SHRI PARESHKUMAR NARSHIBHAI SIROYA,DHORAJI, DIST. RAJKOT vs. THE PR. CIT-1, RAJKOT, RAJKOT

2.The relevant material facts, as culled out from the material on record, are as follows.The assessee filed return of income on 30/07/2017, declaring total income of Rs. 3,38,450/-. The assessment was completed u/s 143(3) of the Income-tax Act, on 19/12/2019, determining total income of Rs. 28,50,850/-. While finalizing the assessment an addition of Rs. 25,12,400/- was made to the total income of the assessee.

4.In view of the above, a show cause notice dated 13-01-2022, was issued, by ld. PCIT, proposing to subject the assessment order of the assessing officer to revision u/s 263 of the Income tax Act fixing the date of submission on 21-01- 2022, however no compliance was made by the assessee. Therefore, one more notice was issued on 03-02-2022, fixing the date of submission on 10-02-2022. In compliance to the above notice issued by ld PCIT, the assessee has filed written submission, vide letter dated 04/02/2022 which is reproduced by ld PARESHKUMAR NARSHIBHAI SIROY PCIT, (vide page Nos. 2 to 4), in his revision order. The assessee has submitted that the assessing officer has applied the estimated profit @ 0.75% on the total sales after deducting the total income declared by the assessee in the return of income. Further, the assessing officer initiated the penalty proceedings u/s. 271B of I. T. Act for non- audit of the accounts u/s. 44AB of I. T. Act. Further the additions made by the assessing officer of treating the entire deposits in the bank account as turnover, the CIT(A), NAFC has uphold the assessing officers finding and dismissed the appeal of the assessee and confirmed the penalty also. Therefore, once the assessing officer has treated the deposits as turnover then there is no question to alter the nature of such transactions and brought to tax the same u/s. 68 of I. T. Act.

6. The ld PCIT noted that there are two essential condition for invoking the provisions of section 263 of I.T. Act, that the order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. The ld. PCIT observed that above facts indicate that assessing officer has not conducted any inquiries/verification in respect of cash and cheque deposits in his bank accounts claimed to be belonging to the third parties and not to the assessee as submitted by the assessee during the course of assessment proceedings. The assessing officer has simply accepted self- serving contention of the assessee that the credits in the bank account were belonging to third parties without any confirmations / supporting evidences.In view of the above discussion it is apparent that such cases where the assessment has been completed without conducting any inquiries/ verification or incorrect application of law tantamount to erroneous orders as also order prejudicial to the interest of Revenue. For such proposition of law reliance was made by ld. PCIT on following cases:

1. Rampyari Devi Sarogi Vs. CIT (SC) 67 ITR 84 2. Malabar Industrial Co. Ltd. Vs. CIT(SC) 243 ITR 83 3. Swarup Vegetable Products Industries Ltd. Vs. CIT (ALL) 187 ITR 412 4. Gee Vee Enterprises Vs. Addl.CIT&Ors (Del.) 99 ITR 375 5. Rajalakshmi Mills Ltd. Vs. ITO (ITAT, SB-Chennai) 121 ITD 343, 313 ITR(AT) 182 6. SRM Systems & Software Pvt. Ltd. Vs. ACIT 2010-TIOL-646-HC- MAD-IT.

7.From the above, 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. In this regard, ld. PCIT derived the support from the following decisions: i) CIT Vs. Jawahar Bhattacharjee, 341 ITR 434 (Gau.) ii) Jai Bharath Tanners Vs. CIT, 264 ITR 673 (Mad.) iii) Vashti Management Services Pvt. Ltd. Vs. ITO (ITAT, Del.) (2010-TIOL-642- ITAT-DEL) 8.In the case of CIT Vs Emery Stone Manufacturing company (213 ITR 843) (Raj), it washeld that even though the assessee had disclosed all thefacts before the Assessing officer, the CIT can very well exercise his power u/s. 263 if the correct provisions of law have not been examined by the Assessing officer

(i)The Hon'ble Gujarat High Court in the case of CIT vs. M M Khambhatwala (1992) 193 ITR 144 has upheld that the CIT can exercise his powers u/s. 263 of I T Act even where issue is debatable. (ii)The Hon'ble ITAT, A Bench, Ahmedabad in the case of Shri Vijaykumar Gupta vs. CIT Central-1, Ahmedabad in has held that when the assessing officer has not applied his mind on the issues in the reassessment stage, there is no question of having taken one view of the matter or taking two different views by the assessing officer or by the CIT.

PARESHKUMAR NARSHIBHAI SIROY (iii)The Hon'ble ITAT, Cochin in the case of Shri Narayana Dharam Paripalana Yuvadhana Samiti vs. ITO, Exemption (2019) 111 taxmnan.com 416 has held that where the assessing officer has taken a wrong decision without considering material available on record or he takes a decision without making inquiry into a matter, where such enquiry was prima facie warranted CIT is empowered to initiate proceedings u/s. 263 of I T Act. (iv)The Hon'ble ITAT, Cochin in the case of Baby Memorial Hospital Ltd vs. ACIT(2019) 111.taxmann.com 189 has held that even in a case of limited scrutiny assessment, Commissioner can exercise jurisdiction u/s. 263 of I T Act. (v)The Hon'ble ITAT, Hyderabad in the case of Smt S Umadevi vs. CIT (2015) 62.taxmann.com 64 has held that where assessing officer had passed cryptic, non speaking order, CIT was justified in invoking jurisdiction u/s. 263 of I T Act. (vi)The Hon'ble M P High Court in the case of Nagal Garment Industries Pvt Ltd(2020) 113.taxmann.com 4 has held that where assessing officer had issued detailed questionnaire, in reply to which submissions have been made but assessing officer did not applied his mind nor did he conduct any enquiry while accepting claim of assessee although he recorded in note sheet that reply filed by the assessee was not satisfactory and did not explain the facts, the assessment order was held to be erroneous and prejudicial to the interest of revenue.

"Explanation 2.-For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, it, in the opinion of the Principal Commissioner or Commissioner- (a) The order is passed without making inquiries or verification which should have been made; (b) The order is passed allowing any relief without inquiring into the claim; (c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.”

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

14.Learned Counsel for the assessee submitted that assessee under consideration is an Angadia and he received cash and cheques from his customers and deposited the same in his bank account. Therefore, cash and the cheques deposited in his bank account, belong to his customers and the customers pay Commission to the assessee for the services rendered. The assessee has deposited cash and cheques in his bank account to the tune of Rs. 38,01,13,684/-. During the course of assessment proceedings, the assessing officer issued notice to the assessee and the assessee was asked to explain high cash deposit transactions. In response, the assessee submitted that the said amount belonged to his customers. However, the assessee failed to give details of such customers, therefore, ld. PCIT has exercised his jurisdiction under section 263 of the Act.The assessing officer took plausible and reasonable view and calculated the total income of the assessee @ 0.75% of total deposit of Rs. 38,01,13,684/-. The assessing officer has computed the total income of the assessee, u/s 44AD of the Act, which is reasonable considering the nature of the PARESHKUMAR NARSHIBHAI SIROY business of the assessee. The Ld. Counsel submitted that during assessment proceeding, the assessee has provided documents and details which are also mentioned in the paper book of the assessee, submitted before the Bench. Therefore, the ld. Counsel contended that order passed by the assessing officer is neither erroneous nor prejudicial to the interest of the revenue. Therefore, order passed by the ld. PCIT may be quashed.

PARESHKUMAR NARSHIBHAI SIROY 16.The ld. DR further stated that assessing officer has not taken plausible view by calculating the total income of the assessee @ 0.75% of total deposit of Rs. 38,01,13,684/-,u/s 44AD of the Act. The assessee, having so much turnover of Rs. 38,01,13,684/-, cannot be classified or assessed under section 44AD of the Act, hance such view taken by the assessing officer is notplausible view, as such view taken by the assessing officer is not sustainable in the eye of law. During the assessment proceedings, the assessee has himself stated that since histurnover exceeded the minimum limit of audit,therefore, the provisions of section 44AD of the Act would not be applicable to him. Then after, the assessee, himself has put a proposal before the assessing officer that his income may be assessed at the rate of 0.75% of the turnover, which the assessing officer has accepted without application of mind. On what basis, the assessing officer, accepted the turnover of the assessee is not known. During the assessment proceedings, the assessee submitted before the assessing officer that he is getting Rs.200/- as commission on transaction of Rs.1,00,000/-, however, the assessing officer did not consider the same and stated that as per his agreement, the total income is determined at the rate of 0.75% of turnover. The assessee has not provided any copy of such agreement neither to the assessing officer nor to the ld. PCIT. In such a scenario, the view taken by the assessing officer cannot be said, as a plausible view, and such plausible view is not sustainable in the eye of law, also. Besides, the assessing officer initiated penalty proceedings against the assessee under section 271B of the Act for non- auditing of books of accounts, it means, the assessee is owner of the turnover of Rs. 38,01,13,684/-, however, the assessing officer took plausible view to tax, turnover of the assessee at the rate of 0.75%, which is contrary to the penalty levied by the assessing officer. Hence, the view taken by the assessing officer is not a plausible view and therefore order passed by the assessing officer is erroneous as well as prejudicial to the interest of the revenue, therefore, ld.

17.We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld PCIT and other materials brought on record. We find merit in the submissions of ld. CIT-DR for the revenue. We find that during the assessment proceedings, assessee was asked to give the details of the customers from whom he received cash and cheques and deposited in his the bank account, however, the assessee failed to give details of such customers. The assessee has deposited cash and cheques in his bank account to the tune of Rs. 38,01,13,684/-, and assessee claimed that he received cash from his customers and deposited the same in his bank account, therefore, the assessee, in order to discharge his onus and burden, supposed to give name and address of the customers from whom he received the cash and cheque, however, assessee has failed to do so. We also find that during the assessment proceedings, the assessee did not co-operate and we have observed non-compliance attitude of the assessee, as the assessee did not file even bank statement, before the assessing officer, and this fact is proved by para No.3 of the assessment order, which reads as follows:

3. During the year under consideration, assessee is engaged in the business of cash and cheque discounting activity. To verify the same details were called for from the bank by issuing 133(6) of the Act. The same is received. On verification of the same, it is seen that the assessee has deposited cash and cheque in his account to the tune of Rs.38,01,13,684/- during the year under consideration. The assessee was requested to justify the cash and cheque deposit transactions. However, assessee did not file the details as called for in the notice issued on various dates.

From the above para of the assessment order, it is vivid that during the assessment proceedings, the assessee even had not submitted bank statement to PARESHKUMAR NARSHIBHAI SIROY the assessing officer. The assessing officer obtain the bank statement from the bank by issuing notice under section 133(6) of the Act. Therefore, the assessee cannot claim that he has submitted the required details and documents during the assessment proceedings to frame the assessment order under section 143(3) of the Act. Therefore, on this score only, the assessment order passed by the assessing officer is erroneous as well as prejudicial to the interest of the revenue. We note that in order to conduct scrutiny assessment under section 143(3) of the Act, the assessing officer issued notices under section 142(1) of the Act to the assessee, calling various details and documents to examine the claim of the assessee. The provisions of section 142(1) speaks of inquiry before assessment and gives immense power to the assessing officer for conducting enquiry. Therefore, the assessing officer u/s 142(1)(ii) & (iii) can ask the assessee almost any information which he things necessary for passing assessment. However, the assessee failed to furnish the details, documents and information before the assessing officer. Therefore, in this scenario, the assessing officer could not complete the assessment under section 143(3) of the Act and could not take plausible view. Hence, order passed by the assessing officer, by taking plausible view, to tax the turnover of the assessee, at the rate of 0.75%, is erroneous, as there was no document or information before the assessing officer to take the plausible view that turnover of assessee may be taxable at the rate of 0.75% , hence, such plausible view is not sustainable in the eye of law.

From the above para of the assessment order, it is abundantly clear that assessing officer treated the turnover of Rs. 38,01,13,684/-, as if, it is assessee`s own turnover, and therefore, the assessing officer stated that assessee did not get his accounts audited under section 44AB of the Act and consequently the assessing officer initiated penalty proceedings under section 271B of the Act. This clearly shows that the turnover of the assessee of Rs. 38,01,13,684/-, belongs to the assessee. Therefore, in this scenario, the assessing officer cannot take a plausible view, which is contrary of the view taken by him in the assessment order itself, (that turnover of the assessee should be taxable at rate of 0.75%). Hence, such two contrary view, taken by the assessing officer in the assessment order itself, should not be considered a plausible view. Hence, the view taken by the assessing officer that turnover of the assessee should be taxable at rate of 0.75%, is not a plausible view. The plausible view is taken by the assessing officer based on the documents and evidences, however, we note that during the assessment proceedings, the assessee has not submitted any documents and evidences, before the assessing officer, to conduct the scrutiny assessment under section 143(3) of the Act. Hence, plausible view taken by the assessing officer is not sustainable in law.

From the above findings of the assessing officer, it is clear that assessing officer issued show -cause notice to the assessee, as to why the total credit of Rs.38,01,13,684/- should not be treated as his trading receipt and the income should not be determined in absence of names of the persons who have deposited the cash/cheque. In reply, assessee submitted before the assessing officer that he(assessee) is getting Rs.200/- as commission on transaction of Rs.100,000/-. The assessing officer, did not try to get any documentary evidence about Rs.200/-, as commission on transaction of Rs.100,000/-. The assessing officer, accepted the version of the assessee without any documentary evidence, hence, it is a case of no enquiry, incorrect facts, and non- application of mind, on the part of the assessing officer. It is like making a shot in the dark. After that the assessing officer agreed for determining the net profit of 0.75% on total turnover, without any documentary evidence, and the assessing officer did not disclose the base to determine the total income of the assessee at Rs.28,50,853/- (0.75% of 38,01,13,684/-).Hence, it is non-application of mind and on incorrect facts, the assessing officer determine the total income of the assessee at the rate of 0.75% of turnover, without getting from the assessee, any documentary evidence and the base of 0.75% of turnover in other similar business. The “plausible view” can be taken by the assessing officer based on documents and evidences. In the assessee`s case under consideration, no any PARESHKUMAR NARSHIBHAI SIROY document and evidence have been examined by the assessing officer to take the plausible view. The assessee stated that he is getting Rs.200/- commission perRs.1,00,000/-, however, the assessing officer took another plausible view, to tax turnover of assessee at the rate of 0.75% without any documentary evidence. Besides, the assessing officer initiatedpenalty proceedings on the assessee under section 271B of the Act, as if, the assessee is owner of the turnover. Therefore, the assessing officer on one hand treated the assessee to be owner of the turnover and on the other hand, he taxed the turnover at the rate of 0.75% without any documentary evidence and this way he could not reach on final conclusion. Hence, the view taken by the assessing officer is not a“plausible view”, as contended by the ld. Counsel for the assessee. Therefore, order passed by the assessing officer, is erroneous and prejudicial to the interest of the revenue.

21.Let us take the guidance of judicial precedents laid down by the Hon’ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the PCIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer’s order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer’s order is in violation of the PARESHKUMAR NARSHIBHAI SIROY principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon’ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. “prejudicial to theinterest of the revenue’’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the PCIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue “unless the view taken by the Assessing Officer is unsustainable in law”.

22.We find that in assessee`s case under consideration, the order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue, as the view taken by the Assessing Officer is unsustainable in law, as stated by us in above para of this order.The Assessing Officer passed the order on incorrect assumption of fact, incorrect application of law and the order passed by the Assessing Officer is without application of mind and moreover the AO has not investigated the issue before him, with help of the documentary evidences.Moreover, the assessee has not explained the source and nature of the cash and cheques deposited in the bank account. The assessee stated PARESHKUMAR NARSHIBHAI SIROY that the cash and cheques, so deposited in the bank account belonged to his customers, however, when the assessing officer, asked the assessee to submit the name and address of the customers, the assessee has failed to give name and address to the assessing officer, during the assessment proceedings . The assessee did not provide even a single name of his customer, whereas, there is huge cash deposit in the bank account of the assessee, to the tune of Rs. Rs.38,01,13,684/-, hence, there is loss to the revenue. Hence, order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue. Hence, the view taken by the assessing officer is not a plausible view and therefore order passed by the assessing officer is erroneous as well as prejudicial to the interest of the revenue, therefore, ld. PCIT has rightly exercised his jurisdiction under section 263 of the Act.The conclusions arrived at by the ld.PCIT are, therefore, correct and admit no interference by us. We, approve and confirm the order of the ld.PCIT and dismiss the appeal of the assessee.

23.Before parting we would like to mention that the Co-ordinate Bench of ITAT Rajkot has remitted the issue back to the file of the assessing officer in Angadia cases vide order dated 26.02.2025 and upheld the revision proceedings under section 263 of the Act, on identical facts.