capital by Shaleen Vajpayee from M/s Jet Tech System. In evidence of the abvoe, balance sheet of the said firms showing their corresponding loan amounts and capital account of Shaleen Vajpayee alongwith a statement of capital additon is attached for your reference. “
5.1 It is further seen that the AO, on consideration of the aforesaid reply in the order of assessment, accepted the claim and explanation by assessee by holding as under:
“3. On the CASS reason of Introduction of Capital in a year, vide questionnaire dated 28.10.2015, query was raised. In reply assessee submitted that during the year capital was introduced by one of its partners Sh. Shaleen Vajapyee to commence operation of the firm. The source of the partner was receipt of loan repayment from M/s Jagdish Data Systems Pvt. Ltd. and withdrawal of capital from M/s Jet Tech Systems. The assessee has filed details of capital addition by Sh. Shaleen Vajapyee out of loan repayments received from other concerns. …. After due verification of available facts and records and examination of assessee submission, income of the assessee is computed as under:- Returned Income Rs. Nil/- Assessed Total Income Rs. Nil/- 5.2 From the reading of the impugned order and the notice u/s 263 it is noted that the edifice of the impugned revision is that issue of introduction of capital of Rs. 9,02,09,297/- by the partner Shri Shaleen Vajpayee had been accepted without proper investigation and enquiry in view of following: a) That Shri Shaleen Vajpayee has only declared an income of Rs. 37,205/- in the return of income for assessment year 2013-14; b) That in reply dated 2015, the source of capital introduction was explained out of repayment of loan from M/s Jagdish Data Systems Pvt. Ltd. of Rs. 3,81,58,000/- and out of withdrawals made from the capital account of Shri Shaleen Vajpayee with M/s. Jet Tech Systems of Rs.
5,12,86,000/- whereas in reply dated 31.1.2017, the assessee had submitted that Rs. 3,93,58,000/- had been introduced in account of repayment of loan from M/s.
Jagdish Data Systems Pvt. Ltd. and Rs. 5,35,28,000/- out of capital withdrawals from M/s Jagdish Data Systems Pvt.
Ltd.; c) That the Assessing Officer had failed to even obtain the balance sheet or statement of affairs of Shri Shaleen
Vajpayee for the last three years who has shown substantial capital introduction in his capital account. 9 5.3 It will be noted from the above that, undisputedly, even as per the Ld. PCIT, the capital has been received from Shri Shaleen Vajpayee who is a partner of the assessee firm. It is also noted that during the course of proceedings the assessee had stated that capital was introduced to commence operations of the firm and that the source thereof were withdrawals from M/s Jagdish Data Systems (P) Ltd. and M/s Jet Tech Systems. The balance sheets of said entities showing their corresponding loan amounts and capital account of Shri Shaleen Vajpayee along with a statement of capital addition was placed on record. However what has been held is that Shri Shaleen Vajpayee had explained source of capital essentially out of withdrawals from two entities namely Jagdish Data System (P) Ltd. and M/s Jet Tech System but the figures as reflected in the reply and the figures as furnished in response to notice u/s 154 of the Act were not the same. In this context, the basic contention of the assessee is that in a case of capital contribution by the partner who is assessed to tax and such capital being introduced through banking channels which is also duly confirmed, in such circumstances it cannot be validly alleged and held that the claim was accepted without enquiries in the assessment proceedings, particularly when the 10 evidence in support of capital contribution has been placed on record.
5.4 It is trite law and has also been held by the Hon’ble Jharkhand High Court in case of Prayag Tendu Leaves Processing Co. v. CIT (Supra) that under section 68, Assessing Officer, while assessing a Partnership Firm, can ask for source of income of partnership firm, but ‘source of source’ cannot be examined. In the said case, the Commissioner of Income Tax, while exercising power under section 263 of the Act, revised the assessment mainly on the ground that huge amount of cash was brought to the partnership firm by two partners namely Shri Ranjan Jaiswal and Smt. Anju Jaiswal. Shri Ranjan Jaiswal had brought cash in of Rs.9,46,126/- and Smt. Anju Jaiswal had brought in cash of Rs.9,51,563/-. It was also noted that no details had been given as to how the cash had been obtained by Shri Ranjan Jaiswal and Smt. Anju Jaiswal and, therefore, as per the Commissioner of Income Tax, the Assessing Officer had not properly investigated as to how the cash had been brought in the partnership firm. The Commissioner of Income tax had also held that the Assessing Officer had not examined the identity, genuineness of transaction and creditworthiness of the donors.
Opportunities were given to the assessee to produce the donors, but, the donors were never produced. The Hon’ble Jharkhand High Court held that since the assessee is a partnership firm and the amount was received through banking channels, the assessee can show the source of income of the partnership firm, but "the source of source" cannot be shown by the firm. It was held that if the department wants to reopen the assessments of Shri Ranjan Jaiswal and Smt. Anju Jaiswal, it is always permissible in the eyes of the law subject to the restrictions imposed by the Income Tax Act regarding limitation etc. The Hon’ble Jharkhand High Court relied upon the judgement of Hon'ble Gujarat High Court in the case of DCIT vs. Rohini Builders reported in 256 ITR 360 where in it had been held as under:
"7. We have considered the rival submissions and have also gone through order passed by the Assessing Officer, the relevant portion of which we have also extracted in para 2 above. The Commissioner of Income Tax (Appeals) more or less confirmed the addition on the reasoning given by the Assessing Officer in the assessment order. A perusal of the chart given by us in para 3 above indicates that out of 21 creditors the Assessing Officer has recorded the statements of only six creditors, viz. creditors at serial Nos.1, 2, 3, 4, 6, and 7. However, in respect of all the 21 creditors the 12 assessee has furnished their complete addresses along with GIR numbers/ permanent account numbers as well as confirmations along with the copies of the assessment orders passed in the cases of creditors at serials Nos.1, 2, 4, 5, 6, 7, 9, 10, 11, 12 and 16. In the remaining cases where the assessment orders passed were not readily available, the assessee has furnished the copies of returns filed by the creditors with the Department along with their statement of income. All the loans were received by the assessee by account payee cheques and the repayments of loans have also been made by account payee cheques along with the interest in relation to those loans. It is rather strange that although the Assessing Officer has treated the cash credits as non- genuine, he has not made any addition on account of interest claimed as business expenditure and has been allowed by the Assessing Officers. It is also pertinent to note that in respect of some of the creditors the interest was credited to their accounts/ paid to them after deduction of tam at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the Assessing Officer. Thus it is clear that the assessee had discharged the initial onus which lays on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses GIR numbers/ permanent accounts numbers and the copies of assessment orders wherever readily available. It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by accounts payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT MANU/MH/0055/1962. The genuineness of the transaction is proved by the fact that the payment to the assessee as well as cheques and the interest is also paid by the assessee to be depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee - from those creditors as not-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation MANU/SC/0249/1986. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessment in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69."
5.4.1 The Hon’ble Jharkhand High Court had also relied upon the judgement of the Hon'ble Patna High Court in the case of ACIT vs. Hanuman Agarwal reported in 151 ITR 150 where in it had been held as under:
“3. It is by now well-settled that Sec.131 (1)(b) empowers but does not oblige the revenue authorities concerned to administer oath. Therefore, the statements of witnesses taken without administration of oath are equally admissible in evidence. When the evidence of such witness is being taken in the course of the assessment proceeding, the witness has no right, but the assessee has, to be represented by a lawyer or other authorised representative. The assessee is not supposed to know the capacity of the money-lender or the cash creditor. It is within the exclusive domain or the dark trusses of the minds of the creditors to know as to whether and how their sources of income are arrived. It is for that specific purpose that Sec.131 of the Act has been introduced so that in case of any suspicion, the ITO or the authorities concerned may exercise the powers of a civil court under Sec.131 and call upon the creditor concerned to prove his capacity to pay and the genuineness of his transaction. Once the ITO or the authority concerned is satisfied that the creditor is not telling the truth, it has been left open to the assessee to discharge his subsequent onus of proving the genuineness of the transaction and the capacity of the creditor to pay by cross-examining him. Where, therefore, an assessee gives the correct name, address and the G.I.R. number of the creditor, as my learned brother has observed, he has discharged his onus and unless a notice in due form under Sec.131 of the Act is issued by the revenue authority concerned to test the veracity or the genuineness of the transaction or the capacity of the creditor to pay, the assessee has to succeed."
5.4.2 The Hon’ble Jharkand High Court has also relied upon the judgement of Hon'ble Punjab & Haryana High Court in the case of Rameshwar Dass Suresh Pal Cheeka (Supra) where in it has been held as under:
´5. We are also in agreement with the view taken by the Tribunal that no case was made out for addition to the income of the firm even if deposits made with the firm by the partners were unexplained income of the partners. These view has been taken by us in our recent order passed on 6-11-2006 in CIT v. Metal & Metals of India [IT Appeal No.370 of 2006], wherein it was observed as under:- "In the present case, the firm has given explanation about the source namely Suresh Bhandari, partner, who himself is an assessee. The said partner has admitted having made deposit with the firm. Thus, as far as the firm is concerned, even if the gift claimed to have been received by Suresh Bhandari is to be rejected, the said Suresh Bhandari may be liable to be taxed by treating the said amount as undisclosed income, but the firm cannot be subjected to tax on that ground.”
5.4.3 Furthermore, the Hon’ble Jharkhand High Court also placed reliance upon the judgement of the Hon'ble Madras High Court in the case of Taj Borewells (Supra) where it has been held as under:
“'13. In the present case, the assessee-firm had explained the source of capital. So, there was an explanation offered by the assessee-firm. The said explanation has not been rejected by the Assessing Officer. Later, the Assessing Officer examined the partners and the partners had also made explanation in respect of the source for the contribution of the capital to the assessee-firm. The Assessing Officer had also partially accepted the explanation offered by the partners. The Assessing Officer had not rejected the explanation offered by the firm. Unless and until the explanation offered by the firm is rejected and the same is not genuine, the Assessing Officer cannot invoke the provision of Section 68 of the Act. In the present case, the explanation offered by the firm was accepted and later, the Assessing Officer examined the partners and not accepted the explanation. The Assessing Officer cannot ask the assessee-firm to prove source of a source. Once the firm had offered an explanation and established that the capital was contributed by the partners, the same could not be assessible in the hands of the firm. Unless there are contradictions and inconsistencies in the statement of the partners, the credit cannot be treated as unexplained and cannot be added under Section 68 of the Act in the hands of the assessee-firm. Also, it is clear from the language employed under Section 68 of the Act that only the assessee alone has to offer explanation. If the assessee makes explanation, it is for the Assessing Officer to accept or reject the same. The finding given by the Tribunal is that the assessee- firm had explained the source of the capital and hence the same cannot be assessed as undisclosed income in the hands of the assessee firm. The order of the Tribunal reads as follows:—
"When the assessee has explained the amounts as capital contributions by the partners, the Revenue authorities are not justified in holding that the assessee has not explained the source and the same is to be added under the head Other Sources in the hands of the firm. In case the Assessing Officer doubted the genuineness of the source, he should have considered the same in the hands of 18 the partners only and not in the case of the firm. This view of ours is supported by the decisions of the Allahabad High Court in the cases reported in 141 ITR 706 and 221 ITR 239, cited supra. Under these circumstances, we delete the addition of Rs.5,25,000/-under the head Other Sources from the income of the assessee-firm.”
5.4.4 The Hon’ble Jharkhand High Court also took note of the judgement of the Hon'ble Madhya Pradesh High Court in the case of Metachem Industries (Supra) where in it has been held as under:
"3. We have heard learned counsel for the parties. Section 68 of the Act of 1961 says that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. Therefore, according to Section 68, the first burden is on the assessee to satisfactorily explain the credit entry in the books of account of the previous year. If the explanation given by the assessee is satisfactory, then that entry will not be charged with the income of the previous year of the assessee. In case the explanation offered by the assessee is not satisfactory or the source offered by the assessee-firm is not satisfactory, then in that case, the amount should be taken to be the income of the assessee. In the present case, the Assessing Officer did not feel satisfied with the explanation given by the assessee and accordingly assessed all the three credit entries to the account of the assessee as the income."
5.4.5 Lastly the Hon’ble Jharkhand High Court has also discussed the judgement of Hon'ble Allahabad High Court in the case of Zafa Ahmad & Co. (Supra) where in it has been held as under:
“9. Taking the various facts enumerated above, we are of the considered opinion that the Tribunal had erred in holding that the amount deposited by the two partners is liable to be added under section 68 of the Act on the ground that the gifts received by the respective partners from the various persons could not be explained as creditworthiness of the donors had not been established. The Tribunal had wrongly drawn an adverse inference upon the fact that the donors had filed their Income Tax Return for the Assessment Years 1988-89 to 1991-92 on a single day and further the return for the Gift Tax was filed on 25.08.1992, which was well within the due date."
5.4.6 Thus in view thereof Hon’ble Jharkhand High Court has held as under:
“7. In view of the aforesaid decisions where assessee has given support of the gift or the amount received from the particular person with necessary documents, such as, copies of demand drafts and cheques etc., no addition could have been made by this appellant in respect of the amount received by the assessee. Under Section 68 of the Income Tax Act, the Assessing Officer while assessing a Partnership Firm, can go behind the source of income of the partnership firm, but he cannot go to "source of source". The aforesaid aspect of the matter has been properly appreciated by the Income Tax Appellate Tribunal by allowing the appeal preferred by the respondent - assessee and no error has been committed by the Income Tax Appellate Tribunal, Circuit Bench, Ranchi.” 5.5 In the instant case, the Ld. PCIT has essentially exercised revisionary power u/s 263 of the Act to examine the source of source of partner which is not permissible in the eyes of law. In fact during the course of hearing before us, it was brought to our notice that notice u/s 148 of the Act has been issued in case of Shri Shaleen Vajpayee and, therefore, revenue is otherwise not without any legal recourse of examining such investment in the firm.
5.6 Moreover, acceptance of capital introduction from the partner on the evidence placed on record by the Assessing Officer is a possible view and, not an unsustainable view and, therefore, even otherwise invocation of section 263 is not in accordance with law. In CIT vs. DLF Ltd. reported in 350 ITR 555 the Hon’ble Delhi High Court applying the mandate of the Hon’ble Apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT reported in 243 ITR 83 and CIT vs. Max India Ltd. reported in 295 ITR 282 has held that it is not mere prejudicial to revenue or a mere erroneous view which can be revised but there must be an element of un- sustainability which clothes the Commissioner with the jurisdiction u/s 263 of the Act. Also in the case of ITO vs. D.G. 21 Housing Project Ltd reported in 343 ITR 329 it was held by the Hon’ble Delhi High Court that in case of inadequate enquiry it is incumbent for the Commissioner to conduct enquiry and not merely remit the matter to the Assessing Officer without conducting any verification/enquiry. In the case of PCIT vs. Delhi Airport Metro Express (P) Ltd. reported in 398 ITR 8 (Del) it has been held as under:
“9. It is seen, in the order dated March 30, 2016, the Principal Commissioner of Income-tax has proceeded by setting out the contents of the show-cause notice and the contents of the reply given by the assessee. It appears that no inquiry, as such, was undertaken by the Principal Commissioner of Income-tax to come to the conclusion that the original assessment order was erroneous and prejudicial to the interests of the Revenue.
For the purposes of exercising jurisdiction under section 263 of the Act, the conclusion that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the Principal Commissioner of Income-tax is of the view that the Assessing Officer did not undertake any inquiry, it becomes incumbent on the Principal Commissioner of Income-tax to conduct such inquiry. All that the Principal Commissioner of Income-tax has done in the impugned order is to refer to the circular of the Central Board of Direct Taxes and conclude that "in the case of the assessee-company, the Assessing Officer was duty-bound to calculate and allow depreciation on the BOT in conformity of the Central Board of Direct Taxes Circular No. 9 of 2014 but the Assessing Officer failed to do so. Therefore, the order of the Assessing Officer is erroneous insofar as prejudicial to the interests of the Revenue".
In the considered view of the court, this can hardly constitute the reasons required to be given by the Principal Commissioner of Income-tax to justify the exercise of jurisdiction under section 263 of the Act. In the context of the present case if, as urged by the Revenue, the assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the Principal Commissioner of Income- tax to undertake an inquiry as regards which of the assets were purchased and installed by the assessee out of its own funds during the assessment year in question and, which were those assets that were handedover to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the Principal Commissioner of Income-tax.
Mr. Asheesh Jain then volunteered that the Principal Commissioner of Income-tax had exercised the second option available to him under section 263(1) of the Act by sending the entire matter back to the Assessing Officer for a fresh assessment. That option, in the considered view of the court, can be exercised only after the Principal Commissioner of Income-tax undertakes an inquiry himself in the manner indicated hereinbefore. That is missing in the present case.
Therefore, the court is of the view that the Income- tax Appellate Tribunal was not in error in setting aside the impugned order of the Principal Commissioner of Income-tax under section 263 of the Act. No substantial question of law arises.”
5.7 Accordingly, respectfully following the ratio of the various judgments as referred to in the preceding paragraphs, we have no hesitation in holding that the Ld. Pr.CIT had wrongly invoked the 23 revisionary powers u/s 263 of the Act and we have no option but to quash the same. It is so ordered accordingly. Grounds 1 to 6 thus stand allowed.
6.0 In the final result, the appeal of the assessee stands allowed.
Order pronounced in the open court on 21.06.2019.