VALOUR AUTOPACK,GOR KHIJADIYA, MORBI GUJARAT vs. THE PR. CIT 1 RAJKOT, RAJKOT

Later on, Learned Principal Commissioner of Income-tax (in short “Ld PCIT”) has exercised his jurisdiction under section 263 of the Income-tax Act, 1961. On perusal of Form No. 3CD of Audit Report (at Sr. No. 31(a)), it was noticed by learned PCIT that during the previous year 2020-21, relevant to A.Y.2021-22, the particulars of each loan or deposit in an amount exceeding the limit specified in Section 269SS taken or accepted were as under:

In response to the notice of the Ld. PCIT, the assessee has submitted its reply before ld.PCIT stating that assessee is a partnership firm engaged in the business of manufacturing across various industries, including corrugated boxes used for packaging ceramics, pharmaceuticals, glassware, electronics, and other products. The assessee had filed its return of income for A.Y. 2021-22 on 17.01.2022, declaring a total income of Rs. 44,17,760/-. The return of income was duly processed u/s 143(1) of the Act. Thereafter, case of assessee was selected for "complete scrutiny" through CASS criteria with the reason "Unsecured loans from persons who have not filed their Return of Income." Accordingly, various notices were issued from time to time in response to which assessee has furnished replies along with the necessary documents. In order to verify the creditworthiness and identity of the lenders and genuineness of the transaction with regard to unsecured loan taken by the assessee, notices were issued by the Assessing Officer to the assessee as well as the lenders. Assessing Officer after considering the replies filed in response thereof by the assessee as well as the lenders and after being satisfied with the identity, creditworthiness and genuineness of the transactions, Assessing Officer passed the order u/s 143(3) of the Act on 29.11.2022. Therefore, such assessment order Valour Autopack (AY : 2021-22) 4 which has been framed by the assessing officer after conducting sufficient enquiry should not be erroneous and prejudicial to the interest of the revenue.

It was also submitted before ld.PCIT that these loans were repaid in the subsequent years, therefore genuineness of these loans should not be doubted. Besides, during the assessment proceedings, the assessing officer issued notice to the persons who have advanced loan to the assessee, and in response to these notices, these persons filed the relevant documents and evidences before the assessing officer, therefore, third-party confirmation was also obtained by the assessing officer, therefore assessment order passed by the assessing officer should not be erroneous and prejudicial to the interest of the revenue.

However, the Ld. PCIT rejected the above submissions of the assessee and held that the argument that the assessing officer collected details/information during assessment proceedings does not hold good any more. Once in the opinion of PCIT, the order passed without making inquiries or verification which should have been done, is not done, then such order need to be treated as "erroneous". Therefore, ld.PCIT directed the assessing officer to pass a fresh assessment order after making proper inquiries and verification in relation to such transactions.

Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us.

We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position.

In response to above notice of the assessing officer, the assessee submitted its reply before the assessing officer, vide assessee’s reply Page No. 10 of the assessee’s Paper Book, wherein the assessee has submitted it’s reply before the assessing officer, as follows: “3. (Sr No 3 of notice) Your Honour has asked that with respect to unsecured loans as reflected in Balance Sheet during the year, kindly provide the following details: (i) Name, address and PAN of all the lenders in order to prove identity of the person/entity. (ii)Please provide their Opening balance, Addition/repayment during the year, closing balance. The said details are attached as per Annexure-2.

The Ld. Counsel for the assessee also took us through Paper Book Page No. 13, and stated that assessee took the loan but after taking the loan, assessee has repaid the loan to the concerned creditor. The charts of repayment of loan is reproduced below:

Therefore, Ld. Counsel for the assessee submitted that as per the judgment of the Hon’ble Jurisdictional High Court of Gujarat, in the case of CIT Vs. Ayachi Chandrashekhar 42 taxmann.com 251 Guj, wherein it was held that Valour Autopack (AY : 2021-22) 7 once, the repayment is made and accepted by the department no addition for such loan is to be made. That is, if the loan has been repaid in subsequent years then no addition should be made in the hands of the assessee.

The Ld. Counsel for the assessee also took us through Paper Book and stated that the persons who had provided loan to the assessee had sufficient means and sources and for that Ld. Counsel, explained the Bench, in case of Prateek Industries, with help of the bank statement, which is reproduced below:

Apart from this, the Ld. Counsel for the assessee argued that assessee has submitted the entire documents and evidences during the proceedings before the assessing officer, vide Paper Book Page No. 38 to 188 of the Paper Book. Therefore, all the issues raised by the Ld. PCIT has been replied by the assessee during the assessment proceedings, hence assessing officer has examined Valour Autopack (AY : 2021-22) 8 documents and evidences and framed the assessment order, which is neither erroneous nor prejudicial to the interest of revenue. Therefore, order of the learned PCIT may be quashed.

.On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.

We have considered submissions of both the parties. From the above assessee`s facts, it is abundantly clear that during the assessment stage, the Assessing Officer asked the assessee to furnish the details and documents which are placed in paper book. In response, the assessee submitted reply which is placed at paper book. The assessee, during the assessment stage, has submitted books of accounts, bank statements, details of loan providers, copy of balance sheet and income tax return of loan providers. Even, loan providers also furnished confirmation and necessary necessary documents before the assessing officer in response to notice of the assessing officer. Thus, all the documents, details and the explanations required by the Assessing Officer were submitted by the assessee. Just because the Assessing Officer does not bring these documents and details in his assessment order does not mean that assessing officer has not conducted proper enquiry during the assessment stage. In fact, assessing officer has applied his mind. The 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. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Valour Autopack (AY : 2021-22) 9 Commissioner simply because, according to him, the order should have been written more elaborately. Therefore, in the assessee`s case, it cannot be said that it is a case of 'lack of inquiry'.

We also find that assessee has repaid most of the loan in subsequent years. As per the judgment of the Hon’ble Jurisdictional High Court of Gujarat, in the case of CIT Vs. Ayachi Chandrashekhar 42 taxmann.com 251 Guj, wherein it was held that once, the repayment is made and accepted by the department no addition for such loan is to be made. That is, if the loan has been repaid in subsequent years then no addition should be made in the hands of the assessee.

We note that as per learned PCIT, in fact, enquiry was conducted by the assessing officer in respect of the each loan. However, as per ld.PCIT proper enquiries were not conducted, therefore, learned PCIT directed the assessing officer to conduct proper enquiry and verification of the loan, which is evident from the findings of the learned PCIT, which is reproduced below:

From the above direction of the PCIT, we note that PCIT wants that assessing officer should conduct deeper enquiry, as compared to enquiry already conducted by the assessing officer. However, it is settled position of law that how much enquiry is to be conducted, is the exclusive domain of the Valour Autopack (AY : 2021-22) 10 assessing officer to decide that up to what extent enquiry is to be conducted or whether further enquiry is needed, all these decisions are within the domain of the assessing officer.As we have noted above that there is difference between ‘Lack of enquiry’ and ‘inadequate enquiry’. It is for the AO to decide the extent of enquiry to be made as it is his satisfaction as what is required under law. Reliance is placed on the decision of CIT v. Sunbeam Auto Ltd. [(2010) 332 ITR 167], wherein Hon’ble Delhi High Court has held that if there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass order u/s 263 of the Act, merely because the Commissioner has a different opinion in the matter and that only in cases where there is no enquiry, the power u/s 263 of the Act can be exercised. The ld. PCIT cannot pass the order u/s 263 of the Act on the ground that further/thorough enquiry should have been made by AO. Further, it was settled by Hon`ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT [(2000) 243 ITR 83 (SC)] wherein it was held that if the A.O. adopts one of the possible courses available in the scheme of the I.T. Act which results in any loss of revenue or when two views are possible and the A.O. adopts one of them with which the C.I.T. does not agree, then it would not be an order prejudicial to the interest of revenue for invoking the jurisdiction u/s. 263 of the Act. For better appreciation, the relevant portion of the judgment in the case of Malabar Industrial Co. Ltd. vs. CIT (supra) is quoted below : “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 Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law”.

In the result, appeal filed by the assessee is allowed.