SANJAY CHAWLA,CHAIBASA vs. PR. CIT, RANCHI

That we would like to further state that the return of the assessee was selected for scrutiny with the reasons being Non furnishing of quantitative details & income from liquor business. The copy of the notice issued U/s 143(2) dated 29/06/2021 is attached herewith at Page 09-10 against which reply was filed on 12/07/2021 copy of which is at Page 11-14.

That further a detailed notice U/s 142(1) dated 12/11/2021 was issued making query with respect to various quantitative details and low income of the assessee. The copy of the said notice is attached herewith at Page 15-17. In response to the said notice, the assessee filed his reply on 22/11/2021 giving accurate quantitative details and reasoning for low income/loss. The reply filed by the assessee is attached herewith at Page 18-21.

That thus from the above, it can be seen that it is not a case where no enquiry or verification has been made by the Ld AO. With respect to the liquor business which is solely governed by the state government the quantitative details can only be verified from the Department of Excise & Prohibition which has been duly done by the Ld AO in response to the details submitted by the assessee. Further with respect to low income, it was explained that this was the 1 year of business and that the audited accounts of the assessee along with purchase & sale register, legers etc is on record to justify the financial results including the applicability of TDS & TCS provisions.

That as stated above, it is not a case where no enquiry or no application of mind has been done by the Ld AO. Apparently what can be opined is only that the Ld PCTT was not fully convinced with the enquiry and verification done by the Ld AO and as such, the powers vested U/s 263 has been invoked.

That with respect to the issue of inadequate or lack of enquiry and AO adopting to one of the possible views, on behalf of the appellant, we would like to rely upon the following case laws:- Principal Commissioner of Income-tax, Surat-2 vs. Shreeji Prints (P.) Ltd. [2021] 130 taxmann.com 294 (SC) 27-08-2021] Hon'ble Apex Court dismissing the SLP filed by the revenue department has upheld the order of the Hon'ble High Court of Gujarat holding that: (Copy of the order is attached herewith at Page 22-26) 4 Being aggrieved by the order passed by the PCIT under section 263 of the Act. 1961, the assessee went before the Tribunal. The Tribunal, after considering the submissions made by the assessee and after considering the scope of power to be exercised by the PCIT under section 263 of the Act, 1961 came to be conclusion that the Assessing Officer has made inquiries in detail about two unsecured loans taken by the respondent assessee and observed as under: 15 The Pr.CIT had observed that Explanation 2 of section 263 of the Act is clearly applicable and it is clear that the Assessing Officer has passed the assessment order after making enquiries for verification which ought to have been made in this case. However, we find that the Pr. CIT has not mentioned in the show-cause notice issued under section 263 that he is going to invoke the Explanation 2 to 263 hence, invocation of Explanation in the order without confronting the assessee is not appropriate and sustainable in law in support of this contention, the ld Counsel has placed reliance on the following decision.......... 17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers 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. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possi2 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. This would Sanjay Chawla Vs PCIT inevitably mean that every order of the lower authority would thus become susceptible to section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AD and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore, the Explanation 2 to section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case. 5 The Tribunal has found that in the order passed by the PCIT Explanation 2 of section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law. CIT V. Max India Ltd. (2007) 295 ITR 282/213 CTR 266/(2008) 166 Taxman 188 /204 Taxman 1 SC-Hon'ble Apex Court observed that:- "The phrase "Prejudicial to the interest of revenue" section 263 has to be read in conjunction with the expression "erroneous". When the Assessing Officer takes one of the two views permissible in law and which the Commissioner does not agree with and which results in a loss of revenue, it cannot be treated as erroneous order prejudicial to the interest of revenue, unless the view taken by the Assessing Officer is completely unsustainable in law." CIT v. Ashish Rajpal (2009) 23 DTR 266/320 ITR 674/180 Taxman 623 (Delhi) (High Court) – Where the assessing officer during the scrutiny assessment proceeding raised a query which was answered by the assessee to the satisfaction of the assessing officer but the same was not reflected in the assessment order by him, a conclusion cannot be Sanjay Chawla Vs PCIT drawn by the Commissioner that no proper enquiry with respect to the issue was made by the assessing officer, and enable him to assume jurisdiction under section 263 of the Act. CIT Vs Sunbeam Auto Ltd 332 ITR 167 (Delhi) – Whether if while making assessment, Assessing Officer has made an inadequate enquiry, that would not, by itself, give occasion to Commissioner to pass order under section 263, merely because he has different opinion in matter, it is only in caves of lack of inquiry' that such a course of action would be open Held, yes-Assessee- company was engaged in business of manufacturing and supplying auto parts In assessment for relevant assessment year, it had been allowed deduction of expenditure incurred on tools and dyes as revenue expenditure-Commissioner, however, set aside assessment order in exercise of his powers under section 263 on ground that Assessing Officer had allowed aforesaid expenditure without making proper enquiry - He, accordingly, remitted matter back to Assessing Officer to re-examine issue Whether when facts clearly showed that Assessing Officer had undertaken exercise of examining as to whether expenditure incurred by assessee in replacement of dyes and tools was to be treated as revenue expenditure or not and on being satisfied with assessee's explanation, he accepted same, it could be said to be a case of lack of inquiry-Held, no-Whether further, on facts and law, view taken by Assessing Officer was one of possible views and, therefore, assessment order passed by Assessing Officer could not be held to be prejudicial to Interest of revenue Held, yes Whether, therefore, Tribunal was justified in setting aside order of Commissioner - Held yes Mahesh Reddy vs. PCIT [2024] 167 taxmann.com 297 (Bangalore-Trib.)[05- 08-2024]-The Coordinated Bench of Bangalore Tribunal in its recent judgement has held that:- Pr. Commissioner, in his revisionary jurisdiction, cannot say order with some enquiry done by Assessing Officer to be erroneous, he can hold non inquiry cases to be erroneous and for this he himself has to bring on record error and prejudice through independent verification and enquiry. Revision of orders prejudicial to interest of revenue Assessment years 2017-18 and 2018-19-Whether Pr. Commissioner, in his revisionary jurisdiction, cannot say order with some enquiry done by Assessing Officer to be erroneous; he can hold non inquiry cases to be erroneous - Held, yes- Whether however he himself has to bring on record error and prejudice through independent verification and enquiry - Held, yes - Sanjay Chawla Vs PCIT Whether though Explanation (2) to section 263 gives some degree of discretion to Commissioner for exercise of his revisionary powers, same are not to be used arbitrarily and irrational manner Held, yes.

That moreover Ld PCIT in a mechanical manner has simply invoked Explanation 2 (a) to section 263 to hold that the order of assessment is erroneous and prejudicial to the interest of revenue without himself doing any such enquiry or verification which the Ld AO ought to have done. The Ld PCIT is incorrect in stating that this is a case involving lack of inquiry on the selected issues. We would like to quote the decision of Pr. Commissioner of Income-tax (Central) vs. Kanin (India) [2022] 141 taxmann.com 83 (Punjab & Haryana)[21-04-2022] wherein the Hon'ble Court has held as under:- (Copy of the order is attached herewith at Page 27-29) Section 263 of the Income-tax Act, 1961 Revision Of orders prejudicial to interest of revenue (Explanation 2(a)) Assessment year 2013-14 Whether in order to attract section 263 Assessing Officer's order must be erroneous and also prejudicial to interest of revenue- Held, yes - Whether before reaching conclusion that order of Assessing Officer is erroneous and prejudicial to interests of revenue, revisionary authority itself has to undertake some enquiries to establish that assessment order is erroneous and prejudicial to interests of revenue-Held, yes-Whether where order was passed by Principal Commissioner holding that assessment made by Assessing Officer was erroneous and prejudicial to interest of revenue as assessment order had been passed without making inquiries or verification, however, Principal Commissioner was not in a position to point out as to what inquiries or verification should have been made but had not been made by Assessing Officer so as to make present case fall within Explanation 2(a) to section 263. Tribunal rightly set aside order passed by Principal Commissioner - Held, yes [Paras 9 to 12] [In favour of assessee] 11. That as such, placing reliance upon the above facts and the case laws, we submit that the Ld PCIT Ranchi was not justified in invoking the jurisdiction U/s 263 to hold that the original order of assessment dated 20/09/2022 was erroneous & prejudicial to the interest of revenue.”

It was the submission by the ld. AR that the assessee is a first-time liquor trader. The assessee had filed its return of income disclosing loss. The return filed by the assessee came to be processed and the assessment order came to Sanjay Chawla Vs PCIT be passed under Section 143(3) of the Act on 20th September, 2022. It was a submission that the said assessment order was a subject matter of revision under Section 263 by the ld. Pr.CIT, Ranchi wherein the ld. Pr.CIT has taken the stand that the Assessing Officer has not done proper enquiry in regard to the quantification of the loss and that the Assessing Officer has only collected documents and the submissions on record and has not done any verification. It was a submission that the notices under Section 143(2) and 142(1) of the Act had been issued in the course of assessment and the assessee had also responded to the same. The ld. AR drew our attention to page No. 13 of the paper book which was one of the replies filed by the assessee before the Assessing Officer which reads as follows: “This is in reference to the captioned Notice under section 143(2) of the 1. T. Act, 1961; dt. 29/06/2021 for the assessment year 2020-21, wherein the assessee has been required to furnish its reply in substantiation and corroboration of return of income filed which has been selected under complete scrutiny. The assessee respectfully submits here below:-

That the each shopkeeper has to maintain the stock register of liquor under brand named wise, item wise & quantity wise as per the format prescribed by the Department of Excise & Prohibition on day to day basis.

That in the stock register the information of Opening Stock, Purchase, Sales and, Closing Stock remain has to be maintain. The said department personnel visiting the shop and verifying the stock register on day to day basis and, thereafter affixing their department stamp.

That there are large cases of damage of goods due to leakage, seal broken and, expiry of the period of use of liquor or beer which has to be 100% bear by the shopkeeper. Even at the time of the unboxing of cartoon, if there are any damaged goods found in that case also no return of such materials or any claim of refund of money on damaged goods is being given by the State Govt, and, the shopkeepers has to bear the loss. One of major point is that we are new player in this field which also causes increased in the non-tradable of goods.

That in the inventory sheet of stock register, we are giving summery of damaged goods, as a footnote, due to no separate column is being provided for damaged or non-saleable goods. Further, damaged goods are being Included in the SALES COLUMN of the stock register to tally the closing inventory remain at the end of the day. That the damaged goods have no value and therefore, this is 100% loss to the shop keepers. Further, all such types of losses of goods is in the knowledge of the concerned department authority.

That scan copy of audited financial statement along with audit report u/s 44AB is annexed herewith for your kind perusal.

That my updated email id and mobile number is as follows you are requested to please send notice in this new email id. Email. sanjaychawla1100@gmail.com Mobile: 9155129241.”

We have considered the rival submissions. The facts in the present case clearly shows that the original assessment order has been passed after calling for various documents on the assessee. The assessment order also speaks a verification with the Excise Department as has been pointed out by the Hon’ble Supreme Court in the case of PCIT Vs M/s V-Con Integrated Solutions Pvt. Ltd. (supra), the assessee does not have control over the pen of the Assessing Officer. Once the Assessing Officer carries out the investigation but does not make any addition it can be taken that he accepts the plea and stand of the Sanjay Chawla Vs PCIT assessee. This is the decision of the Hon’ble Supreme Court, this is the law of the land. This principle having been enunciated by the Hon’ble Supreme Court and the fact show that the details have been called for and examined by the Assessing Officer, obviously the directions of the ld. Pr.CIT for re-verification is not permissible, consequently respectfully following the principles laid down by the Hon’ble Supreme Court in the case of PCIT Vs M/s V-Con Integrated Solutions Pvt. Ltd. (supra) and also the decision of the Hon’ble Supreme Court in the case of PCIT Vs Shreeji Prints (P) Ltd. (supra), the order passed by the ld. Pr.CIT under Section 263 of the Act is found to be unsubstantiable in law and consequently stands quashed.

In the result, the appeal of the assessee is allowed. Order announced in open court on 07/10/2025. Sd/- Sd/- (RATNESH NANDAN SAHAY) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Ranchi, Dated: 07/10/2025 *Ranjan Copy to: 1. Assessee 2. Revenue 3. CIT 4. DR By order 5. Guard File Sr. Private Secretary, ITAT, Ranchi