SHRI DEEPAK KHANNA,JAIPUR vs. PR.CIT-2, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,’B’ JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBkSM deys’k t;arHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 19/JP/2021 fu/kZkj.k o"kZ@Assessment Year :2016-17 cuke Sh. Deepak Khanna PCIT, Vs. F-198, Sitapura Industrial Area, Jaipur-2 Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AFXPK 5933 N vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Sh. P. C. Parwal (CA) jktLo dh vksj ls@ Revenue by : Sh. Sanjay Dhariwal (CIT) lquokbZ dh rkjh[k@ Date of Hearing : 12/07/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 07/09/2022

vkns'k@ ORDER

PER: RATHOD KAMLESH JAYANTBHAI, A.M.

This appeal is filed by the assessee aggrieved from the order of the Pr. Commissioner of Income Tax, PCIT Jaipur-2 [ Here in after referred as Ld. PCIT ] for the assessment year 2016-17 dated 31.03.2021 which in turn arises from the order passed by the DCIT, Circle-07 passed under Section 143(3) of the Income tax Act, 1961 (in short 'the Act') dated 05.12.2018.

2 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 2. Aggrieved form the order of the ld. PCIT the assessee has

marched this appeal on the following grounds;

engaged in trading and export of Indian Handmade Woolen Carpet

& Durries. During the year under consideration the assessee has

declared income from salary at Rs. 4,60,000/- from M/s. Pritham

Khanna Rugs Private Limited, income from house property at Rs.

1.09,200/- income from business at Rs. 1,73,68,625/- and income

from other source at Rs. 3,68,607/-. Thus, the assessee has

declared returned income of Rs. 1,81,46,430/- after claiming

deduction u/s 80C and 80TTA at Rs. 1,60,000/-. The case was

3 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 selected for Limited Scrutiny under CASS. Notice u/s. 143(2). After

considering the facts of the case and details / explanation /

clarification filed by the assessee on e portal, the return of income

as declared by the assessee is accepted.

143(2) dt. 08.08.2017 to examine that capital is genuine and from

disclosed sources and the method of accounting adopted. In order

to verify these issues AO raised queries from time to time. The

assessee vide reply dt. 17.07.2018 (PB 1-2) provided the breakup

of capital introduced of Rs.6,34,46,000/- along with the source from

where it is received as under:-

(i) Funds transferred from partnership firm M/s Manmade Rs. 5,50,46,000 (ii) Cash withdrawn from M/s Manmade Rs. 23,00,000 (iii) Amount transferred between Jaipur & Varanasi branch Rs. 61,00,000

Thereafter, vide letter dt. 31.08.2018 (PB 4-5) copy of capital

account of assessee in M/s Manmade at Varanasi and Jaipur

branch duly confirmed in support of capital transferred of

Rs.5,50,46,000/- (PB 6) in the proprietary concern of assessee M/s

Rugs International and Rs.23 lacs in support of cash transfer (PB

4 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 7-8) was filed. Thereafter vide letter dt. 27.11.2018 (PB 9) it was

explained that out of Rs.61 lacs, amount transferred from Jaipur

branch to Varanasi branch is Rs.41 lacs and Rs.20 lacs is credited

in the capital account from personal saving bank account. In

support of the same the relevant extract of cash book of Jaipur

branch (PB 10-11) and the bank statement was filed. The AO after

examining all these details/ explanation/ clarifications furnished by

the assessee accepted the income declared by the assessee u/s

143(3) dt. 05.12.2018.

CIT called for the assessment records of the assessee. From the

examination of record the ld. PCIT revealed that funds of Rs.

5,50,46,000/- is transferred in from partnership firm M/s Manmade

in which assessee is a partner. However, as per tax audit report

submitted by assessee u/s. 44AB of the proprietary concern i.e.

M/s Rugs International, Jaipur no such loan or deposit taken or

accepted during the year. Confirmation of accounts of Manmade

submitted by the assessee, neither mention PAN and nor are

accompanies by any bank statement of M/s. Manmade to establish

5 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 genuineness of the transaction. Nature and source of the sum of

money credited in assessee’s books of account is thus not verified.

The ld. PCIT further observed that the assessee has shown cash

receipt of Rs.41 lacs from the proprietary concern M/s Jaipur Rugs

International but the same is not shown as drawings in the capital

account or accounted in the books of M/s Rugs International,

Jaipur. It was further observed that M/s.Manmade has paid Rs.

23,00,000/- in cash to assessee which is mentioned in the ledger

account of M/s. Manmade as payment towards purchases from

unregistered dealers but no purchase bills of these cash

transactions were submitted on record. He further observed that

M/s Rugs International, Jaipur had made cash payment of

Rs.14,03,266/- towards purchase from unregistered dealer which

is not allowable u/s 40A(3) of the Act. Based on the above

observations the ld. PCIT issued a show cause notice to the

assessee dated 10.03.2021 asking the assessee show cause as to

why the assessment order passed by the DCIT, Circle-7, Jaipur on

05.12.2018 may not be revised u/s. 263 considering it as

erroneous and prejudicial to the interest of the revenue as the

assessment was passed mechanically without application of mind.

6 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 6. Assessee filed detailed reply to the said notice (PB 13-26)

explaining that AO has examined all the issues and explained the

reasons given in the show cause notice u/s 263 for treating the

order of AO erroneous and prejudicial to the interest of revenue.

None of these submissions however impressed the learned PCIT

who rejected these submissions and observed that AO has not

enquired into the details of capital introduced by him in his

proprietary concern or partnership firm nor enquired into the

accounting of cash transfer from one entity to other physically

distant entity. Further no details have been filed during the

assessment proceedings relating to the transaction undertaken

between proprietary concern and partnership firm. He therefore,

relying on Explanation 2 to section 263 as well as various case

laws cited in his order held that order passed by AO in a routine

and perfunctory manner is erroneous and therefore, the same is

set aside to be made denovo after affording reasonable

opportunity to the assessee.

assessee submitted his written submission which is reiterated

herein below:-

7 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2

“1. It is submitted that the case of assessee was selected for limited scrutiny to examine the introduction of capital in M/s Jaipur Rugs International of which he is the proprietor. The total capital introduced by the assessee in M/s Jaipur Rugs International was Rs.6,34,46,000/-. In course of assessment proceedings in order to examine the same the AO fixed the case for hearing on various dates, i.e. 23.08.2017, 30.08.2017, 20.04.2018, 16.07.2018, 02.08.2018, 22.10.2018, 13.11.2018 & 26.11.2018 as specified in the assessment order and after considering the replies filed by the assessee along with the supporting document in support of the capital introduction accepted the same. Thus, when the AO has made detailed examination to verify the source and genuineness of capital introduced and thereafter accepted the same, his order cannot be held to be erroneous and prejudicial to the interest of revenue only because of certain preconceived incorrect notion of the CIT as explained hereunder.

8 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 3. The assessee has two branches, one at Varanasi and another at Jaipur. In course of assessment proceedings assessee has furnished the cash book for verification of cash withdrawn by debiting the current capital account of assessee at Jaipur unit and crediting the current capital account of assessee at Varanasi unit. The amount so debited by Jaipur unit is Rs.41 lacs which was credited by the Varanasi unit in the current capital account of assessee (PB 25-26). Thus, in the capital account Rs.41 lacs is shown as received and same amount is also shown as withdrawn. Hence, when cash is withdrawn from one unit and transferred to another unit and the same having been verified by the AO, his order cannot be said as erroneous and prejudicial to the interest of revenue. So far as observation of Ld. CIT that AO has not enquired into accounting of cash transfer from one entity to other physically distant entity for which there is no record of physical movement, the same is irrelevant more particularly when the entries are made in the cash book of both the units which itself is an evidence of movement of cash.

9 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 6. From the above it can be noted that AO after examining the details, evidences and the explanation furnished by the assessee has accepted the capital introduced by the assessee in its proprietary concern M/s Jaipur Rugs International. Hence, Explanation 2 to section 263 is not applicable. In this connection reliance is placed on the decision of Sir Dorabji Tata Trust Vs. DCIT(E) 188 ITD 38 dt. 28.12.2020 where the Hon’ble ITAT Mumbai Bench comprising of Justice PP Bhatt, President and Pramod Kumar, Vice President in Para 19-22 has held as under:-

“19. The question that we also need to address is as to what is the nature of scope of the provisions of Expln. 2(a) to s. 263 to the effect that an order is deemed to be "erroneous and prejudicial to the interests of the Revenue" when CIT is of the view that "the order is passed without making inquiries or verification which should have been made".

10 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 justify or warrant. Even if the words used in the statute are prima facie enabling, the Courts will readily infer a duty to exercise a power which is invested in aid of enforcement of a right—public or private—of a citizen. [ L Hirday Naran vs. ITO (1970) 78 ITR 26 (SC) ]. As a corollary to this legal position, when a public authority has the powers to do something against any person, such an authority cannot exercise that power unless it is demonstrated that the circumstances so justify or warrant. In a democratic welfare state, all the powers vested in the public authorities are for the good of society. A fortiorari, neither can a public authority decline to exercise the powers, to help anyone, when circumstances so justify or warrant, nor can a public authority exercise the powers, to the detriment of anyone, unless circumstances so justify or warrant. What essentially follows is that unless the AO does not conduct, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant–that an AO is expected to be, CIT cannot legitimately form the view that "the order is passed without making inquiries or verification which should have been made". The true test for finding out whether Expln. 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the CIT, about the lack of necessary inquiries and verifications, but an objective finding that the AO has not conducted, at the stage of passing the order which is subjected to revision proceedings, inquiries and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant that the AO is expected to be.

11 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 and investigate each and every claim made in the IT return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if at all any, required to be critically examined by a thorough probe. While it is true that an AO is not only an adjudicator but also an investigator and he cannot remain passive in the face of a return which is apparently in order but calls for further inquiry but, as observed by Hon'ble Delhi High Court in the case of Gee Vee Enterprises vs. Addl. CIT & Ors. 1975 CTR (Del) 61 : (1995) 99 ITR 375 (Del) , "it is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. (Emphasis, by underlining, italicised in print, supplied by us). It is, therefore, obvious that when the circumstances are not such as to provoke an inquiry, he need not put every proposition to the test and probe everything stated in the IT return. In a way, his role in the scrutiny assessment proceedings is somewhat akin to a conventional statutory auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston Cotton Mills (1896) 2 Ch.D 279, 288), in respect of the role of an auditor, would equally apply in respect of the role of the AO as well. His lordship had said that an auditor (read AO in the present context)" is not bound to be a detective, or, as was said, to approach his work with suspicion or with a foregone conclusion that there is something wrong. He is a watch-dog, but not a bloodhound". Of course, an AO cannot remain passive on the facts which, in his fair opinion, need to be probed further, but then an AO, unless he has specific reasons to do so after a look at the details, is not required to prove to the hilt everything coming to his notice in the course of the assessment proceedings. When the facts as emerging out of the scrutiny are apparently in order, and no further inquiry is warranted in his bona fide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the AO's notice in the assessment proceedings cannot be said to be lacking bona fide, and as long as the path adopted by the AO is taken bona fide and he has adopted a course permissible in law, he cannot be faulted-which is a sine qua non for invoking the powers under s. 263. In the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) , Hon'ble Supreme Court has held that "Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has

12 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law." The test for what is the least expected of a prudent, judicious and responsible AO in the normal course of his assessment work, or what constitutes a permissible course of action for the AO, is not what he should have done in the ideal circumstances, but what an AO, in the course of his performance of his duties as an AO should, as a prudent, judicious or reasonable public servant, reasonably do bona fide in a real-life situation. It is also important to bear in mind the fact that lack of bona fides or unreasonableness in conduct cannot be inferred on mere suspicion; there have to be some strong indicators in direction, or there has to be a specific failure in doing what a prudent, judicious and responsible officer would have done in the normal course of his work in the similar circumstances. On a similar note, a Co-ordinate Bench of the Tribunal, in the case of Narayan T. Rane vs. ITO (2016) 70 taxmann.com 227 (Mumbai) has observed as follows:

13 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 such inquiries and verifications. There can be three mutually exclusive situations with regard to exercise of powers under s. 263, r/w Expln. 2(a) thereto, with respect to lack of proper inquiries and verifications. The first situation could be this. Even if necessary inquiries and verifications are not made, the CIT can, based on the material before him, in certain cases straight away come to a conclusion that an addition to income, or disallowance from expenditure or some other adverse inference, is warranted. In such a situation, there will be no point in sending the matter back to the AO for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the CIT. In exercise of his powers under s. 263, the CIT may as well direct the AO that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the CIT finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the Revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the CIT is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the AO, a conclusive finding is not possible one way or the other. That is perhaps the situation in which, in our humble understanding, the CIT, in the exercise of his powers under s. 263, can set aside an order, for lack of proper inquiry or verification, and ask the AO to conduct such inquiries or verifications afresh.”

The principles laid down in this decision when applied to the facts of assessee’s case is evident that in the assessee’s case AO has made all the necessary enquiry and verification as can be expected of a of a prudent, judicious and responsible AO in normal course of his assessment work. The Ld. CIT has not specified as to what type of enquiry ought to have been made by AO which would have resulted into income or disallowance or any other adverse action. Hence, the order passed by AO can’t be branded as erroneous and prejudicial to the interest of revenue.

14 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 In view of above, order passed by Ld. CIT u/s 263 is illegal & bad in law and the same be quashed.”

assessee submitted that the issue raised by the ld. PCIT has

already been considered by the AO while passing the assessment

order. For that he has drawn our attention to attention to the notice

issued u/s. 142(1) of the Act dated 13.04.2018 where in the issue

raised by the PCIT has already been seen and relevant details

were called by the assessing officer in the proceeding before him.

For that the ld. AR of the assessee drawn our attention to the said

notice (assessee paper book page 53 & 54) and the relevant

extract of the questions raised by the AO is reiterated here in

below:

“In order to finalize the assessment proceedings in your case for the A.Y 2016-17, you are required to furnish the following details/information/clarification. 1. Furnish a copy of computation of income duly verified by you. 2. Furnish a copy of audit report along with all its annexure duly verified by you along with all the financial statements for the year under consideration. 3. Furnish complete details of share capital and also explain if there is increase in share capital during the year under consideration then furnish its sources of increase with documentary evidences. 4. Please furnish the details of accounting used in return of income and in the audit report during the year under consideration.

15 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 After going through reply on various 9 different dates various

details were called for and were submitted in the assessment

proceedings. As there were two issues before the AO one for

method of accounting as raised in the above extracted notice dated

13.04.2018, the assessee filed a reply vide his letter dated

01.08.2018 vide point no. 4 which reads as under :

“Assessee has consistently followed mercantile system of accounting. With regard to return of income of A. Y. 2016-17, method of accounting is mercantile and due to typographical error assessee has selected first option i.e. “yes” to change method of accounting. However, there is no change in method of accounting followed and assessee is regularly following mercantile system of accounting.”

assessee drawn our attention to his paper book wherein the

assessee has submitted the details of the capital introduced in the

capital account along with the source of the said capital account on

17.07.2018, 01.08.2018, 31.08.2018 along with the ledger account

and contra confirmations. As the proceeding were for limited

purpose and both the issue carefully considered by the assessee

and submitted all the details the proceeding is bad in law as well as

on facts. As regards the observation of the ld. PCIT that the PAN

number of the Manmade is not mentioned in the return of income

filed, he has filed the extract of the return of income at page 64 of

16 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 the paper book, extract from the return of income filed by the

assessee. The said extract shows the PAN of the firm wherein the

assessee is partner is duly reported. Thus, even these contentions

is also factually incorrect and while making allegation has not been

verified by the PCIT. The ld. AR of the submitted that when both

the entities are regularly assessed to tax and assessee has filed

the copy of account expressly showing the entries under questions

there cannot be the case of unexplained entries or investment and

thus, there cannot be proceeding u/s 263. The PCIT has merely

raised the doubts and too without going to the records of the fact

that the transaction is between the proprietor of one firm and

between a partnership firm where in the assessee is partner. The

assessee being partner can withdraw the money in cash or by

transfer the same any account and the same is not restricted in any

provision of the law. As regards the contention for violation of

section 40A(3) the same was not subject matter of the assessment.

Therefore, the ld. PCIT is travelling beyond the scope of the

subjected assessment made by the AO. Without prejudice to these

fact the assessee is regular tax payer and the transaction referred

is excluded from the applicability of section 40(A)(3) read with

17 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 clause (f) of Rule 6DD(3) thus, the contentions raised by the PCIT

is not only without going into the record but also without

considering the submission of the assessee on merits and thus, on

this account also the order of the PCIT is required to be quashed.

submitted that for both the issues, were raised by the assessing

officer in the assessment proceedings by issue of notice and the ld.

AO has already analyzed the issues, sought explanation from the

assessee from time to time and taken a plausible view. For this ld.

AR submitted that all the relevant information was also placed on

record to decide the issue on hand by the AO. The PCIT has not

pointed out that what is the specific error from where it can be

termed that the order passed by the AO is erroneous or prejudicial

to the interest of the revenue. There cannot be a gauge that the

enquiry conducted is sufficient or not when the specific issue has

already been considered in the assessment proceedings before

him.

18 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 11. Even the amended provision of section 263 inserting

explanation 2 does not deal with that situation and for that ld. AR of

the assessee draw our attention to the said explanation 2 of section

Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 94[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 95[Chief Commissioner or Chief Commissioner or 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.

condition specified in the Act is applicable in the present facts of

the case. He further submitted that the AO has not granted any

relief or claim in the present case without verification which is the

subject matter in the case. The order is passed after making proper

and sufficient enquiry in the proceeding. The AO has not violated

any direction or instruction of the board. The order also not violates

any binding judicial decision. He further submitted that the issue

raised by the PCIT has already been raised and the relevant

19 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 aspect of the facts on the same very issue is seen by the AO. The

ld. AR demonstrate before us that the AO has raised which the

PCIT is contending in the proceeding under section 263 of the Act.

He has also demonstrated before us that the AO has made

necessary enquiry on the issue based on the submission made by

the assessee. The ld. AO has taken the plausible view on both the

issue as per the submission placed on record. This action of the

AO is not proved to be prejudicial or erroneous on any of the angel

by the PCIT while issuing the show cause notice to the assessee

company. In that circumstance the provision of section 263 and its

explanation 2 will not apply.

the findings of the PCIT and supported the order of the PCIT. He

has submitted as there is not appeal mechanism against the order

of the assessing officer by the revenue and that is why the

proceeding u/s. 263 of the Act. The PCIT based on the reasoning

invoked the provision of section 263 of the Act. The ld. AO has not

called for the balance sheet to verify whether the loan in fact were in the book of the firm or not. The entry is passed on 31st March.

20 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 This loan is not shown in the tax audit report. This was the specific

issue under scrutiny. Even the assessee how the entry is passed

and mode of transfer of the entry from one party to another is not

asked by the assessee nor it transpire from the record and AO has

not raised any query on the issue. Even how the transaction

between one branch to another is happening is not raised by the

AO. Thus, explanation 2 of section 263 squarely applicable in this

case and the action of the PCIT is in accordance with the law. The

ld. DR has relied upon the following judicial decision to drive home

to his contentions: • [2000] 109 Taxman 66(SC) Malabar Industrial Co. Ltd., Vs. Commissioner of Income-tax • [2007] 158 Taxman 160(SC) Commissioner of Income-tax, Bhopal Vs. Ralson Industries Ltd. • [1975] 99 ITR 375(DELHI) Gee Vee Enterprises Vs. Additional Commissioner of Income-tax • [2000] 108 Taxman 464 (Madras) Commissioner of Income-tax Vs. Seshasayee Paper & Boards Ltd. • [2006] 101 ITD 405(MUM.) Arvec International Vs. Additional Commissioner of Income-tax, Range 19(1), Mumbai

record and duly considered facts of the case in the light of

applicable legal position and judicial decision relied upon by the

parties. In the facts of the present case, the Pr. CIT has exercised

the power by merely flagging certain issues and without caring the

21 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 submission made by the assessee has summarily rejected the

same and has arrived at the conclusion ignoring the facts,

evidences which casts responsibility on the Pr. CIT to point being

out the error and not any and every error but such an error which is

prejudicial to the interests of the Revenue. The twin requirements

and the sine qua non for exercising the Revisionary Power cannot

be left at the mercy of whims and fancies of Revisionary Authority

the same should be brought out on record mere suspicions are not

enough.

submitted by the assessee during the assessment proceedings.

Yet, learned CIT(A) has subjected the assessment order to revision

proceedings on the short ground that the Assessing Officer failed to

carry out necessary verifications. He further stated that the AO has

not applied his mind to the issue in proper manner and concluded

that "AO has not applied his mind to the issue in proper manner”.

Everything thus hinges on whether assessee's submission being

accepted can be faulted with, whether the assessee ought to have

produced the appropriate evidence and whether non-recording of

22 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 the reasons for accepting explanation will render the order

erroneous and prejudicial to the interest of the revenue? In order to

support the conclusion drawn reference may also be made to the

decision of the Co-ordinate Benches in Narain Tatu Rane, 70

taxmann.com 227 (Mumbai - Trib.) which clearly brings out that the

explanation cannot be said to have overridden the law as

incorporated by various High Courts which have consistently held

that before reaching to the conclusion that the order of the AO is

erroneous and prejudicial to the interests of the Revenue, the

Revisionary authority itself has to undertake some enquiries to

establish that the assessment order is erroneous and prejudicial to

the interests of the Revenue. Recently, the apex court in the case

of Commissioner of Income Tax, LTU Vs. Nuclear Power

Corporation of India Ltd. [2022] 138 taxmann.com 332 (SC) held

that the Commissioner, while exercising the power of revision

under section 263 of the Income-tax Act, 1961, cannot examine an

issue on merits. The assessee in his submission relied on the

decision in the case of JRD Tata Trust v. Dy. CIT [2020] 122

taxmann.com 275 (Mum. - Trib.), a coordinate bench of Mumbai

23 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 Tribunal, in the context of exercised of powers under section 263,

observed as follows:—

24 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 and no further inquiry is warranted in his bonafide opinion, he need not conduct further inquiries just because it is lawful to make further inquiries in the matter. A degree of reasonable faith in the assessee and not doubting everything coming to the Assessing Officer's notice in the assessment proceedings cannot be said to be lacking bonafide, and as long as the path adopted by the Assessing Officer is taken bonafide and he has adopted a course permissible in law, he cannot be faulted- which is a sine qua non for invoking the powers under section 263. In the case strial Co Ltd. v. CIT [(2000) 243 ITR 83 (SC)], Hon'ble Supreme Court has held that "Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law." The test for what is the least expected of a prudent, judicious and responsible Assessing Officer in the normal course of his assessment work, or what constitutes a permissible course of action for the Assessing Officer, is not what he should have done in the ideal circumstances, but what an Assessing Officer, in the course of his performance of his duties as an Assessing Officer should, as a prudent, judicious or reasonable public servant, reasonably do bonafide in a real-life situation. It is also important to bear in mind the fact that lack of bona fides or unreasonableness in conduct cannot be inferred on mere suspicion; there have to be some strong indicators in direction, or there has to be a specific failure in doing what a prudent, judicious and responsible officer would have done in the normal course of his work in the similar circumstances.

assessee was selected for limited scrutiny and issue to be

examined was raised and the submissions were submitted in the

proceedings before the AO. In the assessment order the ld. AO

has mentioned that :

“In compliance to these notices, the assessee uploaded the replies on efilling portal and furnished required details/explanations/clarification, which were perused and examined thoroughly in respect of the

25 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 issues/reasons on the basis of which the case was selected for limited scrutiny. “

submission made in the form of paper book filed by the assessee.

As the case was for this limited purpose the same has been

examined and verified by the ld. AO as it emerges from the findings

of the AO. The ld. Pr. CIT evidently did not place on record any

apparent error on the part of the AO so as to substantiate that

order passed by the ld. AO is prejudicial to the interest of revenue.

He only mentioned that the AO has not applied his mind to the

issue in proper manner. He has not pin pointed any of the enquiry

which is required to be made is not made by the ld. AO. and he has

to examine the issue on merits. There is no further defect found

from the record from the material that has been collected by the ld.

AO to verify the point raised in the limited scrutiny. The decision

and contentions raised by ld. DR are all related to the fact that the

ld. AO either has not examined the issue and the related enquiry

on the issue apparently not done or not done to the extent it was

required to be examined based on the facts. Since, in this case ld.

AO has clearly conducted the enquiry and revenue did not pin point

the error on the part of the assessing officer the order passed after

26 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 due application of mind cannot be subjected to proceeding u/s. 263

of the Act. The ITAT Mumbai bench in the Mrs. Khatiza S.

Oomerbhoy addressed this issue elaborately after referring to

number of cases on revisionary powers vested in the

Commissioner of Income-tax under section 263 of the Act and

summed up the fundamental principles emerging from several

cases as under-

(i) The CIT must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 of the Act cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view with which the does not agree. If cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under law (vi) If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the Commissioner of Income-tax, while exercising his power under section 263 of the Act is not

27 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer. (vii) The Assessing Officer exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the Commissioner of Income-tax does not fee stratified with the conclusion. (viii) The Commissioner of Income-tax, before exercising his jurisdiction under section 263 of the Act must have material on record to arrive at a satisfaction and (ix) If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the Assessing Officer allows the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.

framing the assessment had taken a possible view, and revenue

did not demonstrate the error remain on the part of the ld. AO. In

fact, when the ld. AO has conducted the required enquiry and not

violated any of the conditions mentioned for revision of order as

required by Explanation 2 of Section 263 of the Act, the order

passed by the Assessing Officer could not be deemed to be

erroneous so as to be prejudicial to the interests of the revenue.

28 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 For this it is relevant to extract the Explanation 2 of section 263

which the ld. DR has heavily relied upon:

Explanation 2.—For the purposes 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, if, 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.

Officer cannot be said to be lacking bonafides, his action in

accepting an explanation of the assessee cannot be faulted merely

because it could have been lawful to make mere detailed inquiries

or because he did not write specific reasons of accepting the

explanation. As for learned PCIT's observations regarding

accepting the explanation "has not applied his mind to the issue

in proper manner", there is nothing to question the bonfides of the

Assessing Officer or to elaborate as to what should have been

proper manner. The fact remains that the specific issue raised, in

the revision order was specifically looked into, detailed

29 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 submissions were made and these submissions were duly accepted by the Assessing Officer. Merely because the Assessing Officer did not write specific reasons for accepting the explanation of the assessee cannot be reason enough to invoke powers under section 263, and non-mentioning of these reasons do not render the assessment order "erroneous and prejudicial to the interest of

the revenue".

assessee gets the relief accordingly.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 07/09/2022.

Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼ jkBkSM deys’k t;arHkkbZ ½ (Sandeep Gosain) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 07/09/2022 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Deepak Khanna, Jaipur 2. izR;FkhZ@ The Respondent- PCIT, Jaipur-2 3. vk;dj vk;qDr@ CIT

30 ITA No. 19/JP/2021 Shri Deepak Khanna vs. Pr. CIT-2 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 19/JP/2021} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत