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Facts
The assessee, M/s. Parisharam Builders, filed its return for AY 2015-16, which was finalized under section 143(3). The Principal Commissioner of Income Tax (PCIT) invoked section 263, alleging that the Assessing Officer (AO) had not conducted a "depth independent inquiry" regarding sundry creditors and certain other transactions. The PCIT set aside the assessment order, directing the AO to conduct a more thorough inquiry.
Held
The Tribunal held that the PCIT erred in exercising revisional jurisdiction under section 263. The facts indicated that the AO had conducted inquiries, sought details from the assessee, and examined the provided documents. The PCIT's view that a "depth independent inquiry" was required amounted to a difference of opinion and not a lack of inquiry, which is not a valid ground for revision under section 263.
Key Issues
Whether the PCIT was justified in invoking Section 263 of the Income-tax Act, 1961, to revise the assessment order when the Assessing Officer had conducted inquiries, even if the PCIT believed them to be inadequate?
Sections Cited
263, 143(3), 142(1)
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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: DR. ARJUN LAL SAINI & SHRI DINESH MOHAN SINHA
सुनवाई क� तार�ख /Date of Hearing : 07/07/2025 घोषणा क� तार�ख /Date of Pronouncement : 29/09/2025 ORDER Per, Dr. Arjun Lal Saini, Accountant Member: By way of this appeal, the assessee has challenged the correctness of the order dated 10.02.2021 passed by the Learned Principal Commissioner of Income-tax (in short “Ld PCIT”) under section 263 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 2015-16. Grievances raised by the assessee, which, being interconnected, will be taken up together, are as follows: “1. The grounds of appeal mentioned hereunder are without prejudice to one another.
2. The order passed by Pr. CIT, Rajkot-1 (hereinafter referred as to the "Pr. CIT"] is bad and illegal and requires to be quashed.
M/s. Parisharam Builders (AY : 2015-16) 2 3. Ld. Pr. CIT erred in law and on facts in exercising revisional jurisdiction ignoring the fact that assessing officer made full inquiry and he was satisfied with the reply/submission of the appellant and accordingly the order passed by Pr. CIT is required to be quashed and may kindly be quashed.
4. The order passed u/s 263 is bad in law and void ab initio in as much as there is apparent inconsistency in observation given in notice and ultimate finding given in order. In notice issued, there is reference of alleged incomplete verification business creditors, whereas finding is given treating it as loan transactions. Therefore, on this ground also the order passed u/s 263 of the Act by the learned Pr. CIT is totally bad in law and deserves to be quashed and may kindly quashed.
5. Your Honour's appellant craves leave to add, to amend, alter, or withdraw any or more grounds of appeal
on or before the hearing of appeal.
2. The relevant material facts, as culled out from the material on record, are as follows. The assessee, before us, is a partnership- firm and engaged in the business of civil construction, such as roads and buildings on contract basis mainly for various government bodies. The assessee e-filed its return of income for the assessment year (AY) under consideration, on 31.10.2015, declaring total income at Rs. 82,64,950/-. The assessee`s case was selected for Limited Scrutiny under CASS and the assessment was finalized u/s 143(3) of the Act vide, order dated 23.11.2017, accepting the returned income, declared by the assessee.
3. Later on, the Learned Principal Commissioner of Income-tax (in short “Ld PCIT”), has exercised his jurisdiction under section 263 of the Income-tax Act, 1961. The ld.PCIT observed that assessee`s case was selected for Limited Scrutiny, under CASS to verify, large increase in investment in unlisted equities during the year and mismatch in amount paid to related persons u/s 40A(2)(b) of the Act reported in Audit Report and ITR and to verify large increase in sundry creditors with respect to turnover, as compared to preceding year etc. On perusal of the case records, it was noticed by the learned PCIT that during the assessment proceedings, the assessing officer had called for details of all outstanding sundry creditors with their complete address and PAN above Rs. 1 M/s. Parisharam Builders (AY : 2015-16) 3 Lakh, along with detail of purchase made due to which such sundry creditors arise. In response, the assessee, vide letter dated 20/11/2017, submitted a name wise report of all the accounts payable containing 121 names and their closing balances, as on 31/03/2015, enclosing copy of ledger account of each of these creditors from the books of the assessee, duly signed by such creditors. Further, the reply of the assessee was found to be absolutely silent on the details of purchases on account of which such creditor arose. Further, in majority of the confirmations, PAN of the party, copy of acknowledgement of Return of Income, were not provided. Under these circumstances, ld.PCIT noticed that assessee has not proved the identity and genuineness of such creditors with cogent documentary evidences. In case of some of the creditors, entire payment was made in cash dividing the same in amounts below Rs. 20,000/-, on various dates and in absence of the PAN and address of such persons, such transactions were found to be un-verified. As such, it appeared that the assessing officer, while finalizing the assessment, has not verified these aspects of the assessment properly and has finalized the assessment on the basis of the submissions of the assessee, on its face value without making any independent inquiry on these aspects. As such, it prima facie appeal to Ld. PCIT that the order passed by the assessing officer was erroneous in so far as it was prejudicial to the interests of the revenue, requiring revision under the provisions of section 263 of the Act.
4. Accordingly, a show notice dated 02.08.2018, under the provisions of section u/s. 263 of the Act, was issued to the assessee, proposing to revise the order dated 23.11.2017, passed by the assessing officer u/s 143(3) of the Income Tax Act, 1961, which is reproduced by learned PCIT, in his revision order, vide page number 3 to 4.
5. In response to the notice of the learned PCIT, the assessee submitted list of sundry creditors, PAN, address and other documentary evidences. The M/s. Parisharam Builders (AY : 2015-16) 4 assessee has mainly contended before ld.PCIT that the assessee had furnished complete details of creditors along with confirmation of the parties concerned and that the show cause notice did not spell the quantum of the tax effect and as to how the assessment made by the assessing officer was erroneous or prejudicial to the interest of revenue. The assessee further contended before ld.PCIT that the assessing officer called for the entire details of sundry creditors of Rs. 1,00,000/-, or more which shows that the assessing officer has passed the order after due application of mind and as such, the case does not fall within the ambit of section 263 of the Act. The assessee has also furnished ledger accounts of each of the party giving nature of transactions with it and contended that majority of the accounts are running accounts and transaction are incidental to the business of the assessee and that the same was available with the assessing officer, while finalizing the assessment and therefore the show- cause notice issued by ld.PCIT was nothing but would tantamount to be a change of opinion which cannot be a subject matter of action u/s. 263 of the Act. The assessee also relied upon the decision of Hon'ble ITAT, Ahmedabad Bench 'B' in the case of Torrent Pharmaceuticals Ltd v. DCII (2018) 97 taxmann.com 671 (Ahmedabad-Tribunal). The assessee further contended that the revisional power cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry and that if such course of action as interpreted by the Pr. CIT in the light of the Explanation 2 of section 263 of the Act, is permitted, then ld. Pr. CIT can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law and that such revision should be restricted to a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the assessing officer and such inquiry was not conducted, the provisional power so conferred can be (a) Decision of Hon'ble High Court of Madras in the case of Smt. Renuka Phillip v. ITO (2019) 101 taxmann.com 119(Madras). (b) Decision of the Hon'ble Supreme Court of India in the case of Parshuram Pottery Works Co. Ltd. vs. ITO (106 ITR 01). (C) Decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT 243 ITR 83. (d) Decision of the Hon'ble Gujarat High Court in the case of CIT v/s. Arvind Jewellers (259 ITR 502). (e) CIT vs. Max India Ltd. 295 ITR 282 (SC), CIT vs. Jagson International Limited 214 CTR (Del) 227. (g) CIT vs. SakSoft Ltd. 298 ITR 63 (Mad.) (h) CIT vs. R.K. Construction Co. 313 ITR 65 (Guj.)
However, Ld. PCIT rejected the above contention of the assessee and observed that in some cases, the payments have been made in cash in various instalment, less than Rs. 20,000/-. This fact coupled with absence of PAN and complete address of such recipient made these transactions completely unverifiable. The assessing officer has not made any independent inquiry, as regards the veracity of such claim of expenses. As such, when the assessing officer is found to have not verified these aspects of the assessment, there is no question of change of opinion as contended by the assessee. The ld.PCIT held that in the assessee's case, the assessing officer while completing the assessment did not conduct such enquiry as was essential on the facts and circumstances of the case and therefore the order passed by the assessing officer was erroneous in as much as it was prejudicial to the interest of revenue. Therefore, learned PCIT set- aside the order of the assessing officer and
Aggrieved by the order of the Ld. PCIT, the assessee is in appeal before the Tribunal.
Learned Counsel for the assessee submitted that during the assessment proceedings, the assessing officer has issued notice to the assessee, which is placed at Paper Book Page No. 29, wherein the assessing officer has asked the pertinent question about Sundry creditors. In response to notice u/s 142(1) of the Act, the assessee submitted its reply before the Assessing Officer, which is placed at Paper Book Page No. 31. The Ld. Counsel submitted that in the assessee’s case under consideration, some of the creditors were not required to file the confirmation, as they were coming, in the books of accounts, as a part of opening balances, even then, the confirmations were furnished. The entire transactions were through banking channels. Therefore, the Assessing Officer has examined these aspects, and hence the order passed by the assessing Officer is neither erroneous and nor prejudicial to the interest of the revenue.
9. On the other hand, the ld. DR for the Revenue submitted that no doubt during the assessment proceedings, the assessing officer has asked pertinent question which are placed at Page No. 29 of the Paper book and assessee has submitted its reply before the assessing officer. However in the reply, the assessee has not submitted address and PAN number of the creditors. Therefore to that extent the assessing officer did not conduct the sufficient enquiry and hence the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue.
M/s. Parisharam Builders (AY : 2015-16) 7 10. We have carefully considered the facts of the case, the submission of the Learned Counsel for the assessee and ld. DR for the Revenue and evidences on record. We note that main grievance of the learned PCIT was that assessing officer has not conducted ‘depth independent inquires’ in the assessee`s case under consideration, however, inquiries were conducted by the assessing officer. Therefore, learned PCIT himself agreed that necessary enquiries were conducted by the assessing officer, however, ‘depth independent inquires’ were not conducted by the assessing officer, to find out the genuineness of the creditors. For the sake of clarity and also being pertinent, we reproduce the concluding Para No. 12 of the order of the learned PCIT, passed by him under section 263 of the Act:
“12. Considering the above mentioned facts, I hold that the assessment order dated 26.09.2017 finalized by the Assessing Officer u/s, 143(3) of the Income-tax Act, 1961 is erroneous and prejudicial to the interest of revenue within the meaning of section 263 of the Income-tax Act, 1961 and hence the order passed by the Assessing Officer u/s. 143(3) dated 26.09.2017 is hereby set aside. Accordingly, the Assessing Officer is directed to make in depth independent inquires in respect of identity and creditworthiness of all the creditors as also genuineness of transactions. The assessing officer is also directed to specifically examine whether in the bank account of such creditors adequate amount was available when loans were advanced so that the creditworthiness and genuineness of transactions can be properly examined”. 10.1 From the above observations of the learned PCIT, it is vivid that assessing officer, during the assessment proceedings has conducted enquiries. However, as per ld.PCIT, the assessing officer has not conducted depth independent inquires. We note that there is difference between ‘Lack of enquiry’ and ‘inadequate enquiry’. It is for the assessing officer to decide the extent of enquiry to be made, as it is his satisfaction, as what is required under law. For this, 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 M/s. Parisharam Builders (AY : 2015-16) 8 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 assessing officer.
On the above undisputed facts on record, the matter is already decided by Hon’ble Gujarat High Court in the case of CIT Vs. Arvind Jewellers [2003] 259 ITR 502 (Guj) following the ratio of decision of Hon’ble Supreme Court in the case of of Malabar Industrial Co. Ltd. Vs. CIT [2000] 243 ITR 83 (SC) by holding as under:
Held, that the finding of fact by the Tribunal was that the assessee had produced relevant material and offered explanations in pursuance of the notices issued under section 142(1) as well as section 143(2) of the Act and after considering the material and explanations, the Income-tax Officer had come to a definite conclusion. Since the material was there on record and the said material was considered by the Income-tax Officer and a particular view was taken, the mere fact that different view can be taken should not be the basis for an action under section 263. The order of revision was not justified.
It is pertinent to mention here that there was as such no allegation of ‘no enquiry’ or ‘lack of enquiry’ or verification, because the Ld. Pr. C.I.T. himself found all the details/evidences in the assessment record, that is, well within the assessing officer`s possession and what he alleged was about the plausible view taken by the assessing officer, as against his perception and understanding on the same set of facts and documents. Therefore, the notices issues for examination of the issues during the assessment proceedings and submission and verification of the same has not been shown to be fallacious. In this connection it is pertinent to mention here that the way in which assessment should be finalized falls in the exclusive domain of the Assessing Officer. Section 142(1) of the Act, speaks of inquiry before assessment and gives immense power to the A.O. for conducting enquiry. Therefore, the A.O. u/s 142(1)(ii) & (iii) can ask the assessee almost any information which he thinks M/s. Parisharam Builders (AY : 2015-16) 9 necessary for passing assessment and even if Ld. PCIT has such results of enquiries, the resultant order cannot be subjected to revision proceedings. Therefore, the very initiation of proceeding u/s. 263 of the Act by the Ld. Pr. C.I.T. is in violation of the settled position in law. When the conditions precedent for invoking revisional power u/s. 263 of the Act on the facts and in the circumstances of the case are not fulfilled in the case of the assessee, the subsequent action in passing the order u/s. 263 on such invalid proceeding becomes null and void. Reliance is placed on the following decisions, the ratios of which are totally applicable to the facts of the assessee’s case:
(1) Smt. Juthika Kar vs. ITO [I.T.A. No.1128/Kol/ 2009, dated 16.5.2012] “8. With the leave and consent of my learned brother, however, I may add a few words to my learned brother’s analysis of Hon’ble Delhi High Court’s judgment in the case of Gee Vee Enterprises (supra). Undoubtedly, as noted by their Lordships in that case, an Assessing Officer cannot remain passive in the face of a return which is apparently in order but calls for further enquiry. In such a case, revision proceedings can indeed be initiated and there seems to be no serious controversy in this respect. The fine point, however, one must bear in mind is the distinction between adequate enquiries not having been conducted and the result of such enquiries not having been dealt with by way of a speaking order or not having resulted in the conclusion that could be, in the wisdom of a person other than the Assessing Officer, more appropriate. Here is a case in which sufficient enquiries were conducted. As learned brother has rightly noted, the Assessing Officer called for specific details, confirmations and even copies of bills. It could not, therefore, be said that sufficient enquiries were not conducted. However, what is opinion formed as a result of these enquiries is something which is in exclusive domain of the Assessing Officer, and even if Commissioner has such results of enquiries, the resultant order cannot be subjected to revision proceedings. The conclusions arrived at as a result of enquiries cannot be tinkered with in the revision proceedings. The conclusions being drawn up as a result of enquiry is a highly subjective exercise and as to what is appropriate conclusion is something on which perceptions vary from person to persons. These variations in the perceptions of the Assessing Officer vis-à-vis that of the Commissioner, cannot render an order erroneous and prejudicial to the interest of the revenue.
Viewed in this perspective, and having noted that the Commissioner has subjected the assessment order mainly on the ground that the Assessing Officer did not reach the right conclusions as a result of his enquiry, the impugned revision order is indeed unsustainable in law. It is not a case in which adequate enquiries has not been carried out.” [Emphasis given] “85. Whether the assessment order dated March 28, 2008, was passed without application of mind is basically a question of fact. The learned Tribunal has held that the assessment order was not passed without application of mind. The records of the assessment including the order-sheets go to show that appropriate enquiry was made and the Assessee was heard from time to time. In deciding the question the court has to bear in mind the presumption in law laid down in section 114 clause (e) of the Evidence Act : “that judicial and official acts have been regularly performed.”
Therefore, the court has to start with the presumption that the assessment order dated March 28, 2008, was regularly passed. There is evidence to show that the Assessing Officer had required the Assessee to answer 17 questions and to file documents in regard thereto. If the A.O. cannot be shown to have violated any form prescribed for writing an assessment order, it would not be correct to hold that he acted illegally or without applying his mind.” [Emphasis given] We note that during the assessment proceedings, the assessing officer 13. issued notice u/s. 142 (1) of the Act, which is placed at Paper Book Page No.
The relevant question asked by the Assessing Officer is reproduced below:
“X. Kindly give detail of all outstanding sundry creditors with their complete address and PAN number above 1 lakh along with detail of purchase made due to which such sundry creditors arises.”
In response to the notice u/s. 142(1) of the Act, the assessee submitted its reply which is reproduced below:
“1. We are the Govt. Approved contractors for Road and Building work. As per the terms of the Tenders, we have to keep deposits/Fds as Earnest money Deposits. Therefore, we have to make investment in such deposits. However it is not correct that there is large increase in such investment. Such investment have decreased as compared to preceding years and comparative details of such investment are enclosed herewith for your kind record and reference.
As per our audit Report U/s. 44AB, the auditors have reported the payments made to persons specified u/s. 40A(2)(b) of the act. We may state that there is no column in the ITR to report such transactions. Therefore there is no question of mismatch in ITR with audit report.
We are in the business of Civil Constructions particularly for Road and Bridges for Government and semi government bodies. Our turnover have considerably declined during the year under assessment as compared to earlier year but it is not correct that our creditors have increased, but our creditors have also decreased considerably.
M/s. Parisharam Builders (AY : 2015-16) 11 However, we enclose herewith the confirmations of our creditors for your considerations and record.
During the year under assessment we have paid interest to Banks and Financial Institutions. All such expenses are wholly, exclusively and necessarily incurred for our business only. We further state that all such interest expenses are incurred for our contract business only and we have not earned any Tax Free income during the year. Therefore, there is no interest expenses where provisions of Sec. 14A is applicable.
We may state that all ITS data are matched with our books of accounts and records. We enclose herewith necessary evidences for your kind record.”
Therefore, from the above, it is clearly established that during the assessment proceedings, the assessing Officer has raised the pertinent question and assessee has submitted its reply before the assessing officer. After taking into consideration all the documents and confirmations and bank statements submitted by the assessee, the assessing officer framed the assessment order. Therefore, such assessment order should not be considered as erroneous and prejudicial to the interest of Revenue. In fact the assessing officer, vide notice u/s 142(1) dated 22.05.2017 called for various details including the audit report and to be specific vide para 2 (x) details of sundry creditors over Rs.1,00,000. The assessee, vide letter 20.11.2017 and 21.11.2017 furnished the details and documents before the assessing officer. The assessee has furnished complete details of creditors along with confirmations of the parties concerned. In fact the ledgers and the confirmation contain the details of purchases coupled with the payment details and the balances. Thus, there is no case that the assessing officer had not verified the purchases from which the creditors arisen, and in case of most of the creditors, opening balances were coming from the previous years` audited books of accounts, hence genuineness of these creditors should not be doubted.
The opening balances of creditors, in the current year were the closing balances in the previous year, which were examined by the assessing officer in the previous assessment year, and these were not doubted in the previous M/s. Parisharam Builders (AY : 2015-16) 12 assessment year, hence, genuineness of these creditors should not be doubted. Further, we find that these creditors belong to reputed companies and some of the creditors were repaid by the assessee in subsequent years. Hence, creditors were paid by the assessee in subsequent year, hence, genuineness of these creditors should not be doubted, for that we place reliance on the judgment of the Jurisdictional High Court of Gujarat in the case of CIT, Rajkot-I vs. Ayachi Chandrashekhar Narsangji 42.taxmann.com 251 (Gujarat), where it was held that department had accepted repayment of loan in subsequent year, no addition was to be made in current year on account of cash credit.
We note that so far sundry creditors are concerned, we find that majority of the accounts are running accounts and transactions are incidental to the business of the assessee. The transactions recorded in the ledgers made available to the assessing officer clearly shows that the liabilities outstanding are in the form of purchases, services utilised or salary payments incidental to the business and recorded in the normal course of business. The assessing officer while finalizing the assessment has found that in none of the case there is any liability which are not supported. In all the cases details of purchases, service provided by sub-contractors etc. are recorded in the ledgers itself. Thus, mention of non-furnishing the details of purchases due to which liabilities arose in the show cause notice is misplaced. Thus, the present show cause notice of ld.PCIT is nothing but would tantamount to be a change of opinion which cannot be a subject matter of action u/s 263 of the Act. As regards the applicability of clause (a) of Explanation 2 to section 263 (1) of the Act is concerned, we note that the same would come in to play when there is failure on the part of the assessing officer in making the inquiry or verification which should have been made. In the present case the assessing officer has carried out extensive inquiries stated supra and as such there is no room for applicability of clause (a) of explanation 2 to section 263(1) of the Act and as such it is M/s. Parisharam Builders (AY : 2015-16) 13 misplaced. It would be evident from the above given facts that the proceeding u/s. 263 and order passed thereupon was totally uncalled for in the case of the assessee and that being so, the impugned order u/s. 263 of the Act of the Ld. Pr. C.I.T. should be quashed as per law. Accordingly, we quash the order of the learned PCIT dated 10.02.2021.
In the result, appeal filed by the assessee, is allowed.