RAJESH KUMAR,HISAR vs. CIT, HISAR

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: “F”, NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No.3337/Del/2013 Assessment Year: 2008-09 Shri Rajesh Kumar, Vs. CIT, 1931, Gate No. 2, Behind Hisar M.G. Road, Hisar PAN :AOHPK1201L (Appellant) (Respondent) Appellant by Shri Manoj Kumar, Adv. Respondent by Smt. Sulekha Verma, CIT(DR)

Date of hearing 05.03.2019 Date of pronouncement 29.03.2019

ORDER PER O.P. KANT, A.M.:

This appeal by the assessee is directed against order dated 26/03/2013 passed by the Ld. Commissioner of Income Tax, Hisar (in short ‘the Ld. CIT’ ) under section 263 of the Income-tax Act, 1961 (in short ‘the Act’) holding the assessment order under section 143(3) of the Act dated 29/11/2010 for assessment year 2008-09 passed by the Assessing Officer as erroneous insofar as prejudicial to the interest of the Revenue. The grounds of appeal raised by the assessee are reproduced as under: 1. That looking into the facts and circumstances of the case and in law, the Honorable CIT, Hissar has erred in vacating the assessment

2 ITA No.3337/Del/2013 order passed under section 143(3) and directing the AO to re do the assessment. The order passed U/s 263 by the LD CIT, Hissar is illegal and not tenable as per law. Hence, it may be set aside and original order passed by the LD AO u/s 143(3) dated 29.11.2010 may be restored. 2. That looking into the facts and circumstances of the case and in law, that the appellant craves leave to add or amend any grounds of appeal on or before the appeal is finally heard or disposed off. 2. The assessee also filed elaborated/amended ground as under: 1. That the LD CIT, Hisar has erred in law and on facts in issuing notice under section 263 on the basis of proposal of AO through JCIT without calling and examining the records as one of the jurisdictional condition to invoke 263. Hence, the order under 263 may be vacated. 2. That the LD CIT, Hisar has erred in law and on facts in issuing notice under section 263 considering the AO order erroneous and prejudicial ignoring the fact that the AO has undertaken enquiry on the issue involved under section 263 and the fact is mentioned on assessment order itself. Hence, the order under 263 may be vacated. 3. That the LD CIT, Hisar has erred in law and on facts in considering the AO order erroneous and prejudicial on issue of loan from satyanaryan on the ground that the source of source is not reliable. Hence, the order under 263 may be vacated. 4. That the LD CIT, Hisar has erred in law and on facts in considering the AO order erroneous and prejudicial on issue of non registration of sale of house of assessee ignoring the fact that registration was banned in that area. Hence, the order under 263 may be vacated. 5. That the LD CIT, Hisar has erred in law and on facts in considering the AO order erroneous and prejudicial on account of its being assessed on the status of individual instead of being as an AOP, ignoring the fact that assessee is individually carrying on the business. Hence, the order under 263 may be vacated 6. That the LD CIT, Hisar has erred in law and on facts in considering the AO order erroneous and prejudicial on issue of non declaration of capital gain as the capital gain will be declared in the year of transfer and on receipt of full money. Hence, the order under 263 may be vacated.

3 ITA No.3337/Del/2013 2. Briefly stated facts of the case as culled out from the order of the lower authorities as well as submission of the assessee are that the assessee, an individual, filed return of income for first time for the assessment year under consideration i.e. 2008-09, declaring total income of Rs.2,51,800/-. The assessee claimed to have filed the return of income for the first time, as he was allotted tender for trading in liquor by the Haryana government during the year under consideration and prior to that the only source of income was from agriculture. The case was selected for scrutiny and assessment under section 143(3) of the Act was completed on 29/11/2010 after making addition of Rs.3,00,000/- to compensate low household withdrawals shown by the assessee. 2.1 Thereafter, the Assessing Officer sent a proposal to the CIT, through Joint Commissioner of Income Tax, vide letter dated 28/12/2011 for considering action under section 263 of the Act for verifying unsecured loan of Rs.7,50,000/- and verify introduction of Rs.2,00,000/- as capital of the business. 2.2 The Ld. CIT issued notice under section 263(1) of the Act on 29/30.03.2012, fixing the hearing on 10/04/2012. The matter was adjourned on two occasions, however, finally on 30/04/2012, the Authorized Representative of the assessee attended and filed submissions and case was discussed thereafter from time to time with him. The assessee also attended the proceedings and his statement was also recorded. The Ld. CIT carried out various enquiries and even referred the revenue stamp affixed on the certain receipt of cash to the “India Security Press” for verification of the date of the issue of those stamp. After detailed enquiries and discussion with the Authorized

4 ITA No.3337/Del/2013 Representative of the assessee, the Ld. CIT in his impugned order dated 26/03/2013 held the order passed by the Assessing Officer as erroneous insofar as prejudicial to the interest of the Revenue and set aside the same directing to make fresh assessment after making necessary and proper enquiries and investigation . 3. In amended ground No. 1, the assessee has challenged the proceedings under section 263 on the ground that same have been initiated mechanically on the basis of the written proposal by the Assessing Officer and not on the basis of the examination of the records. The Ld. counsel filed before us a certified copy of the order sheet of the file for proceeding under 263 of the Act, before the Ld. CIT and a copy of letter dated 26/12/2011 of the Assessing Officer proposing action under section 263 of the act. The Ld. counsel submitted that in the order sheet it is nowhere mentioned that after receipt of proposal from the Assessing Officer under section 263 of the Act, the record was called for and examined by the Ld. CIT before issue of notice under section 263(1) of the Act. The Ld. counsel submitted that Tribunal in the following cases has set aside the proceedings under 263 of the Act on the ground that, such proceedings are initiated only on the proposal of the Assessing Officer: 1. Dynamic Transmission Ltd. Vs. Pr. CIT, Rohtak, ITA No. 2006/Del/2016 for AY: 2011-12, dated 21.04.2017; 2. Sh. Kishore Madnani vs. CIT, ITA No.508/JP/2013 for AY: 2005-06, dated 31.01.2014; and 3. Span Oversaes Ltd. Vs. CIT-III, Pune, ITA No.1223/PN/2013 for AY: 2008-09, dated 21.12.2015

5 ITA No.3337/Del/2013 3.1 On the other hand, the learner DR submitted that the Ld. CIT in the impugned order has clearly mentioned that assessment records were called for and examined. According to her, it is immaterial whether the proposal has been sent by the Assessing Officer or received from any other source, but the requirement of law is that notice under 263(1) should be issued after examination of the records by the Ld. CIT, which in this case has been duly complied. The Ld. DR referred to page 20-21 of the paper-book of the assessee and submitted that the assessment record was enclosed with the proposal sent by the Assessing Officer. She further submitted that the proposal was sent by the Assessing Officer on 26/12/2011, whereas the notice under 263(1) of the Act has been issued on 30/3/2012 i.e. after a period of almost more than 3 months. In view of the above, she submitted that decisions relied upon by the Ld. counsel are not applicable on the facts of the instant case. 3.2 We have heard the rival submissions and perused the relevant material on record. We find that section 263(1) of the Act has specified, as under what circumstances, the Ld. CIT can hold the order of the Assessing Officer as erroneous insofar as prejudicial to the interest of the Revenue. For ready reference, the said section is reproduced as under:

“ Revision of orders prejudicial to revenue. 263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.

6 ITA No.3337/Del/2013 Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner undersection 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or] Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.”

3.2.1 Thus, plain reading of the above provisions make it clear that the Hon’ble Parliament has made examination of the record of any proceedings as prerequisite and thereafter if the CIT considers if any order passed as erroneous insofar as prejudicial to the interest of the revenue, he may give opportunity of being heard to the assessee and make enquiries if he deems necessary and then pass order under section 263 of the Act either by way of enhancing or modifying or cancelling and directing afresh assessment. 3.2.2 As far as calling of record is concerned, the word “may” and not the word “shall” has been prefixed. Thus, it has not been made mandatory for the Ld. CIT to always call for the record himself and the word ‘may’ has provided the scope for receipt of

7 ITA No.3337/Del/2013 the record for examination from any source in addition to calling for record from the Assessing, which include by way of proposal from the Assessing Officer. There is no specific bar in the relevant provisions of the Act that the Ld. CIT may not receive the report of proposal supplied to him by either the Assessing Officer or other officers of the Department or information from any other source. The essential prerequisite is examination of record by him. 3.2.3 In the case of Dynamic Transmission Ltd.(Supra) cited by the assessee, the Tribunal has observed that “immediately on receipt of the proposal under 263 of the act from the Assessing Officer, show cause notice fixing the date of the hearing was ordered, which according to the Tribunal was issued without calling for record and examination of the issue in detail to reach the satisfaction that order of the Assessing Officer was erroneous insofar as prejudicial to the interest of the revenue”. Whereas in the instant case, it is evident from the proposal of the Assessing Officer dated 26/11/2011 that assessment records were sent to the Ld. CIT and the Ld. CIT has issued notice under section 263(1) after a period of more than 3 months, i.e., the time sufficient to examine the records. In view of the totally different facts, the ratio of the decision cannot be applied in the case of the assessee. 3.2.4 In the case of Kishore Madnani (supra) relied upon by the learned counsel of the assessee, the entire finding is based on the observation that “the Ld. CIT did not apply his mind to see whatever proposal has proposed to him, he himself should have been satisfied that the proposed action is really falls under section 263 of the Act are not”. But in the instant case, facts are different

8 ITA No.3337/Del/2013 on the record and it has been duly examined by the Ld. CIT as mentioned specifically by him in the impugned order. 3.2.5 Similarly, the finding in the case of Span Overseas Ltd. (supra) relied upon by the learned counsel of the assessee is based on the observation that the Ld. CIT issued a show cause notice merely on the basis of the proposal of the Assessing Officer reproducing the allegations made in the proposals. The facts of the instant case being altogether different, the ratio of the said decision cannot be imported over the facts of the instant case. 3.2.6 The Ld. DR relied on the order of the Tribunal in the case of CIT Vs Apollo Tyres Limited reported in 65 ITD 263, where the Tribunal observed as under:

“4.1 The provision of s. 263(1) and the relevant Expln. (b) are reproduced hereunder : "263. (1) The CIT may call for an examine the record of any proceedings under this Act, and if he considers that any order passed therein by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation. - For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, : (a) xx xx xx xx (b) 'record' shall include and shall be deemed always to have include all records relating to any proceeding under this Act available at the time of examination by the CIT." A plain reading of the aforesaid section clearly indicates that the CIT may call for and examine the records of any proceedings under the Act. For this purpose, he is not required to show as to what reasons prompted him to call for and examine the record of any proceeding under this Act. The provisions also do not prescribe any limitation that the CIT should suo motu call for and examine the record and he

9 ITA No.3337/Del/2013 cannot take into consideration or rely upon any report or information which may be supplied to him by the other officers of his Department or on the basis of any information which he may obtain from any other sources. The authority of the CIT to call for and examine the record on the basis of any information from any source or suo motu is purely an administrative matter. Thereafter, the CIT has to consider as to whether any order passed under the Act by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. This consideration, having regard to the language of s. 263, is a consideration which he exercises by calling for and examining the records. If after calling for and examining the records, the CIT considers that the order of the AO is erroneous in so far as it is prejudicial to the interest of the Revenue, then subsequent proceeding acquires quasi-judicial character. Thereafter, he has to give the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, he may pass such orders thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. It will be worthwhile to compare the language of s. 263 with the language used in s. 264 of the Act. In s. 264, the CIT may, either of his own motion or on an application by the assessee for revision, call for the records of any proceeding under this Act. However, in s. 263 the expression "on his own motion" is absent. It is nowhere provided as to under what circumstances and on the basis of what type of information and source, the CIT may call for and examine the record of any proceedings for the purposes of s. 263. In the absence of any express provision in s. 263, providing that CIT can act under s. 263 only on his own motion or suo moto and also in view of the fact that there is no restrictions or limitations on the power of the CIT to call for and examine the record of any proceeding pursuant to the report given by the AO or by other Departmental officer, we are of the view that the CIT could validly call for and examine the record of the assessee for the relevant year under consideration pursuant to a letter received from the AO containing a proposal under s. 263 of the Act. We, therefore, do not find any merit in the contention of the learned counsel for the assessee that the CIT could not assume jurisdiction under s. 263 on the basis of the letter sent by the Asstt. CIT containing the proposal under s. 263. After receiving the report from the Asstt. CIT, the CIT decided to call for and examine the relevant records and proceeded to consider whether the assessment order passed by the AO is erroneous and prejudicial to the interest of the Revenue. After such consideration, the CIT gave a show-cause notice under s. 263 to the assessee and afforded an proper and reasonable opportunity before passing the impugned order. The order of the CIT cannot, therefore, be cancelled or treated as invalid simply because the CIT called for and examined the records pursuant to a letter sent by the Asstt. CIT for this purpose.

10 ITA No.3337/Del/2013 3.2.7 We agree with the finding of the Tribunal in the case of Apollo tyres limited (supra). 3.2.8 In the instant case, the records are forwarded by the Assessing Officer to the Ld. CIT and Ld. CIT(A) after examination of the record and accordingly after satisfying himself that the order passed by the Assessing Officer was erroneous insofar as prejudicial to the interest of the revenue, he has issued show- cause notice to the assessee. 3.2.9 We may like to specifically reproduce the relevant paragraph of the impugned order, which shows that the Ld. CIT issued notice after due satisfaction that order was erroneous insofar as prejudicial to the interest of the Revenue, as under: “2.0 The assessment records in the case for the aforementioned assessment year were called for and examined. It was noticed that the AO had completed the assessment without carrying-out necessary and proper enquiry / verification, which he ought to have carried out, in view of the facts and circumstances of the case. Instances of such failures on the part of the AO are discussed below: 2.1 From perusal of assessment records, it was seen that the assessee introduced cash credit in the form of unsecured loans of Rs.7.50 lakh. As per the Audit Report, the loan was claimed to have come from Shri Dharambir. During assessment proceedings, while explaining source of the said credit, the stand was changed and it was stated that the unsecured loan was obtained from Sh. Satyanarain. The assessee took plea that name of Sh. Dhaiambir was wrongly mentioned in the audit report. 2.2 As per the copy of ledger account of Sh. Satyanarain placed on record, Rs. 1.50,000/-, Rs, .3,00,000/- and Rs 3,00,000/- has been received through cheque on 3rd, 15th & 18th July, 2007, respectively. However, perusal of the statement of account of Sh. Satyanarain with Union Bank, Hisar shows that source of the said loan is the cash deposited in the bank. In support, the assessee furnished a photo copy of an ’agreement for sale’ dated 12.06.2007 (Annexure-1). The agreement purports to sell agricultural land belonging to Shri Satyanarain S/o Shri Chatar Singh to Shri Naresh Kumar S/o. Shri Chatar Singh. The agreement mentions that Sh. Satyanarain received cash cf Rs.2.00 lakh on 12.06.2007 and Rs. 10.00 lakh would be paid in the month of July 2007 as ‘advance’. The last date for registration of sale deed has been mentioned as

11 ITA No.3337/Del/2013 30.04.2008. In further support of the stand, assessee furnished original of three receipts (issued by Sh. Satyanarain) with following description:

Description Date Amount Remarks Sr. No. 1 02.07.2007 Rs.3.00 lakh Annexure-2 Receipt evidencing receiving of Rs.3.00 lakh by Shri Satyanarain from Shri Naresh S/o Shri Chatar Singh (buyer). As per the receipt, the seller would receive balance amount and execute the sale deed and get it registered on 30.04.2008. 2 Receipt evidencing receiving of Rs.4.00 lakh by 06.07.2007 Rs.4.00 lakh Annexure-3 Shri- Satyanarain from the buyer. As per the receipt, the seller would receive balance amount and execute the sale deed and get it registered on 30.04.2008.

3 Receipt evidencing receiving of Rs.3.00 lakh by Shri 13,07.2007 Rs.3.00 lakh Annexure-4 Satyanarain from the buyer. As per the receipt, the seller- would receive balance amount and execute the sale deed and get it registered on 30.04.2008.

2.3 It was further noticed that (i) The intermediate, period between the date of agreement (12.06.2007) and proposed date of registration (30.04.2008) was very long. (ii) Although the assessment order was passed on 29.11.2010 (after expiry of the date for getting the sale deed registered), however, no registered sale deed was filed in respect of the above stated ‘agreement to sale’. 2.4 From the above, it clear that in the facts and circumstances of the case, further inquiry was necessary to bring relevant material on record. The AO has accepted claim of assessee without further necessary enquiries which he was duty bound to carry out, in facts and circumstances of the case. Therefore, prima facie, the order is erroneous and prejudicial to the interest of revenue. 3. Accordingly, notice u/s 263(1) was issued to the assessee on 29/30.03.2012 fixing the case for hearing on 10.04.2012. The counsel of the assessee attended and sought for adjournment. The case was adjourned to 18.04.2012. On 18.04.2012, the counsel of the assessee again sought for adjournment. Again the case was adjourned to 30.04.2012. On 30.04.2012, Sh. Kuldeep Khera, C.A., Authorized Representative of the assessee attended and filed written reply. The case was discussed with him from time to time.”

12 ITA No.3337/Del/2013

3.2.9 The Ld. counsel referred to the order sheet entry dated 30/12/2011 regarding that the proposal received from the Assessing Officer was put up for perusal of the CIT. The allegation of the Ld. counsel are that the Ld. CIT has issued the show-cause notice on the basis of the proposal only. However, the observation of the Ld. CIT in para 2 of the impugned order are clear enough to show that he himself examined the record and applied his mind and after satisfying himself, has issued show cause notice to the assessee . 3.2.10 In view of the aforesaid discussion, we reject the contention of the Ld. counsel challenging validity on the ground of reopening based on the proposal of the Assessing Officer and dismiss the ground of the appeal. 4. In ground No. 2 the assessee has raised the reopening in case of inadequate enquiry as invalid. 4.1 The Ld. counsel before us submitted that the Assessing Officer carried out enquiries on the issue of nature and source of unsecured loan of Rs.7,50,000/- an introduction of the capital of rupees 2,00,000/-. The Ld. counsel referred to copy of letters dated 23/11/2010 and 29/11/2010 addressed by the assessee to the Assessing Officer, filed in the course of hearing before us. In view of the above two letters, the Ld. counsel submitted that section 263 cannot be invoked in cases where the Commissioner is looking for more Inquiry from his perspective and it can be invoked in case of no Inquiry only. He places reliance on following judgments: 1. CIT Vs. Sunbeam Auto Ltd., 332 ITR 167; 2. Gabrial India Ltd., 203 ITR 108 (Bom.)

13 ITA No.3337/Del/2013 3. DIT Vs. Jyoti Foundation, 357 ITR 388 (Del.) 4. Income Tax Officer Vs. DG Housing Projects Ltd., 74 ITR 153 (Delh) 5. CIT Vs. Hero Auto Ltd., 74 DTR 164 (Del.) 6. CIT Vs. Hindustan Marketing and Advertising Co. Ltd., 7. Maya Gupta Vs. CIT, ITA No.5701/Del/2014, AY: 2009-10 4.2 On the other hand, the Ld. DR submitted that no enquiry of any kind has been conducted by the Assessing Officer. She submitted that the two letters dated 23/11/2010 and 29/11/2010 filed by the assessee before the Assessing Officer only shows that certain information were filed by the assessee but the assessee has not produced any evidence to show that the Assessing Officer inquired about the nature and source of the unsecured loan of Rs.7,50,000/- from Sh. Satyanarayan and introduction of capital of Rs.2,00,000/- by the assessee in its business. According to her, in view of the above facts, the ratios of the decision relied upon by the Ld. counsel are not applicable over the instant case. 4.3 Further, she submitted that the Commissioner of Income Tax is within his jurisdiction to set aside the assessment, if the Assessing Officer has not made proper enquiry while making the assessment and excepting the explanation of the assessee. In support of the contention, she relied on following decisions: 1. Hon’ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. Vs. Income Tax Officer (Appeal No. 2396/2017), dated 29.11.2017; 2. Malabar Industrial Co. Ltd. Vs. CIT [2000] 109 Taxman 66 (SC/[2000] 243 ITR 83 (SC)/[2000] 159 CTR 1 (SC); 3. Rajmandir Estates (P.) Ltd. Vs. PCIT [70 taxmann.com 124 (Calcutta)/[2016] 240 Taxman 306 (Calcutta)/[2016] 386 ITR 162 (Calcutta)/[2016] 287 CTR 512; and 4. Rajmandir Estates (P.) Ltd. vs. PCIT [2017] 77 taxmann.com 285 (SC)/[2017] 245 Taxman 127 (SC).

14 ITA No.3337/Del/2013 4.4 The Ld. DR also relied on the decision of the Hon’ble Supreme Court in the case of CIT versus Amitabh Bachchan, 384 ITR 200 wherein the commissioner has been authorised to exercise his jurisdiction on consideration of all relevant facts, provided an opportunity of hearing is afforded to the assessee to contest facts on the basis of which, he had exercised divisional jurisdiction. 4.5 We have heard the rival submissions and perused the relevant material on record including the decisions cited by both the parties on the issue of requirement of conducting enquiries by the Assessing Officer for enabling the CIT to exercise jurisdiction under section 263 of the Act. 4.6 In the case of CIT Vs Sunbeam Auto Limited (supra) relied upon by the assessee, it has been held that “there is a difference between “lack of Inquiry and inadequate enquiry” and if there is an enquiry, even inadequate, that would not by itself give occasion to the CIT to pass orders under section 263, merely because he has a different opinion in this matter. 4.7 In the case of Gabrial India Ltd. (supra) relied upon by the assessee, it is held that “the CIT cannot initiate proceedings with a view to start fishing and roving enquiry in the matters or orders which are already concluded and such action will be against the well accepted policy of the law that there must the point of finality in all legal proceedings, the stale issues should not be reactivated beyond a particular stage.” 7.8 In the case of DIT Vs Jyoti Foundation (supra) relied upon by the assessee, it is held that “where the revising authority feeling enquiry inadequate, the revising authority must make Inquiry and show that assessment order was erroneous and the

15 ITA No.3337/Del/2013 revising authority has no power to remand in direct Assessing Officer to conduct enquiries.” 7.9 In the case of Income Tax Officer Vs. DC Housing Projects (supra) relied upon by the assessee, the Hon’ble court has laid down that “CIT must give an record of finding that the order made is erroneous before passing an order under section 263 and matter cannot be remitted for a fresh decision to the AO to conduct fresh enquiries without a finding that the order is erroneous.” 7.10 In the case of Daniel Merchants Private Limited vs ITO (supra) relied upon by the Revenue, “the Hon’ble Supreme Court dismissed the SLP in a case where the Assessing Officer did not make any proper enquiry while making the assessment and excepting the explanation of the assessee insofar as receipt of share application money is concerned and the Commissioner set aside the order of the Assessing Officer.” 7.11 In the case of Malabar Industrial Company Limited versus CIT(supra) relied upon by the Revenue, the Hon’ble Supreme Court held that “where the Assessing Officer had accepted entry in the statement of account filed by the assessee, in absence of any supporting material without making enquiry, exercise of jurisdiction by the Commissioner under section 263(1) were justified.” 7.12 In the case of Rajmandir Estate Private Limited vs. CIT(supra) relied upon by the Revenue, the Hon’ble Calcutta High Court held that “where assessee with a small amount of authorised share capital, raised a huge sum on account of premium and chose not to go in for increase of authorised share capital, merely to avoid payment of statutory fees and Assessing Officer passed assessment order without carrying out the requisite

16 ITA No.3337/Del/2013 enquiry into increase of share capital including premium received by the assessee, the Commissioner was justified in treating assessment order is erroneous and prejudicial to interest of Revenue.” 7.13 The coordinate bench of the Tribunal in the case of NIIT Vs. CIT (Central) (2015) 60 taxmann.com 313 (Delhi) held that “an enquiry, which is just a farce or mere pretence of Inquiry cannot be said to be an enquiry at all, much less enquiry needed to reach the level of satisfaction of the Assessing Officer on the given issue.” 7.14 The Hon’ble jurisdictional High Court in the case of Commissioner of Income Tax Vs. Nagesh Knitwears Private Limited (2012) 345 ITR 135(Delhi) held that “the Assessing Officer is both an investigator and an adjudicator and as an investigator, the Assessing Officer is required to examine and verified to compute the taxable income and if he fails to conduct the said investigation, he commits an error and the word erroneous include failure to make the enquiry. The Hon’ble High Court held that in such cases the order becomes erroneous because the enquiry or verification has not been made and not because wrong order has been passed on the merits.” 7.14 Similarly, Hon’ble Delhi High Court in the case of Gee Vee Enterprises Vs. Additional Commissioner of Income Tax, Delhi-I, (1975) 99 ITR 375 has observed that “the word erroneous in section 263 includes the failure to make an Inquiry when the circumstances would make such an Inquiry prudent.” 7.15 Hon’ble Supreme Court in the case of Ramadevi Saraogi versus CIT (1968) 67 ITR 84 (SC) has also given similar observation that “where the Assessing Officer is accepted a

17 ITA No.3337/Del/2013 particular contention or issue without enquiry whatsoever, the order was erroneous and prejudicial to the interest of the Revenue.” 8. In view of the above decisions discussed above, we can find that principle which emerge is that the Assessing Officer in the process of assessment must carry out enquiries which the circumstances requires and mere formalities of raising the standard questionnaire and, replies thereof by the assessee cannot be termed as enquiries conducted in effective manner and same falls in the category of lack of enquiry by the Assessing Officer. Wherever the Assessing Officer is failed in carrying out the enquiries, which the circumstances required, the Ld. CIT is justified in invoking jurisdiction under section 263 of the Act. 8.1 In the instant case, in support of his contention that enquiries were conducted on the issue of unsecured loan of Rs.7,50,000/- and introduction of the capital of Rs.2,00,000/-, the Ld. counsel has relied on two letters dated 23/11/2010 and dated 29/11/2010 submitted by the assessee before the Assessing Officer. On perusal of the letter dated 23/11/2010, we find that assessee submitted replies on the issue of unsecured loan as under: “3. The copy of account of unsecured loan duly confirmed by the party is furnished herewith. Further documentary evidence to prove the identity of the creditor, genuineness of transaction and capacity of the creditor in this regard are furnished herewith. Further copy of bank account of the party is also furnished herewith.”

8.2 In letter dated 29/11/2010, the assessee submitted that there was a mistake in the balance sheet regarding the name of the unsecured loan party. The relevant submission of the assessee reproduced as under:

18 ITA No.3337/Del/2013 “1. I have received an unsecured loan of Rs. 7,50,000/-from Sh, Satya Narain s/o Sh. Chattar Singh. Due to clerical mistake in the Balance Sheet, the name was typed as Dharambir Singh. In fact the amount was received from Sh. Satya Narain, Bank statement of Sh. Satya Narain is attached herewith for your kind Verification. My Bank statement in which amount received from Sh. Satya Narain Has been deposited is attached herewith for your kind verification.”

8.3 The Ld. CIT in his finding has brought on record that no enquiries were conducted by the Assessing Officer to verify the evidence in the form cash receipts of Rs.1,50,000; Rs.3,00,000/-; Rs.3,00,000/- in the hands of unsecured loan provider. The Ld. CIT conducted the detail enquiries and found that the Revenue stamps affixed on the cash receipt were printed much after the date of the cash receipts. The relevant enquiries carried by the Ld. CIT(A) with regard to the issue of unsecured loan of Rs.7,50,000/- have been summarized in the impugned order from para 4.2 to para 4.6, which are reproduced as under for ready reference: “4.2 Reply filed by the assessee has been considered, carefully. In view of the copy of statement of bank account of Shri Satyanarain which shows that the loan has been extended through cheque, mentioning of wrong name (Sh. Dharambir) in the audit report, appears to be a mistake. However, as mentioned earlier, the source of the said loan is the cash deposits in the bank account of the lender. It was also noticed, that the purported seller and purchaser of the land i.e. Shri Satyanaraian S/o Shri Chatar Singh and Shri Naresh Kumar S/o Shri Chatar Singh both are real brother and 'Mama' (mother’s brother) of the assessee. They (buyer and seller) are having combined family land. The agreement to sell the land between the two brothers has been witnessed by Shri Suresh Kumar S/o Shri Chatar Singh, another real brother of the buyer and the seller and 'Mama' of the assessee. Another witness to the sale deed is Shri Maya Singh, father of the assessee and real brother-in-law (Jija) of the above stated parties. 4.3 As mentioned in para 2.2 above, the assessee filed three (original) receipts issued by Shri Satyanaraian S/o Shri Chatar Singh in token of having received amounts of Rs.3.00 lakh on 02.07.2007, Rs.4.00 lakh on 06.07.2007 and Rs.3.00 lakh on 13.07.2007, respectively, from Shri Naresh Kumar S/o Shri Chatar

19 ITA No.3337/Del/2013 Singh. Although, all the three receipts were issued on different dates but the language used in all the three receipts is identical and all these are having same handwriting. It was noticed that each of these receipts have been affixed with revenue stamp of Re.1. Therefore, in order to examine the genuineness of the receipts, these were referred to the India Security Press, Nasik (Maharashtra) for determination of the dates of the first printing of the stamps affixed on these Receipts. 4.4 The India security Press vide their letter dated 21.01.2013 (copy at Annexure-5). reported that after through examination and comparision with original India Security Press Specimen, the date of first printing of (all the three revenue stamps) was found to be 20.07.2009 which is much later than dates shown in the receipts (i.e. 02.07.2007, 06.07.2007 and 13.07.2007). It is seems that these receipts were fraudently created for the sole purposes of misleading the Income Tax Authorities. 4.5 On 18.02:2013, Sh. Kuldeep Khera C.A. and Sh. Rajesh Kumar, the assessee, attended the proceedings. Statement of Sh, Rajesh Kumar was also recorded (at Annexure.10). During the recording of the statement, assessee was confronted with the above stated report of the India Security Press (dated 21.01.2013) regarding three revenue stamps affixed on the three receipts (dated 02.07.2007, 06.07.2207 and 13.06.2007, respectively.) issued by Sh. Satyanarain S/o Sh. Chater Singh in token of receipt of cash (Rs. 3,00,000/-, 4,00,000/- and 3,00,000/-, respectively) on the above dates from Sh.Naresh S/o Sh. Chatar Singh being forged. A.copy of the said report was given to the assessee (Sh. Rajesh Kumar) and his Authorised Representative, Sh. Kuldip Khera, C.A. The statement of Sh.Rajesh Kumar was recorded in the presence of Sh. Khera. The assessee asked to take advice of his Authorized Representative and reply as to why the said receipts should not be treated as fraudulently created to mislead the Income Tax Department. Sh. Rajesh Kumar stated that he did not know anything about the receipts, because these documents were produced by his father (Sh.Maya-Singh). Sh. Rajesh Kumar deposed that he used to sign every document as per directions of his father (Sh. Maya Singh). The relevant questions and answers are reproduced as under:-

��न ३: आपने Assessment Proceeding के दौरान �ी स�यनारायण पु� �ी चतर �संह �नवासी उगालन क� जमीन �ी नरेश पुर� चतर �संह �नवासी उगलन के बेचने के स�ब�ध म� �पए तीन लाख, चार लाख व तीन लाख �ा�त करने स�ब�धी तीन असल रसीद� ��तुत क� थी जो म� आपको �दखा रहा हूँ कृपया बताएं क� �ी स�यनारायण व �ी नरेश से आपका �या स�ब�ध ह� ? उ�र : �ी स�यनारायण व �ी नरेश दोन� म� सगे मामा (माँ के भाई) लगते है I

20 ITA No.3337/Del/2013

��न 4. : ये रसीद� आपके पास कैसे आई ? उ�र : इनकम टै�स का काम मेरे �पताजी �ी माया �संह जी देखते है उनको �ह इनको बार म� पता है म� �सफ� द�तखत करता हूँ I ��न 16: �नधा�रण ���या (Assessment Proceedings) के दौरान आपने �ी स�यनारायण पु� �ी चतर �संह �नवासी उगालन �वारा अपने खेत को �ी नरेश पु� चतर �संह �नवासी उगालन को बेचने को इकरारनामे क� फोटोकॉपी ��तुत क� है I कृपया बताएं क� इस सौदे म� �कतनी जमीन बेची गई और (�यो�क �ेता व �व�ेता दोन� आपके मामा है ) अत: बताये क� �या इस जमीन क� रिज��� कर द� गई है ? उ�र : मुझे मालूम नह�ं है I ��न 17: आपने इस कागज क� फोटोकॉपी पर ह�ता�र �कये हुए है I कृपया बताये क� आपको यह कागज कहाँ से �मला ? और आपने इसको �य� ��तुत �कया ? उ�र : इस कागज को पापा जी के �नधा�रण ���या के दौरान मुझसे ह�ता�र करवा के �दया I मुझे नह�ं मालुम यह �य� �दया गया I ��न 18. आपने �पछले इस साल� म� �कसी से कोइ कज� �लया है अगर हाँ तो उसका मोटा - 2 �ववरण द�िजये ? उ�र : �पताजी ह� लेनदेन करते है मेर� जानकार� के अनुसार म�ने कोई कज� नह�ं �लया I �शन 20. म� आपको एक 29.11.2010 का प� �दखा रहा हूँ जो आपने ito ward -3 को �लखा है I िजसम� आपने �लखा है क� आपने �ी स�यनारायण पु� �ी चतर �संह से साढ़े सात लाख �पये �लए ह� ले�कन typing क� गलती से �ी धम�बीर �संह से �लए गए �दखाए गए है I जब आप उपरो�त ��न� के उतर म� कह रहे है क� आपको loan या कज� लेने के बारे म� जानकार� नह�ं है तो �फर आपने इस प� पर ह�ता�र �य� �कये ? उ�र : जैसा क� म�ने पहले बताया इस कागज पर अपने पापाजी के कहने पर ह�ता�र �कये है I इस बारे म� मुझे कोई जानकार� नह�ं है I ��न 21: आपने जो �न�न�ल�खत �तन रसीद� के असल ��तुत �कये ह� उनको बारे म� म� आपको व आपके CA �ी कुलद�प खेडा को ��तभू�त मु�लय, ना�सक रोड क� 21.03.2013 क� Investigation/Examination Report �दखा रहा हूँ I �रपोट� के अनुसार रसीद पर लगाय गए राज�व �टकट (Revenue Stamp) �थम बार 20.07.2009 को छपे है जब�क आपने इ�ह� जुलाई 2007 क� रसीद पर �चपकाया हुआ है I �मां रसीद amount �दनांक �ा�तकता� क न.

21 ITA No.3337/Del/2013 20.07.2007 - - 3,00,000/- स�यनारायण - - 4,00,000/- स�यनारायण 06.07.2007 स�यनारायण - - 3,00,000/- 13.07.2007 कृपया बताएं क� इन रसीद� को झूठा व आयकर �वभाग को गुमराह करने के �लए बनाकर ��तुत �कया गया �य� न माना जाये? आप �ी खेडा से इस मामले म� सलाह ले सकते है I उ�र : म�ने �रपोट� को देख �लया व �ी कुलद�प खेडा को भी �दखा द� है तथा उनसे इसके �ववरण को समझ �लया है यह बात म� मानता हूँ क� �रपोट� के सप�ट �लखा है क� जो रसीद� Ticket (Revnue Stamp) ऊपर कह� गई रसीद� पर लगे है वह सव�थम 20.03.२००९ को छपे जब�क उपरो�त रसीद� क� तार�ख जुलाई 2007 (या�न इन रसीद� के छपने से पहले) क� �दखाई है म� इस संबंध म� यह� कहना चाहूँगा क� ये रसीद� मेरे पापा जी ने �नधा�रण ���या के दौरान ��तुत क� थी और जैसा क� म�ने पहले भी कहा ह� मुझे इस बारे म� कोई जानकार� नह�ं है I म� अपने पापा जी, �ी माया �संह, के कहने के अनुसार ह�ता�र करता गया I म� इस �रपोट� को देखने के टोकन के एवज के इसक� फोटो कापी पर ह�ता�र भी करता हूँ तथा मेरे आ�ह पर मेरे CA �वारा इस �रपोट� को देखा गया, इसके टोकन के �प म� उनसे भी इस �रपोट� को फोटो कॉपी पर ह�ता�र करने के �लए �नवेदन करता हूँ I एक बार और �प�ट करता हूँ क� हमने असल �रपोट� देख ल� है I 4.6 It may be seen from .the above that the assessee and his Authorized Representative, did not have any reply as to why the above said three receipts should not be treated as bogus and created with intention to mislead the Income Tax Department.”

8.4 Similarly, on the issue of introduction of the share capital of Rs.2,00,000/-, the Ld. CIT conducted the enquiries and found that sources of money was not substantiated. The relevant finding of the Ld. CIT(A) in para 5.1 to para 5.3 of the impugned order is reproduced as under:

“5.1 From the perusal of assessment records, it was also seen that the assessee has introduced capital of Rs 2.00 lakh. To explain the source of investment, assessee filed a copy of ‘agreement for sale' dated 11.04.2007 (Annexure-6). As per the agreement assessee purports to sell a house situated at Satrod, Hisar to Shri Sunder Singh S/o Sh. Chatar.Singh, R/o. Village Ugalan for total consideration of Rs.25.00 lakh. The agreement 'mentions that the assessee has received Rs.3.00 lakh on 11.04,2007 and would receive, further- Rs.17.00 lakh in the month of May,'2007'and get sale deed registered on (or before) 31.05.2008. The'assessee also,

22 ITA No.3337/Del/2013 filed photo copies of following (three) receipts which have been issued by the assessee in token of receiving said 17.00 lakh in month of May, 2007. Sr. Description. Date Amount Copy No. attached as 1 Receipt issued in token of having received 05.05.2007 Rs.7.00 lakh Annexure-7 Rs.7.00 lakh as advanced from Sh.Sunder Singh S/o Shri Chatar Singh regarding sale of house. 2 Receipt issued in token of having received 10.05.2007 Rs.3.00 lakh Annexure-8 Rs.3.00 lakh as advanced from Sh.Sunder Singh S/o Shri Chatar Singh regarding sale of house. 3 Receipt issued in token of having received 16.05.2007 Rs.7.00 lakh Annexure-,9 Rs.7.00 lakh as advanced from Sh.Sunder Singn S/o Shri Chatar Singh regarding sale of house. 5.2 It was seen that the although date of execution of the sale was 31.05.2008 i.e. much before the completion of the assessment, however, the assessee did not furnish copy of the registered sale deeds during the assessment proceeding. It was also seen that the house mentioned in the agreement to sale dated 11.04.2007 (Annexure-6) is situated in ‘Satrod’ which is within the municipal limits of Hisar. The sale of house, therefore, attracts capital gain. However, record does not have, any material to indicate that ‘Capital Gain’ has been reflected by the assessee in his Return of Income of subsequent assessment years, 5.3 From the above, it clear that in the facts and circumstances of the case, further inquiry was necessary to bring relevant material on record. The AO. has accepted claim of assessee without further necessary enquiries which he was duty bound to carry out, in facts and circumstances of the case. Therefore, prima facie, the order is erroneous and prejudicial to the interest of revenue. Accordingly, notice u/s 263(1) was issued to the assessee on 29/30.03.2012 fixing the case for hearing on 10.04.2012.”

8.5 Further, the Ld. CIT provided ample opportunity to the assessee and his Authorized Representative to explain inconsistency in their submission and explanation in respect of the issues of unsecured loan of Rs. 7.5 lakhs and introduction of

23 ITA No.3337/Del/2013 the capital of Rs. 2 Lacs. The relevant part of the impugned order is reproduced as under:

“6.1 With regard to the sale of house and non-execution of sale deed till the completion of assessment (i.e. 29.11.2010) as against the date of registering sale deed fixed for 3 1.05.2008, the assessee, vide reply tiled on 30.04.2012,.stated as under :- “The first issue is of Sale of House by Sh. Rajesh Kumar, assessee for Rs.25,00,000/- In this regard it is submitted that assessee had entered into an agreement for sale of his house with Sh. Sunder Singh S/o Sh. Chatter Singh. The date of registration of sale deed was fixed for 31.05.2008 and assessee had received advance Of Rs.,17,00,000/-as under :-. Date Amount 05.05.2007 700000.00 10.05.2007 300000.00 16.05.2007 700000.00 However no sale deed had been registered in favour of purchaser till date. The assessee had received Rs. 17,00,000/- and had not returned any sum to purchaser. The registration of sale deed in the area have been suspended by the local authorities because area has been declared as controlled area and sale of area less than 1000 sq. yards have been banned. It has been agreed between the parties that Sh. Rajesh Kumar will get the sale deed registered in favour of purchaser as soon as ban is. lifted by the local authorities after taking the balance Rs.8,00,000/-. No capital gain is leviable at this stage as assessee had not received the full consideration and has not given possession of house. The fact that registration of sale deed is suspended in the area was also brought to the notice of Assessing Officer so there is no discrepancy in the order. Copy of fresh agreement mentioning ail the facts dated 18.04.2012 is enclosed for your ready reference Sh. Sunder Singh is an agriculturist.” 6.2 The above reply of the assessee has been considered, carefully. The theory of sale I of house and receipt of advance of Rs. 17.00 lacs from Shri Sunder Singh, propounded by j the assessee is not tenable because it was also noticed that the assessee was not having any immovable property, as per the balance-sheet, as on 31.03.2008, filed during course of the assessment proceedings. The owner of the house is stated to be Sh. Maya Singh, father of the assessee. It is not understood as to how assessee can enter into an ‘agreement for sale’ in respect of a house which does not belong to him. The so- called agreement for sale’ specify that the eassessee is having

24 ITA No.3337/Del/2013 possession as owner and has right to sell the said .house. During course of proceedings u/s 263, the statement of the assessee, Shri Rajesh Kumar was recorded on 18.02.2013 (copy-enclosed as Annexure- 10). As per his statement, the assessee-is having two sisters. Hence, Sh. Rajesh Kumar (assessee) does not seem to be having any authority to sell the house. 6.3 Had it been a genuine case of sale, the father of the assessee (Sh. Maya Singh) who is owner of the house could have signed the ‘agreement for sale’. However, in that situation, assessee becomes liable for penalty u/s 269SS (for taking loan in cash). It is also interesting to note that the purchaser, Shri Sunder Singh is (another) real ‘Mama’ of the assessee. Sh.ri Satyanarain, another ‘Mama’ of the assessee who has purportedly advanced afore mentioned loan of Rs.7.5 lakh to the assessee, has signed as witness to this‘agreement for sale’. 6.4 The excuse for not getting the registration done is being extended as restriction on registration of sale deed in respect of area being less than 1000 square meter. Assessee could not produce; any material during proceedings u/s 263(1) that this fact was unknown to the assessee,, his father (owner) and ‘Mama’ (purchaser) before entering into the purported agreement. No genuine and prudent purchaser of a property where he has already paid Rs.20.00 lakh would keep the deaf pending for an uncertain time.

6.5 In view of the above, the agreement entered into, by the assessee and Shri Sunder Singh is nothing but a document prepared to explain the source of Rs. 20.0.0 lacs cash with the assessee. 7.1 The assessee vide this office letter dated -24.01.2013 was required to produce Sh. Satyanarian S/o. Sh. Chattar Singh, Sh. Sunder Singh S/o Sh. Chatar Singh R/o Vill.' Ugalan, Teh. Hansi on 31.01.2013 at 11:30 A.M. The assessee was also requested to ask Sh. Sunder Singh to produce (original) (three) receipts issued by the assessee in token Of receiving money as 'advance.’ (photocopies of these receipts are at Annexure-7, Annexure- 8 and Annexure-9) regarding sale of the hoyse to him (Sh. Sunder Singh) vide agreement for sale dated 11.04.2007 (photocopy of the agreement is at Annexure-6). However, on the appointed date, Assessee did not produce these persons nor furnish the originals of the said agreement and receipts. Vide entry on note-sheet dated 31.03.2013, the assessee promised to produce these persons and file the original documents, as required, on next date of hearing (05.02.2013). During the hearing on 31.03.2013. Personal presence of the assessee, (Sh. Rajesh Kumar) was also requested on the next date of hearing (05.02.2013).

25 ITA No.3337/Del/2013 7.2.1 On 05.02.2013, Sh. Kuldeep Khera C.A. attended alongwith Sh.Maya Singh, father of Sh. Rajesh Kumar (assessee). Initially, it was informed that Sh. Satyanarain had come (to the Income Tax Office). However, when the Authorized Representative was asked to produce Sh. Satyanarain, it was informed that he had to leave, due to urgent work. It was promised that S/Sh. Rajesh Kumar (assessee), Satyanarain, and Naresh would be produced at the time of next hearing. 7.2.2 During the hearing on 05.02.2013, it was also stated that original receipts given in token of having received the payment of Rs.17.00 lacs on three different date in May, 2007 (para 5.1) from Sh. Sunder Singh are not available. Assessee requested for adjournment and it was granted for 18.02.2013 at 11:30 A.M. 7.2.3 During the hearing dated 05.02.2013, it was made clear to the assessee that non production of the above persons on the said date-would lead to the conclusion that their production is being avoided, deliberately. 7.3.1 On 18.0212013, Sh. Kuldeep Khera C.A. and Sh. Rajesh Kumar, the assessee, attended the proceedings. As mentioned earlier, statement of Sh. Rajesh Kumar was also recorded (at Annexure-10). 7.3.2 The case was adjourned to 28.02.2013 on the request of Sh. Rajesh Kumar.and he promised to produce S/Sh. Satyanarian and Sunder Singh and to file reply alongwith evidence, if any, in support of his case. 7.4 On 28.02.2013 the Authorised Representative (Sh. Kuldip Khera, CA) attended and filed written reply dated 28.02.2013. In the reply, the assessee stated as under:- In response :to Q. No. 21, of statement of Sh. Rajesh Kuma regarding revenue /stamp of July, 2009 affixed on receipt issued in July, 2007 it is submitted that original rejcei'pts issued in 2007 were misplaced and had no relevance for the party as the agreement was cancelled. Moreover the amount to Sh. Rajesh Kumar was given by cheques. But l:T.O. demanded that receipts of payments shall be. produced: in support of loan given. Being agriculturist and almost illiterate (less educated), Sh. Satyanarain prepared, fresh receipts of old dated .as he was only reconfirming the receipt of amount. There was no intention to commit any fraud or miss-state the facts. It would have been a better course if he had issued a duplicate receipt mentioning the fact that original is lost and this duplicate is issued to certify the facts. Sh. Satyanarain has reconfirmed these, facts on oath, in a affidavit dt. 15.02.2013 and attested on 16.02.2013. Photocopy of affidavit is enclosed. We are still trying to trace original receipts. We will produce the receipts,- if

26 ITA No.3337/Del/2013 they are traced. Similarly Sh. Sunder Singh has also, reconfirmed the facts on oath in his affidavit dt.15.02.2013 and attested on 16.02.2013. These affidavits were to be submitted on 18.02.2013 as both Sh. Sunder Singh and Sh. Sat Niarain were not in a position to attend on 18.02.2013 as desired by you.”

7.5 The above reply of the assessee has been considered, carefully. It is clearly an after thought and a futile attempt of face saving after the fraud committed by the assessee, his father and 'Mama’(s) has been detected. Since issuance of the letter dated 21.01.2013, the assessee was being asked to produce S/Shri Sunder Singh and Satyanarain in this office, personally for their examination. However, the assessee kept on taking adjournments and they were not produced, in spite of various opportunities provided to the assessee. In fact, Shri Satyanarain had come to the Income Tax office on 05.02.2013 alongwith Sh. Maya Singh, father of the assessee but when called to come in, it was told that he had left. This fact finds mentioned in order sheet entry dated 05.02.2013 and statement of Shri Rajesh Kumar dated 18.02.2013 (ref. Question No.5). Probably, assessee’s father Shri Maya Singh who attended on 05.02.2013 and Authorized Representative, could get sense of the result of inquiry from India Security Press and made Shri Satyanarain to go away. Therefore, as a deceitful move, the assessee instead of producing these persons got their affidavits made and waited for receipt of the copy of the report of India Security Press, Nasik Road, officially and (after receiving of the sa c report during the hearing on 28.02.2013) submitted the affidavits on 28.02.2013- Otherwise, these affidavits could have been filed at the time of hearing dated 18.02.2013 itself. This conduct of the assessee goes to prove that assessee, (his father, Shri Maya Singh, and the ‘Mama(s)’, S/Sh. Satyanarain and Sunder Singh are having guilty mind and afraid of detection of the truth out of their statements, if recorded. 8. From the aforesaid discussion, it is clear that the explanations extended by the assessee regarding source of cash credit of Rs.7.5 lakh (as per para 2.1, above) and the capital introduced (Rs.2.00 lakh - as per para 5.1, above) are cock and bull story. - Failure on the part' of the /VO. to make corresponding additions renders the assessment order as erroneous and prejudicial to the interest of revenue.” 8.6 The Ld. CIT also found that the assessment order should have been made in the status of the Association of the person consisting of the assessee Sh. Rajesh Kumar and Sh. Maya

27 ITA No.3337/Del/2013 Singh. The Ld. CIT(A) issued a proper show cause and thereafter taking submission of the assessee into account, held the order erroneous insofar as prejudicial on this issue also. The relevant finding of the Ld. CIT(A) on this issue are reproduced as under:

“9.1 On consideration of the material on record, it was found that Sh. Rajesh, Kurnar, in his statement has indicated that his father Sh. Maya Singh was conducting business and he (Sh. Rajesh Kumar) was only signing as per directions of his father (Sh. Maya Singh). The English translations of the relevant portions of the said statement-are produced Ques.2. Have you done liquor business in-the year 2007-08 ? Ans. Yes, license was taken in my name arid my father was handling the business and only documents were signed by me. Ques.3. During the course of assessment proceedings, you have filed three original receipts in token of receiving Rs.3.00 lac; Rs.4.00 lac and Rs.3.00 lac respectively by Shri Satyanarain. S/o Sh. Chatar Singh R/o Ugalan for the land sold to Sh. Naresh Kumar S/o Sh. Chatar Singh R/o Ugalan. Please state what are the your relations with Sh. Satyanarain and Sh. Naresh Kumar. Ans. Sh. Satyanarain and Sh. Naresh Kumar are my maternal uncles. Ques.4. Why these receipts were with you, explain? Ans. That work relating to Income Tax is seen by my father Sh. Maya Singh and he only knows about these receipts and I only sign these papers. Ques.7. During the assessment proceedings, you have produced photocopy of agreement dated 11.04.2007 relating to sale of house owned by your father to Sh. Sunder Singh S/o Sh. Chatar Singh on which you have signed in English. However, from the photocopy of the agreement, it is revealed that on the original agreement you had signed in Hindi. In this regard, you also produced three receipts the details of which are as under:- (i) 05.05.2007 : Rs.7.00 lac (ii) 10.05.2007 : Rs.3.00 lac (iii) 16.05,2007 : Rs.5.00 lac During the previous hearings of your case, you were required to produce the original copy of the above four documents, but why these have not been produced so far.

28 ITA No.3337/Del/2013 Ans. I don’t know where the original are kept. Hence, I am unable to produce the original documents. Ques.8. Why you intended to sell your house to your maternal uncle? Ans. The house was sold to maternal, uncle because it can be taken back from him. Ques. 9. When the house was vacated and handed over to your Uncle? Ans. The house was handed over to my (maternal) uncle when it was sold. The house was sold by my father therefore I do not know much about this. Ques. 10. Who received the payment? Ans. The payment was received by my father. Ques.11. Why you have signed agreement and receipts? Ans. I signed the papers on the directions of my father. Quest. 13 Whether this house (House claimed to have sold) was constructed by your father or it is an ancestral house? Ans. This house was constructed by my father and is not ancestral. Ques. 14. Why the house was not sold under the signatures of your father and why the documents have been signed by you. Please explain ? Ans. I signed the papers on the directions of my father. I don’t know why tie did so. Ques. 17. You have signed the photocopy of this paper ( Receipt regarding sale of house). Please explain from where you received the paper and why submitted the same in office? Ans. That during assessment proceeding ,my father got signed this paper from me .I don’t know why this paper was submitted. Ques. 18 Have you raised loan during last ten years .Please explain? Ans. All the transaction are entered by my father. According to my knowledge, I have raised no loan. Ques. 19. Have you raised loan for you and for your business from your Uncle (Mama Jee)? Ans. I don't know, all transaction are being done by my father. Ques. 20. I am showing you a letter dated 29.11.2010 addressed to ITO Ward- 3, Hisar wherein you have stated that you have raised loan of Rs. 7.5 Lac from Sh. Satyanarain S/o Sh. Chatter Singh but due to tying error loan raised was shown from Sh. Dharamveer. While answering the Question Nos. 18 and 19 above,

29 ITA No.3337/Del/2013 you have stated that you do not know about this. Why you signed this letter, Please explain ? Ans. As I stated earlier that I have signed the papers where my father direct me to do so. Ques. 21. You have produced three original Receipts, for this l am showing investigation report dated 21.1.2013 from the office of India Security Press, Nasik. According to report date of printing of this revenue stamp is 20.7.2009 whereas you have fixed the said stamp on receipt of July 2007. Please explain? Ans. My father produced these receipts during assessment' proceeding and I do not know about this. According to directions of my father Sh. Maya Singh, I keep on doing signature where he directed me to do so. From the above statement(replies given by the assessee, Sh. Rajesh Kumar), it is clear that the affairs of the business of liquor, such as arrangement of funds, preparation of documents and other related activities required to run the business during the financial year- 2007-08 (relevant to the Asstt. Year 2008-09) were conducted by Sh. Maya Singh for all intent and purposes and Shri Rajesh Kumar was not conducting the business on individual basis. Therefore, the logical inference which can be drawn by this office is that the said business was run as by Association of Persons (AOP) (consisting of Sh. Maya Singh and Shri Rajesh Kumar) having indeterminate shares. However, the A.O has failed to examine the issue of status (Ind. , as claimed by the assessee vs. AOP as made out above). 9.3 In view of the above, vide letter dated. 22.02.2013 Sh. Maya Singh as well as Sh. Rajesh Kumar were requested to show cause why the assessment order should not be treated as erroneous and prejudicial to the interest of revenue and status be suitably modified as AOP (with unspecified indeterminate share) consists of Sh. Rajesh Kumar and Sh. Maya Singh. 9.4 On 28.0212013, Authorized Representative attended. The Authorized Representative pleaded that Sh. Maya Singh was helping the assessee in the conduct of business merely being a father. A written reply was also filed, stating as under:- “1. The vend was allotted to Sh. Rajesh Kumar by Department of Excise, Gov. of Haryana in his individual capacity and according to terms and condition, he cannot sublet the vend or do the business in partnership with someone else without written permission of Haryana Govt.’s Excise Department. 2. It is moral as Well social duty of father to establish his children in life. If Sh. Maya Singh has helped his son in his business, and have not charged anything or no salary has been given to him for his

30 ITA No.3337/Del/2013 services, it does not tantamount to the fact that business was being carried by A.O.P. 3. If a son starts a new business in his individual capacity of which he has no knowledge or no past experience’of running business and being a obedient son had taken all the major decisions as per advice of his respected father, then it shall not assumed that business is being run in A.O.P. 4. Shi Rajesh Kumar had appeared before yourgoodself and from his statements it is clear that Sh. Rajesh Kumar is not very smart and intelligent and his intelligence and capability can be judged from the fact that at present he is doing service orji temporary basis on monthly salary of Rs. 5600/- per month. If father of such a son has tried to help his son in establishing business it cannot be assumed that business is being carried under A.O.P. I would like to further submit that there was no existing .and flourishing and running business of father and he has started the new business in the name of his son as a planning tool to avoid tax. Sh. Maya Singh himself is a retired pensioner and has no other source’ of income except pension income and agriculture income of his ancestral lands measuring 2.5 acres app, Everybody has right to dream and them work for the achieving he goal and everybody wish that his/her children are well settled in (life and tries his/her best to give the child best education and give all type of financial help to settle children. The son could not carry on business further as . he was not allotted the vend in next year and he had not the capability and sources to sart any other business. As submitted above, he is doing service as helper.” 9.5 The reply filed by the assessee has been considered, carefully. In his reply, the- assessee has contended that Sh.Maya Singh, his father, was only helping him in the business as a sjocial obligation to establish him(Sh. Rajesh Kumar). Therefore, he (Sh. Maya Singh) cannot be treated as a partner in the business. The contention cannot be accepted in view of the replies given by Sh. Rajesh Kumar during the course of recording of his statement. These questions and answer have been reproduced in para 5.4 and 6.1, above. Sh.Maya Singh was not merely performing his social obligation to establish his son (as contended by the assessee), but was having all intent and purposes conducting the business. For example, all the loans were raised by him (Sh. Maya Singh) and Sh. Rajesh Kumar did not know anything about them except putting his signatures. From the material on record, it is clear that Sh.Maya Singh was not only helping his son but taking responsibility for arranging / repayment of loans etc. required for the conduct of business. Thus, both Sh.Maya Singh and Sh.Rajesh Kumar are liable for profit and loss of the business, jointly and severally. In these circumstances, it is only logical to conclude that the business

31 ITA No.3337/Del/2013 (of liquor) was conducted in the status of AOP (with indeterminate share) comprising of above two persons. The assessment framed by the A.O. in the status “individual” is, therefore, erroneous and prejudicial to the interest of revenue and is liable to be modified, suitably.”

8.7 The Ld. CIT in para 11.1 has concluded that the Assessing Officer has not conducted necessary and proper enquiries in the case. The relevant paragraph of the impugned order is reproduced as under:

“11.1 In view of discussion in above paras, I am of the opinion that the A.O. has not conducted necessary and proper inquiries to gather relevant material and did not apply relevant provisions of law. There has been non-application of mind to reach the conclusion. Therefore, assessment order is held as erroneous and prejudicial to the interest of revenue in respect of aforesaid issues. Had the consequent additions been made, there would have been substantial tax effect and thus the cause of the revenue has suffered. Further, the impugned order of the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue as it is in clear violation of the legal provisions contained in the Income Tax Act, 1961. Thus, the validity / sanctity of the legal provisions of the Act, has been eroded and it may serve as a bad precedent. The revenue loss also arises as the Assessing Officer has not levied / initiated penalty proceedings under section 271(1 )(c) of the Income Tax Act, 1961 in respect of above stated issues (for furnishing of inaccurate particulars of its income and concealment of income).”

8.8 When we look at contents of the two letters dated 23/11/2010 and 29/11/2010 on the issue of unsecured loan of Rs.7.5 lakhs and introduction of the capital of Rs. 2 lakhs, as compared to the enquiries conducted by the Ld. CIT, we find that the Assessing Officer has not conducted any enquiry much less the meaningful or necessary or proper enquiry or the enquiries which circumstances warranted. In the first letter dated 23/11/2010 the assessee has claimed to provided document in

32 ITA No.3337/Del/2013 support of identity, creditworthiness and genuineness of the transaction but in the second letter dated 29/11/2010, the assessee itself is claiming that name of the unsecured loan provider was wrongly mentioned as Dharambir Singh due to clerical mistakes as against the actual unsecured loan provider Sh. Satya Narayan, S/o Chattar Singh. If the Assessing Officer has not even looked at that the name of the unsecured loan provider is correct or not, it cannot be said that the Assessing Officer has conducted any enquiry. 8.9 In our opinion, the case before us is of total lack of enquiry on the part of the Assessing Officer on the issues in respect of which the Ld. CIT(A) has held the order of the Assessing Officer as erroneous insofar as prejudicial to the interest of the revenue. Accordingly, we dismisse the ground of the appeal of the assessee and uphold the order of the Ld. CIT(A) setting aside the order of the Assessing Officer being erroneous insofar as prejudicial to the interest of the Revenue. 9. In next three grounds the assessee has raised the issue of merit of the additions proposed in respect of unsecured loan of Rs. 7.50 lacks, introduction of the capital of Rs. 2.0 lakhs direction of the Ld. CIT to assess the affairs of the liquor business in the capacity of AOP and non-declaration of the capital gain. We find that Ld. CIT has set aside the order of the Assessing Officer and directed him to pass a fresh assessment order after making necessary and proper enquiries/investigation. 9.1 The relevant finding of the Ld. CIT is reproduced as under:

“11.2 The assessment order is, therefore, set aside u/s 263(1) of the Income Tax Act, 1961 to. that extent. The aforementioned issues are

33 ITA No.3337/Del/2013 restored back to the file of the A.O. The AO (Assessing Officer) is directed to make fresh assessment after making necessary and proper inquiries / investigation, in the light of discussions made in the preceding paras (but not necessarily limiting to the same) and make a judicious and logical order as per law, providing opportunity of being heard to the assessee. Of course, any adverse inference made would require re-computation of income and tax thereon.”

9.2 Since the Ld. CIT(A) has set aside the order for passing a fresh assessment order and the Ld. counsel did not prefer to argue on these grounds, therefore, we restrain ourselves from making any comment on the merit of the addition as it is premature at this stage and should be considered at the time of the appeal against the additions made in the reassessment order in compliance to the order of the Ld. CIT under section 263 of the Act. Accordingly, grounds No. 3 to 6 of the appeal are dismissed as infructuous. 10. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 29th March, 2019.

Sd/- Sd/- [BHAVNESH SAINI] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:29th March, 2019. RK/-[d.t.d.s] Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi