KESARWANI ZARDA BHANDAR,ALLAHABAD vs. PR. CIT, ALLAHABAD

That in any view of the matter in the course of assessment proceeding a detailed questioner was issued to the appellant during the course of assessment proceeding and after satisfying with the reply of the appellant the claim was accepted/allowed hence the action u/s 263 is unwarranted.

The facts of the case, in brief, are that the assessee is a registered firm engaged in manufacturing and sale of chewing tobacco. The assessee is assessed to income tax for the last number of years. For the year under consideration, the assessee filed its return of income, declaring total income of Rs.3,34,12,470/-. The case of the assessee was selected for complete scrutiny and accordingly, notices u/s 143(2) of the Act was issued. Thereafter, notice u/s 142(1) of the Act along with queries, requiring the assessee to furnish information, was also issued to the assessee. In response thereto, the assessee made online/offline submissions. In the assessment order, the following observations were recorded by the Assessing Officer:

Vide impugned order dated 22/03/2022 of the learned PCIT, the learned Pr.CIT took a fresh view of the assessee’s claim for expenses under the head “Bhola Nath Kesarwani Memorial Expenses”. The assessment order dated 07/11/2019 was set aside by learned PCIT to be framed again by the Assessing Officer after providing proper opportunity of being heard to the assessee.

The present appeal has been filed by the assessee against the aforesaid impugned order dated 22/03/2022 passed under section 263 of the Act. In the course of appellate proceedings in Income Tax Appellate Tribunal (“ITAT” for short), the following particulars and case laws were filed from the assessee’s side: -

At the time of hearing before us, the Ld. Counsel for assessee submitted that the Assessing Officer had conducted all relevant inquiries. He drew our attention to the observation recorded by the Assessing Officer in paragraph no. 2.2 and 2.3 of the assessment order (reproduced in foregoing paragraph no. 2 of this order). Further, he contended that detailed submissions were made by the assessee in the course of assessment proceedings. In this regard, he drew our attention to the paper book containing copies of notice issued by the Assessing Officer and copy of replies filed by the assessee before the Assessing Officer during the assessment proceedings. He further submitted that the relevant queries were made by the Assessing Officer and the replies submitted by the assessee during the assessment proceedings were brought to the knowledge of the Ld. PCIT during the proceedings under section 263 of the Act, and detailed submissions were also submitted in writing as well as at the time of personal hearing. However, he contended the Ld. PCIT passed the order under section 263 of the Act with pre-mediated and biased mind- set against the assessee, which is clearly evidenced by the fact that there is no discussion in the impugned order dated 22/03/2022 passed by the Ld. PCIT under section 263 of the Act on the submissions made from the assessee’s side and there is no discussion in the aforesaid order under section 263 of the Act of Ld. PCIT, why the Ld. PCIT did not agree with the submissions made from the assessee’s side. Further, the Ld. Counsel for assessee submitted that in the absence of any discussion on assessee’s submission in the impugned order of the Ld. PCIT, the order was non- speaking order, clearly in violation of principle of natural justice and should be quashed in limine. He drew our attention to the written submissions filed by the assessee in the office of the Ld. PCIT during the proceedings under section 263 of the Act which is reproduced as under: -

The Ld. Counsel for the assessee also placed reliance on the aforesaid precedents referred to in foregoing paragraph of this order and submitted that impugned order dated 22/03/2022 of the Ld. PCIT passed under section 263 of the Act should be quashed even on merits of the expenses claimed under the head “Bhola Nath Kesarwani Memorial Expenses”. He submitted that the assessee sells Zarda under the brand name “Bhola Zarda”, which is based on the name of the founder (Late) Bhola Nath Kewarwani. The expenses incurred strengthened the brand value of “Bhola Zarda” manufactured and sold by the assessee; which contributed to sales. He contended that the expenses were essentially in the nature of Sales Promotion Expenses. He further contended that the expenses were fully allowable under section 37 of the I.T. Act, being both genuine and reasonable.

The Ld. Departmental Representative for Revenue relied on order passed by the Ld. PCIT. The following particulars and case laws were filed from the Revenue’s side: -

We have heard representative of both sides and have gone through the materials placed on record. It is not in dispute that the Assessing Officer has recorded in paragraph no. 2.1 and 2.2 of the assessment order, that explanation was called for from the assessee on all the points on which the case was selected for scrutiny, which has been placed on record. It is also not in dispute that the Assessing Officer made inquiries with the assessee through notices issued under section 142(1) of the Act dated 29/08/2019, 05/10/2019 & 12/10/2019 and that the assessee responded to these notices by way of written submissions which are placed at pages from 21 to 28 of paper book. Further, it is found that the detailed submissions made by the assessee before the Ld. PCIT in the course of proceedings under section 263 of the Act have been acknowledged by the Ld. PCIT in his impugned order dated 22/03/2022 at paragraph no. 4 & 5 but the Ld. PCIT failed to consider the submissions made by the assessee and also failed to pass a speaking order on why the submissions made by the assessee were not considered satisfactory. On perusal of record we are satisfied that relevant inquiries were made by the Assessing Officer during assessment proceeding. Further the learned Pr.CIT, in his impugned order, has merely stated that while passing the assessment order, the Assessing Officer failed to apply his mind to the legal and factual aspects of the case and failed to make addition and that the assessment order u/s 143(3) of the Act passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue as the Assessing Officer has failed to apply his mind to the legal and factual aspect of the case. The learned Pr.CIT has acknowledged that some inquiries were conducted on various issues discussed in the impugned order u/s 263 but has passed the impugned order on the sole ground that the Assessing Officer has failed to apply his mind to the legal and factual aspects of the case. The Assessing Officer in the impugned case has decided not to make the addition. This view has been taken by the Assessing Officer in earlier years and in subsequent years also; but no adverse view was taken by learned Pr.CIT in these years, u/s 263 of the I.T. Act. The case laws relied upon by learned CIT (D.R.) are of no help to Revenue, as facts are distinguishable. The submissions made by the learned A.R. of the assessee are found to be convincing. The view taken by the Assessing Officer was one of the possible views and cannot be regarded to be the view unsustainable in the law. In view of the aforesaid discussion, we hold that the order passed by the learned Pr.CIT u/s 263 is unsustainable. Accordingly, the impugned order dated 22/03/2022 of the Ld. PCIT passed under section 263 of the Act is set aside and the aforesaid assessment order dated 07/11/2019 is restored.

In the result, the appeal of the assessee is allowed. (Order pronounced in the open court on 08/07/2025)