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Income Tax Appellate Tribunal, ‘’ A’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & MS SUCHITRA KAMBLE
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Principal Commissioner of Income Tax-6, Ahmedabad, dated 28/02/2018 arising in the matter of assessment order passed under s. 263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2013-2014.
The issue raised by the assessee is that the learned Principal CIT erred in holding the assessment framed by the AO as erroneous insofar prejudicial to the interest of revenue under the provisions of section 263 of the Act.
The learned principle CIT on verification of the assessment records found that the assessment has been framed by the AO under section 143(3) of the Act vide order dated 29th January 2016 without conducting the necessary enquiries with respect to certain items as detailed below:
i. The assessee has made investments in two properties in the year under consideration. The source of the same was explained from the withdrawal of the partnership firm namely M/s Jay Corporation which has directly paid to the vendor of the property. However, the AO has not cross verified from the accounts of the partnership firm. ii. The assessee has received unsecured loan from several parties which were accepted by the AO in the assessment proceedings without examining the genuineness of the loan as well as creditworthiness of the parties. iii. There was a gift of ₹ 2.5 lakhs from the father of the assessee. But in the bank account of the father, there were cash deposits which were utilized for the purpose of making gift to the assessee. iv. There was the payment towards the stamp duty, registration charges but the same were not examined by the AO during the assessment proceedings. 3.1 In view of the above the learned Principal CIT proposed to hold the assessment order as erroneous insofar prejudicial to the interest of revenue by issuing a show cause notice to the assessee. In response to the show cause notice the assessee made a reply but the learned Principal CIT held that the necessary details and evidences were not available with the AO during the assessment proceedings with respect to the items as discussed above. Furthermore, the assessment has been framed by the AO without conducting the necessary enquiries. Accordingly the Principal CIT concluded that the assessment is erroneous insofar prejudicial to the interest of revenue and directed the AO to make the fresh assessment after making necessary enquiries and examination.
Being aggrieved by the order of the learned Principal CIT, the assessee is in appeal before us.
The ld. Authorized Representative before us filed a paper book dated 05th December 2018 running from pages 1 to 405 and paper book dated 28th January 2022 running from pages 1 to 403 and submitted that assessee return was selected for scrutiny under section 143(3) for the reason of large investment in property. During the course of assessment proceedings, the Ld. Assessing Officer had raised specific queries with regard to investment in land/property, sources of investment, detail unsecured loan and their genuineness which were duly complied with vide submission dated 23-11-2015, 15-12-2015, 20-01-2016 and 28-01-2016. The ld. Authorized Representative drew our attention to pages 62 to 92 of Paper Book Part- 1(dated 05-12-2018) where copy of ITR, balance sheet and bank statement along with reconciliation of Jay Corporation for A.Y. 2012-13 and 2013-14 were placed. The ld. AR further drew our attention on pages 288 to 353 of the paper book where submission to AO dated 15-12-2015 along with annexure of partner ledger account of Jay Corporation, list of person to whom payment for purchase of land paid by the firm on behalf of the assessee were placed.
5.1 The learned AR also drew our attention to pages 129 to 263 and 354 to 405 where explanation with regard to unsecured loan, their detail, supporting evidences such as ledger copy, ITR, land record held by creditor, their bank passbook etc. were placed.
5.2 The learned AR further drew attention to the page number 106 to 128 where the detail of land record held by father of the assessee Shri Kanubhai Manjhibhai Desai, his APMC sale bills etc were placed from whom assessee has shown gift of Rs. 2.5 lakh.
5.3 The ld. Authorized Representative submitted that since all details were filed with the ld. Assessing Officer and assessment order was passed after consideration of all the materials, it cannot be stated that the enquiries made were insufficient so as to justify initiation of the proceedings under section 263 of the Act. The ld. Authorized Representative submitted that the Ld. Assessing Officer after consideration of all evidences placed on record and after due application of mind framed the assessment order. The Ld. AR submitted that since the Ld. AO has made enquiries during the course of assessment proceedings, it would not be open to the Ld. Pr. CIT to initiate proceedings u/s 263 of the Act on account of non-verification. Thus, the said proceedings are liable to be set aside.
On the other, the learned DR submitted that the various documents about the investment in the properties, source of investment, about the unsecured loan, gift from father and property registration papers were filed but the AO with respect to the same has not carried out the necessary enquiries. Therefore, the ld. PCIT was right in initiating proceedings under section 263 of the Act. The ld. DR vehemently supported the order of the ld. PCIT.
We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether the assessment order has been passed by Ld. AO without making inquiries or verification with respect to the items as discussed above and hence the assessment is erroneous and thus requiring revision by Pr. CIT u/s 263 of the Act.
7.1 An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer’s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various High Courts in this regard.
7.2 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. The relevant observation of Hon’ble Delhi High Court reads as under: “12. ….. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open. ——— From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re- examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.
Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.”
7.3 The Hon’ble Bombay High Court in case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the following manner: “The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.
7.4 The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words:- “20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provison shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis- à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.”
7.5 The Hon’ble Supreme Court in recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates*[2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revised order after making addition to assessee's income under section 69A in respect of on-money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revised order under section 263 on ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed by Commissioner. The Hon’ble High Court upheld Tribunal's order. The Hon’ble Supreme Court while dismissing the SLP filed by the Department held as under:-
“We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed”
7.6 The Supreme Court in the another recent case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd[2020] 114 taxmann.com 545 (SC), dismissed the Revenue’s SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations:
“Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The Assessing Officer has taken a plausible view. More importantly, if the Commissioner was of the opinion that on the available facts from record it could be conclusively held that income arose from other sources, he could and ought to have so held in the order of revision. There was simply no necessity to remand the proceedings to the Assessing Officer when no further inquiries were called for or directed”
7.7 From an analysis of the above judicial precedents, the principle which emerges is that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Assessing Officer adopts one of the course permissible in law and it has resulted in loss of revenue; or where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law, or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind.
7.8 Now in the facts before us, the case of the assessee was selected through "CASS" selection for Scrutiny, where the purpose of assessment was to scrutinize the substantial investment in the property in the captioned year. During the course of assessment proceedings, the Ld. AO made detailed enquiries on this issue and after consideration of time-to-time written submissions filed by the assessee and documents / evidence placed on record, the Ld. AO framed assessment under section 143(3) after making additions to the tune of Rs. 8,085/- representing interest income. This fact can be verified from the submission of the assessee as detailed under: Letter written to the ITO dated 24-09-2015 where following details were i. All the 43 unsecured loan A/c with conformation, address, PAN, ITR etc is submitted here with.
I have no fixed deposit or Share investment during this F.Y. 2012-13, except the new investment I two immovable properties. Copies of purchase deed of both the properties along with ledger copies of said Land purchase A/c is enclosed here with (1) Agri. Land at Ramol S.No.288/1 Rs.35,48,100 and (2) Agri. Land at Vinzol S.No.-583 Rs.1,67,60,235/- (@40% out of 4,14,31,000/- Regarding new investment of Rs.1,67,60,235/- @ 40% of total purchase value of Agri.Land at Vinzol S.No.583 Rs.4,14,31,000/- the deed is submitted as stated above col.08 and where as I have sold an agricultural land at Ramol bearing survey No.280/6 for consideration of Rs.34,00,000/- on dt.13.07.2012 was purchased on dt.13.01.2012 vide registration No.105 for Rs.29,32,500 + stamp & other exps.=total cost of acquisition worked out at Rs.31,38/850/- copies of both purchase, sale deed and details of working of short term capital gain is submitted her with for your kind consideration and perusal. ii. Letter written to the ITO dated 25-11-2015 where following details were submitted: Regarding information for purchase of land dt.06.09.2012 Rs.3080000/- I have to state that said transaction of investment falling within F.Y. 2011-12 a copy of the property purchase Registration Index enclosed her with showing the dt.13.03.2012 also reflect the investment in outnbl.sheet for F.Y. 2011-12 enclosed. I have enclosed here with the copies of Audit report, partnership deed and Anknowledgment receipt with statement of income of M/sJay Corporation. Regarding the gift of total Rs.2,50,000/- from my father I have submitted a declaration for your consideration. A chart regarding investment transaction out of the source of unsecured loan deposits in prescribed format is enclosed herewith. iii. Letter written to the ITO dated 15-12-2015 where following details were submitted: Regarding the explanation to the source of investment for the purchase of property at Village Vinzol at consideration Rs. 4,14,31,0007-with other four parties. The payment is made through our partnership firm M/s.Jay Coporation in which my share is 40%, is Rs.1,65,72,400/-done through my capital (investment) account with my partnership business M/s.Jay Corporation, copy of said conveyance deed along with my capital A/c with the said firm and Audited Bl.sheet of the firm is submitted with earlier submission^ 2) As stated above Land purchased jointly by the following partners of M/s Jay Corporation, total consideration is paid by the Firm on behalf of the partners and debited to each partners as per their share stated below & recoverd from them as per the ledger A/c from books of the firm / M/s Jay Corporation enclosed here with detailed as under. S.No. Name of partners Share % Contributed Amount Rs. 01 Pravinbhai Kanubhai Desai 40 % 1,65,72,400/- 02 Jayantibhai Gangajibhai Kapadiya 20 % 82,86,200/-
03 Ghanshyambhai Kanubhai Desai 25 % 1,03,57,750/- 04 Chetanbhai D. Dobariya 10% 41,43,100/- 05 Alpeshbhai Chaturbhai Kotadiya 05 % 20,71,550/- Total 100 % 4,14,31,000/- All the above stated consideration is paid to the seller parties detailed as under as per the ledger A/c from books of the firm M/s Jay Corporation enclosed here with detailed as under. Sr.No. Name of seller parties Amount paid 01] Amarsinh Manuji 20,515/-- 02] Bhikhubhai Manuji 20,515/- 03] Hiraben Manuji 20,515/- 04] Indiraben Manuji 20,515/- 05] Ishwarbhai Ranchodbhai Patel 3,01,24,819/- 06] Jattubha Manuji 20,515/- 07] Mahipatji Manuji 20,515/- 08] Prahladbhai Shakardas Patel 1,11,42,050/- 09] Pramilben Manuji 20,520/- 10] Vishnubhai Manuji 20.515/- Total 4,14,31,000/-
03] In support of the above investment made by the partnership firm M/s Jay Corporation I have enclosed here with ledger copies of HDFC Bank & from Kotak Mahindra Bank A/c from the books of the firm for the proof of said investment made by the firm on my behalf is submitted here with for your kind consideration.
4] Regarding the explanation to the source of investment for the purchase of land at Village , Ramol survey No. 288/1 for consideration Rs. 35,48,100/-1 have enclosed here with the list of payment along with copies of Bank statements highlighted the transactions for your perusal.
5] As per my all earlier submissions all the new investment made during the previous year is made through the partnership firm as well as out of the unsecured loans and fund received on sales of a land for Rs. 34,00,000/- details of which is submitted earlier, and out of my own capital reflected in my personal balance sheet, Thus all the investment questioned is reflects in my personal books of account for which I have categorically explained with details. iv. Letter written to the ITO dated 20-01-2016 where following details were submitted: I have submitted here with copies of bank pass-books of unsecured loan depositors which were remain unattached with earlier submission dated 24.09.2015 is enclosed here with for your perusal 7.9 With respect to the payment of stamp duty charges, it was submitted that the vendor of properties have borne such charges which can be verified from the copies of the sale deed which were available before the AO during the assessment proceedings as evident from the above discussion. In this regard, we find that there was no enquiry raised by the AO during the assessment proceedings. Even the ld. AR before us has submitted that the assessee has furnished reply to the AO vide letter dated 23-11-2015 placed on page 264 of the PB, as extracted below:
Regarding expenditure incurred for Land premium, non-agricultural fees I have f submitted ledger copies and receipts with earlier submission, copies of said property deeds executed in F.Y.2013-14 i.e. (1) For S.No. 244/8 vide regi.No.2305 dt. 05.04.2013 (Rs. 8,23,180 &Rs. 16,200/0) (2) For S.No.243/4+8 vide regi. No. 2674 dt. 17.04.2013 ( Rs.32,67,840/- & Rs. 72,500/- ) & (3) For S.No. 284/1 vide regi. No.5039 dt. \ 26.07.2013. (Rs.26,84,420/-) is enclosed here with, the amount paid for such premium or fees is marked for your verification the deeds.
7.10 The above reply of the assessee relate to the payment of land premium, non- agricultural fees which is not related to the stamp duty. Thus to this extent, we are of the view that there was no enquiry conducted by the AO during the assessment proceedings.
7.11 The Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of sources of investment in property, unsecured loan, gift from assessee’s father and stamp duty charges. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the Ld. AO had made detailed enquiries and after consideration of material placed on record accepted the genuineness of the investment, unsecured loan and gift from father except the payment of the stamp duty which needs to be verified. We thus find no error in the order of Ld. AO so as to justify initiation of 263 proceedings by the Ld. Pr. CIT except the payment of the stamp duty which needs to be verified. The ground of appeal raised by the assessee is thus partly allowed.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the Court on 13/04/2022 at Ahmedabad.