P P CORPORATION,RAJKOT vs. PRINCIPAL COMMISSIONER OF INCOME TAX, RAJKOT

In response, the assessee submitted before the learned PCIT that during the assessment proceedings, the assessing officer issued notice under section 142(1) of the Act and in response to that notice, assessee had submitted name, address, PAN number and copy of the ledger account of the lenders from the assessee book and bank statement etc. Besides, the assessing officer also issued notice under section 133(6) of the Act to the lenders calling for the return of income and other details, which were submitted before the assessing officer. Therefore, assessing officer, having examined, these details and documents, took the plausible view about the genuineness of the Landers, and therefore order passed by the assessing officer after making due application of mind cannot be termed as erroneous and prejudicial to the interest of the revenue.

However, learned PCIT rejected the contention of the assessee, and observed that in some cases, the bank statements of the lenders have no any major transactions other than the transaction with the assessee- firm. For example in the case of (1) P.R.H Flats Owners Association-A. (2) P.R.H Flats Owners Association-B, (3) P.R.H Flats Owners Association-C, (4) P.R.H Flats Owners Association-D, (5) P.R.H Flats Owners Association-E and (6) P.R. Height Owners Association, amount credited by way of transferred was immediately i.e. on same day transferred to the assessee- firm. Further, it is also noticed that amount credited in the bank accounts of these associations were received from the same person/family and it can be evident from the copy of bank statement of these lenders. From the facts discussed above, it is clear that thesetransactions of unsecured loans were made to just a set up to bring unaccounted income in the books by taking the shade of unsecured loans. Further, on verification of documents submitted in the cases of (1) YogirajsinhJ. Jadeja (HUF) and (2)

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

Learned Counsel for the assessee, argued that during the course of assessment proceedings, the Assessing Officer issued notice u/s.142(1) of the Act dated 27/11/2020, asking the questions pertaining to lenders/ unsecured loan. In response to notice u/s.142(1) of the Act, the assessee submitted written submission before the assessing officer on 18/01/2021, which is placed at paper- book on page No.11. In this reply, the assessee has submitted the relevant documents and evidences, as asked by the assessing officer. In its reply, the assessee submitted the copy of the ledger account in respect of the long-term and short-term unsecured loan/ borrowings. The assessee also submitted the copy of the ledger account and bank statement for verification of the repayment of the loan, that is, loan was repaid in the subsequent years. The assessee has also submitted during the assessment proceedings, the source of repayment of the loan stating that repayment of the loan was made out of the sale-proceeds received by the Firm.

The Ld. DR also submitted that in some cases, Flat Owners’ Association booked some flats in their names, and the assessing officer has not examined the issue properly,therefore, order passed by the assessing officer is not only erroneous but also prejudicial to the interests of the revenue.

In rejoinder, the Ld.Counsel for the assessee, submitted that there is no doubt about the identity of the Flat Owners’ Association, who have booked the flats and they made the payment through “Account Payee” cheques and there were no any instance seen by the assessing officer, where the flat owners’ have deposited the cash in their bank accounts relating to the assessee (P.P. Corporation). Therefore, just because the Flat Owners’ Association booked some flats, do not mean that the transactions are not genuine. These transactions are at arm’s length and not tented by any extra commercial consideration. Therefore, the assessing officer has conducted thorough enquiry and, hence, taken the plausible view by due application of mind. Therefore, assessment order framed by the assessing officer is neither erroneous nor prejudicial to the interests of the revenue.

In response to the above notice, the assessee submitted its reply, before the assessing officer, the relevant portion of the reply is reproduced below:

In order to conduct further enquiry, in respect of lenders/ unsecured loan, the assessing officer, during the assessment proceeding, issued second notice u/s 142(1) of the Act,which is placed at paper book page no. 15, the relevant portion( which is useful for our analysis) is reproduce below:

From the above facts, it is abundantly clear that during the assessment proceedings, not only enquiry was conducted by the assessing officer, but further enquiry was also conducted by the assessing officer to ascertain the Page | 14 genuineness of the unsecured loan/Lenders. The assessee has also submitted its reply with documentary evidences, stating that most of the unsecured loans, were coming from the previous years, and these are only opening balances, therefore, during the previous assessment year under section 143(3) of the Act, the assessing officer had already examined these unsecured loan and did not make any addition. During the assessment year under consideration, the assessing officer examined the opening balances of these unsecured loans by conducting sufficient Enquiry and assessing officer was also informed that these unsecured loans were repaid by the assessee in the subsequent year.

Therefore, we find that ld.PCIT has wrongly assumed jurisdiction u/s 263 of the Act, as twin conditions Viz: (i) Order should be erroneous and (ii) It should be prejudicial to the interest of the Revenue; is not satisfied.The Assessment order passed u/s 143(3) of the Act, by the assessing officer is after adequate inquiry. Two notices were issuedduring the assessment proceedings, u/s 142(1) of the Act and voluminous details and documents in respect of all the issues which is required to complete full scrutiny, were submitted, and specific query was raised by the assessing officer with regard to unsecured loan/ creditors. The assessing officer, also asked details of the repayment and source of repayment of unsecured loan. Repayment ledger of unsecured loanwas furnished by the assessee in reply to query no. 8 raised by the assessing officer. The assessing officer was very well aware with the issue of unsecured loans and after due application of mind, the unsecured loan was accepted by the assessing officer, as genuine, and therefore did not make any addition. We find that during the assessment proceedings, the assessing officer issued to notices under section 142(1) of the Act, to conduct sufficient Enquiry,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 Page | 15 provides the extent of inquiries that are required 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.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 ld. PCIT has different opinion in the matter. It is only in cases of "lack of inquiry", that such a course of action would be open.

We find that in order to justify identity and creditworthiness, the following documents were furnished by the assessee during the assessment proceedings, Viz: (1). Income Tax Return (2) Computation of total income, (3) Confirmation letter and contra ledger account (4) bankstatement of the lenders were furnished (5) Entire payment was received by account payee cheque (6) Repayment of loan was made by account payee cheque (7) Interest paid and due TDS was deducted. (8) On perusal of the Bank statement of the lenders, it can be seen that all the lenders were having sufficient bank balance, before giving the loan. Therefore, we find that assessee has explained the source of unsecured loan.

We note that the arguments of the Ld. DR for the revenue, to the effect that the AO has not conducted sufficient enquiry during the assessment proceedings,is not acceptable, as we have noted that the AO has issued notice u/s.142(1) of the Act dated 27/11/2020 and the assessee submitted its reply in response to the said notice on 18/01/2021. We find that in assessee’s case, the AO has conducted further enquiry on the same issue by issuing further notice u/s.142(1) of the Act, on 08/04/2021, and in response to the said notice, the assessee had submitted its reply on dated 13/04/2021 with necessary documents and evidences. Therefore, it reveals that the AO has conducted a thorough enquiry in assessee’s case year under consideration. Therefore, the arguments advanced by the ld. DR for the revenue to the effect that it is case of “no enquiry” is baseless. The assessee during the course of assessment proceedings submitted its own bank statement of assessee (P.P. Corporation) from 01/04/2017 to 31/03/2018, which is placed at paper-book on page Nos.22 to 53. During the course of assessment proceedings, the AO has issued further show- cause notice dated 28/04/2021 and in response to that notice, assessee submitted further written submission dated 28/04/2021 with relevant documents and evidences. Therefore, after considering the above facts, we note that during the course of assessment proceedings, the AO has conducted sufficient enquiry and after being satisfied himself, the AO has applied his mind and then only farmed the assessment u/s.143(3) of the Act and, therefore, such assessment order passed by the AO should not be erroneous and prejudicial to the interests of the revenue. Moreover, the loan has been re-paid by the assessee in subsequent year and for that also, the assessee has submitted the relevant evidences, like bank statement, showing that loan has been re-paid in the subsequent year and for that we rely on the judgement of Hon’ble Gujarat High Court in the case of CIT vs. Chandrashekhar Narsangli reported at (2014) 42 Taxamann.com 251 (Guj.), wherein it was held that when the Income Tax Department had accepted the re-payment of loan in subsequent year, no addition should be made in the current year on account of cash credit.An order cannot be termed as 'erroneous' unless it is not in accordance with law. If an AO 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 [CIT v. Gabriel India Lid. [1993] 71 Taxman 585 (Bom.)).Where two views are possible and the AO has taken one view with which the Commissioner does not agree, that cannot be treated as 'erroneous' order prejudicial to the interest of the revenue. It has to be shown that the order of the AO was not in accordance with law, to term it as 'erroneous' [CIT v. Leisure Wear Exports Ltd. [2011] 11 taxmann.com 54]. Two pre- requisites must be present before the Commissioner can exercise the revisional jurisdiction conferred on him. First is that the order passed by the ITO must erroneous. Second is that the error must be such that it is prejudicial to the interests of the Revenue. If the order is erroneous but it is not prejudicial to the interests of the Revenue, the Commissioner cannot exercise the revisional jurisdiction u/s 263 of the Act.[H. H. Maharaja Raja Pawer Dewas v. CIT [1982] 138 ITR 518].In any event, we note that the Assessing Officer has adopted one of the courses permissible in law and even if it has resulted in loss to the revenue, the said decision of the Assessing Officer cannot be treated as erroneous and prejudicial to the interest of the revenue as held by Hon’ble Supreme Court in Malabar Industries Ltd. vs. CIT (243 ITR 83). Since the order of the Assessing Officer cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, the usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT is ‘’null’’ in the eyes of law and, therefore, we are inclined to quash the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 by the Principal CIT. Therefore, we quash the order of the Principal CIT dated 30.03.2024, being ab initio void.