SATISHBHAI MOHANBHAI ZALAVADIA,NA vs. ARI,VS.THE PRINCIPAL COMMISSIONER OF INCOME TAX, RAJKOT-1, RAJKOT

Later on, the Learned Principal Commissioner of Income Tax - 1, Rajkot [in short ‘Ld. PCIT’], exercised his jurisdiction, under section 263 of the Income Tax Act, 1961. The learned PCIT, on verification of the records, noticed that the assessee had deposited cash of Rs.52,62,000/-, in bank account No. 22212560000241 held with HDFC Bank and Rs.50,00,000/- in bank account No.306902000000486 held with Bank of Baroda, on various dates during the period of demonetization, the details of which are as under:

On verification, it was found by ld.PCIT that there was no plausible reason on assessee's part to deposit the cash in 7 installments on different dates. As per the bank statement, it is noticed that the most of the cash had been deposited in middle of the November 2016. If the assessee indeed had cash in hand, before the demonetization, then he would have deposited the entire amount of Rs.1,02,62,000/-, at one go instead of multiple times. However, it was observed by learned PCIT that during the assessment proceeding, the assessing officer has ignored this fact and has not gone into the source of such cash in hand, which was deposited in the bank account and no proper explanation from the assessee, in the matter has been submitted in the assessment proceedings. The possibilities of depositing the undisclosed cash of the assessee in the bank accounts cannot be ruled out and the same was requiring in depth investigation by assessing officer. Thus, it is amply evident that the issue of such amount of cash deposits in bank accounts remained unexplained. Therefore, in view of the above, the assessment order passed by the assessing officer is erroneous and also prejudicial to the interest of revenue, as source of cash deposited remained unexplained in aforementioned bank accounts of the assessee. In view of the above, a show cause notice dated 17-01-2022 was issued proposing to subject the assessment order of the assessing officer to revision u/s 263 of the Income tax Act.

In response to the above notice of the learned PCIT, the assessee has filed its written submission on 19-02-2022, before the ld.PCIT. The assessee has submitted before ld. PCIT that the issue under consideration has already been examined by the assessing officer, during the course of assessment proceedings and now taking a different view would tantamount to change of opinion which is not permissible. The assessee further submitted before learned PCIT that assessing officer has adopted one of the plausible views and he has not made any error in the assessment proceedings. The assessing officer has applied his mind so it cannot be treated, as the case of no inquiry. The assessee also relied upon certain judgements in support of his submission.

However, the ld PCIT rejected the above contention of the assessee and observed that the application of mind of the assessing officer does not find place in the records. The assessing officer has not carried out any in- depth and detailed inquiry, during the course of assessment proceedings. It may be mentioned that two essentials condition for invoking the provisions of section 263 of the Act are that the order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. Considering the facts of the case it is evident that there was incorrect application of law. It is settled position that incorrect application of law constitutes an error and as such the assessment is erroneous and prejudicial to the interests of the Revenue since there is loss of revenue. As per the Explanation - 2, the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue if the order is passed allowing any relief without inquiring into the claim. However, the assessing officer did not conduct any such inquiries or verification, as outlined above and simply accepted the assessee's submission. Therefore, the order passed by the assessing officer is erroneous and prejudicial to the interest of revenue to that extent. Therefore, ld PCIT directed the assessing officer to make fresh assessment keeping in view the observations made above, after conducting necessary verifications and inquiries and after providing proper opportunity of being heard.

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

Shri Rajendra Singhal, Learned Counsel for the assessee, vehemently argued on the additional ground raised

On merit, the Learned Counsel for the assessee submitted that order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue, the reason being, that during the assessment proceedings, the Assessing Officer has conducted enquiry by way of issuing notice u/s 142(1) of the Act and in response to the notice u/s 142(1) of the Act, the assessee submitted its reply, therefore, Assessing Officer has taken a considered view and hence the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. For that, the Learned Counsel for the assessee relied on the following judgments: (i) CIT vs. Sunbeam Auto Ltd., 189 Taxman 439 (Delhi) (ii) CIT vs. Gabriel India Ltd., 71 Taxman 585 (Bombay) (iii) Reliance Payment Solutions Ltd. vs. PCIT, 139 taxmann.com 277 (Mum – Trib) (iv) PCIT vs. Canara Bank Securities Ltd., 114 taxmann.com 545 (SC)

We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other material brought on record. We note that solitary reason to exercise the jurisdiction, by Learned PCIT, under section 263 of the Act, was that the assessing officer has not carried out any in- depth and detailed inquiry, during the course of assessment proceedings. It means, enquiry was conducted by the assessing officer, during the assessment proceedings by issuing notice under section 142(1) of the Act, and assessee submitted its detailed reply along with documentary evidences, before the assessing officer, in response to the notice under section 142(1) of the Act. Having examined the reply of the assessee, during the assessment proceedings, the assessing officer took a plausible view and framed the assessment order. In the case of the assessee, there is no denying the fact, as detailed above and acknowledged in the assessment order u/s. 143(3) dated Page | 7 20.12.2019, that in response to notices u/s. 143(2)/142(1) and further requisitions made during the course of assessment proceeding, the A/R of the assessee appeared from time to time and produced/ submitted necessary details/documents as per requisitions in relation to the issues raised by the Ld. Pr. C.I.T., which were examined by Assessing Officer. Therefore, it is the appraisal of the same records which are already with the Ld. A.O. and the Ld. Pr. C.I.T. took a different view than adopted by the A.O. on the same set of facts, which is not permissible u/s. 263 of the Act. In the above circumstances, the view taken by the A.O. was one of the plausible views and the assessment order passed by him could not be held to be erroneous and prejudicial to the interests of revenue. 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 or in-depth/ detailed enquiry should have been made by AO.

We note that in the assessee`s case, notice under section 143(2) was issued by the assessing officer, which is placed at paper book, page No.44. The Notice under section 142(1) of the Act, was issued by the assessing officer, which is placed at paper book page No.46 to 52. In response to these notices, the assessee submitted two replies, along with documentary evidences and explanation, which are placed at paper book page number 53 to 58 and page number 59 to 60 of the assessee`s paper book. These facts clearly state that assessing officer not only conducted enquiry, but he had conducted further enquiry also during the assessment proceedings as the assessee submitted two replies during the assessment proceedings. Thus, from the assessee`s facts, it is abundantly clear that during the assessment stage, the Assessing Officer asked the assessee to furnish the details and documents and in response, the assessee submitted reply. 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 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'. In view of the facts of the case and judicial pronouncements relied upon, it is well established that the impugned order passed u/s. 143(3) of the Act dated 20.12.2019, was passed by assessing officer, after calling for relevant information and after detailed examination of the same. The Assessing Officer has passed the assessment order after calling for details on the issue and after considering the reply and documents and after verification of the same and after due application of mind passed the assessment order, so it cannot be termed as erroneous and prejudicial to the interest of the revenue. So, the Ld. PCIT’s finding fault, with the order of the Assessing Officer is erroneous as well as prejudicial to the interest of revenue, on account of lack of inquiry, has to fail. Based on these facts and circumstances, we quash the order dated 23.02.2022, passed by the ld PCIT, under section 263 of the Act.

Since, we have adjudicated the issue on merit, and quashed the order of the ld.Pr.CIT, therefore, additional ground raised by the assessee on technical issue of non-issuance of notice u/s.143(2) of the Act, in the impugned assessment proceedings, is rendered academic and infructuous.

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