SHRI RADHA GOVIND LASHKARI,JAIPUR vs. PCIT-2, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” VC 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. 32/JP/2021 fu/kZkj.k o"kZ@Assessment Year : 2015-16. cuke Shri Radha Govind Lashkari, Principal Commissioner of Vs. 16, Shubham Enclave, Income-tax, Jaipur-2, Jamnalal Bajaj Marg, C-Scheme, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAHPL 2851 M vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri S.R. Sharma (CA) and Shri R.K. Bhatra, (CA) jktLo dh vksj ls@ Revenue by : Smt. Savita Bundas, (CIT D/R)

lquokbZ dh rkjh[k@ Date of Hearing : 06/04/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 12/04/2022

vkns'k@ ORDER

PER: SANDEEP GOSAIN, J.M.

This appeal by the assessee is directed against the revision order dated 31.03.2021 of ld. PCIT, Jaipur-2, Jaipur passed under section 263 of the IT Act, 1961 for the assessment year 2015-16. The assessee has raised the following grounds :-

2 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

stated in limited scrutiny notice in view of CBDT Instruction No. 7/2014, 20/2015 and 5/2016 and also the CBDT letter dated 13.11.2017 and thus asking further details was beyond the purview of the assessment, and

(b) The notice u/s 263 of the I.T. Act, 1961 has been issued by him on the basis of suggestion made by the audit party without exercising his own discretion and judgment.

(a) Wrongly held that genuineness of fresh unsecured loans aggregating to Rs. 2,59,25,611/- was not verified by the AO in as much as complete details in respect of these unsecured loans were submitted before the AO and

(b) Wrongly held that verification of source of increase in capital was not verified by the AO in as much as there was no fresh increase in capital and funds were transferred to proprietary concern from personal bank account and same facts were submitted before and examined by the AO.

and having interest income under the head Income from other sources. The

assessee filed his original return of income under section 139 on 31.08.2015

declaring total income of Rs. 1,88,03,770/-. The assessment was completed under

section 143(1) of the IT Act at the returned income. Thereafter, the case was

3 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

selected for scrutiny and a notice under section 143(2) of the IT Act was issued on

20.09.2016. Notice under section 142(1) along with questionnaire seeking details

was issued on 20.09.2016 for limited scrutiny for the reasons (1) High interest

expenditure against new capital added in work in progress or addition made to the

fixed assets and (2) Substantial increase in capital in a year. In compliance to the

notices aforesaid and the points raised under section 142(1) of the IT Act, 1961, the

assessee during the course of assessment proceedings submitted in respect of issue

(1) above that there is no work in progress/substantial addition to the fixed assets

during the year under assessment. The only addition in fixed assets during the year

under consideration was computer for Rs. 11,700/- and Refrigerator and AC for Rs.

38,800/- in proprietorship concern M/s. Green Leaf for which no interest was

incurred. In support of his contention, the assessee furnished the copies of

purchase bills of said assets. The only interest debited to the profit & loss account

was Rs. 2,23,258/- which was paid on secured loan taken for purchase of Motor Car

in the preceding years. Thus no high interest expenses claimed against the new

capital added in WIP or addition made to the fixed assets. In regard to issue (2),

the assessee submitted that assessee is proprietor of M/s. Green Leaf. The capital

account in the year has been increased from opening balance of Rs. 17,60,547/- to

closing balance of Rs. 10,49,15,623/-. The addition in capital account was made by

assessee out of his personal bank statement. In support of his contention, the

assessee furnished copy of capital account and personal bank statement of assessee

for verification. Further addition in individual capital account M/s. Radha Govind

Lashkari is self explanatory being only addition in capital account is profit of current

year. Thus the addition in capital account is fully verifiable. The assessee also filed

4 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

other details viz. copies of return of income, computation of total income, balance

sheet and profit & loss account, details of addition made to the fixed assets along

with copies of bills etc. The A.O. after being satisfied with the submissions and the

evidences furnished by the assessee, accepted the returned income. Thereafter, the

ld. Principal CIT-2 called for the assessment record and after examining the

assessment record, opined that there is fresh inflow of unsecured loan of Rs.

2,59,25,611/- during the year and on which interest expenditure amounting to Rs.

39,94,965/- has been debited in the Profit & Loss account. Further, the ld. Pr.CIT

observed that assessee has during the year added fresh capital amounting to Rs.

11,59,55,000/- source of which has not been verified by the AO. The ld. PCIT not

being satisfied with the assessment order passed by the AO under section 143(3)

dated 21.12.2017, observing that the assessment order is erroneous in so far as it is

prejudicial to the interest of the revenue, issued a Show Cause notice under section

263 of the IT Act, 1961 to the assessee on 16.03.2021 to explain as to why the

assessment order passed by the DCIT, Circle-6, Jaipur on 21.12.2017 may not

revised u/s 263 and may not be treated as erroneous and prejudicial to the interest

of the revenue as the assessment order was passed mechanically without application

of mind.

issued by the ld. Pr. CIT, the assessee filed his detailed submission on 22.03.2021.

The assessee in his reply submitted the complete facts of the case along with

documentary evidences of fresh unsecured loans & fresh capital introduced and

accepted by the AO after application of his mind on evidences submitted during the

course of hearing. As such it is quite wrong to allege that the AO failed to enquire

5 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

into genuineness of unsecured loans and source of fresh capital introduced. The ld.

Pr.CIT considered the reply of the assessee dated 22.03.2021 but could not find

favour, and on the findings given in Show Cause notice held that the assessment

order dated 21.12.2017 for A.Y. 2015-16 passed by the ld. AO is erroneous in so far

as it is prejudicial to the interest of revenue and accordingly set aside the

assessment order only on two issues discussed above and directed the AO to pass a

fresh assessment order on those issues. Aggrieved by the order of the ld. Pr. CIT,

the assessee is in appeal before us.

year under consideration was selected for limited scrutiny for the reasons (a) High

interest expenditure against new capital added in work in progress or addition made

to the fixed assets and (b) Substantial increase in capital in a year. In this regard

the ld. A/R for the assessee submitted that it is verifiable from the Profit & Loss

account and balance sheet of both the proprietorship concerns available at Paper

Book Pages no. 6 to 15 that there was no WIP/substantial addition to the fixed

assets during the year under assessment. The assessee in his written submission

filed before AO duly submitted that the only addition to fixed assets during the year

under consideration was of computer for Rs.11,700/- and Refrigerator and AC for

Rs.38,800/- in proprietorship concern M/s Green Leaf for which no interest was

incurred. Even no interest amount of Rs. 39,94,965/- was claimed under the head

Business & Profession. The interest expenses of Rs.39,94,965/- was claimed by the

assessee u/s 57 of the I T Act, 1961 against the interest income shown under the

head Income from other sources. It is submitted that said entire interest of

Rs.39,94,965/- was paid to family members as follows :-

6 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

Radha Govind Lashkari HUF (Assessee is Karta in HUF) 23,76,792/- Sunita Devi Garg (Wife of assessee) 13,80,369/- Rimika Lashkari (Daughter of Assessee) 1,64,767/- Kratika Lashkari (Daughter of Assessee) 56,237/- Asha Devi Garg (Sister in Law of assessee) 16,800/- ---------------- Total 39,94,965/- ----------------

Out of said total interest expenses of Rs.39,94,965/-, a sum of Rs.37,57,161/- was

paid to assessee’s own HUF i.e. M/s Radha Govind Lashkari HUF and his wife Sunita

Devi Garg. Confirmation letters of both the loan creditors along with their returns of

income, balance sheets and Bank statements were filed before ld. CIT (A) and the

same are placed at paper book at pages no. 27 to 54.

4.1. The ld. A/R submitted that regarding addition in capital account, the assessee

during the course of hearing submitted that assessee is a proprietor of M/s Green

Leaf. The capital account in the year has been increased from opening balance of

Rs.17,60,547/- to closing balance of Rs.10,49,15,623/-. The addition in capital

account was made by assessee out of his personal bank statement. The ld. A/R

placed on record copy of capital account and personal bank statement of the

assessee. Further, addition in individual capital account of M/s Radha Govind

Lashkari is self-explanatory being the only addition in capital account is out of profit

of current year. Thus, the addition in capital account is fully verifiable. The assessee

further submitted that he does not know how a conclusion has been drawn that

veracity of capital added during the year has not been proved. It is verifiable from

the records available on assessment record that addition in capital account of

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proprietorship concern M/s Green Leaf was made by assessee proprietor in his

personal capacity from his saving bank account. Thus the amount was transferred

from one pocket to another pocket of same persons then how the department

concluded that addition to capital account is not verifiable.

4.2. The ld. A/R further submitted that the ambit of the assessment for limited

scrutiny under CASS was admittedly in relation to the verification of “Increase in

capital” and “High interest expenditure against new capital added in work in

progress or addition made to the fixed assets”, in response to which the assessee

had furnished documents regarding addition to capital account to show the increase

in capital. The other reasons of high interest expenses against new capital added in

work in progress or addition made to the fixed assets is wrong as no interest

expenses of Rs.39,94,965/- was claimed by assessee in his return of income under

the head Business & Profession. The said interest expense has been claimed against

the interest income u/s 57 of the T Act, 1961 under the head Income from other

sources. Further it is settled position of law that the Assessing Officer could not have

travelled beyond inquiry into the increase in capital and interest expenses in view of

the CBDT instruction Nos. 7/2014, 20/2015 and 5/2016 and also the CBDT letter dated 13th Nov. 2017, and thus, asking further details was beyond the

purview of the assessment. The ld. A/R submitted that there is no dispute that the

case of the assessee was picked up for scrutiny under the category of limited

scrutiny. This fact is established from the assessment order and also the notice

issued under section 143(2) of the Act. It is also not in dispute that the CBDT issued

the instructions relied upon by the assessee and for the sake of convenience the

extract of the relevant portions are reproduced hereunder :

8 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur. “CBDT Instruction No. 7/2014 The reason(s) for selection of cases under CASS are displayed to the Assessing Officer in AST application and notice u/s 143(2), after generation from AST, is issued to the taxpayer with the remark “.Selected under Computer Aided Scrutiny Selection (CASS)”. The functionality in AST is being modified suitably to flag the reasons for scrutiny selection in AIR/CIB/26AS cases. This functionality is expected to be operationalized by 15th October, 2014. Further, the Assessing Officer while issuing notice under section 142(1) of the Act which is enclosed with the first questionnaire would proceed to verifyonly the specific aspects requiring examination/verification. In such cases, all efforts would be made to ensure that assessment proceedings are completed expeditiously in minimum possible number of hearings without unnecessarily dragging the case till the time-barring date. CBDT Instruction No. 20/2015 3. As far as the returns selected for scrutiny through CASS-2015 are concerned, two type of cases have been selected for scrutiny in the current Financial Year-one is’Limited Scrutiny’ and other is Complete Scrutiny’. The assessees concerned have duly been intimated about their cases falling either in ‘Limited Scrutiny’ or ‘Complete Scrutiny’ through notices issued under section 143(2) of the Income-tax Act, 1961 (‘Act’). The procedure for handling ‘Limited Scrutiny’ cases shall be as under: (a) …. (b) The Questionnaire under section 142(1) of the Act in 1Limited Scrutiny * cases shalre nut in confined only to the specific reasons/issues for which case has been picked upforscrutiny.Further, the scope ofenquiry shal be restricted to the Limited Scrutiny’ issues. CBDT Instruction No. 5/2016 “4. It is further clarified that in cases under ‘Limited Scrutiny \ the scrutiny assessment proceedings would initialy be confined only to issues under ‘Limited Scrutiny’ and Questionnaires, enquiry, investigation etc. would be restricted to such issues. Only upon comers ion of case to ‘Complete Scrutiny’ after following the procedure outlined above, the AO may examine the additional issues besides the issue(s) involved in ‘Limited Scrutiny’. The AO shall also expeditiously intimate the taxpayer concerned regarding conducting ‘Complete Scrutiny’ in such cases.”

CBDT Letter dated 30.11.2017 Instances have come to notice of CBDT where some Assessing Officers are travelling beyond their jurisdiction while making assessments in Limited scrutiny cases by initiating inquiries on new issues without complying with mandatory requirements of the relevant CBDT Instructions dated 26-9-2014, 29-12-2015 and 14-7-2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was

9 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

tasked with examination of assessment records on receipt ofa I lee at ions of several irregularities. Amongst other irregularities, it was found that no reasons had been recorded for expanding the scope of limited scrutiny, no approval was taken from the PCIT for the conversion of the limited scrutiny case to a complete scrutiny case and the order sheet was maintained very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions.”

The above CBDT instructions and the letter clearly establish that it is not open for

the Assessing Officer to travel beyond the reasons for selection of the matter for

limited scrutiny and on this aspect the assessment order in this case is in accordance

with the instructions governing the field. In such circumstances, the ld. PCIT is not

justified in holding that the assessment order is erroneous insofar as it is prejudicial

to the interest of the Revenue for the A.O not considering the aspects which are

beyond the purview of limited scrutiny.

4.3. The ld. A/R further submitted that when the very basis of scrutiny of the case

was on account of limited issues which have been replied by the assessee and

considered by the AO, then it is not justified to hold that the AO has failed to make

the inquiry, where the scope of inquiry is limited only to the extent of that issues.

The position is still same and there is no change. It was a limited scrutiny

assessment for the limited purpose or issue and on perusal of the entire record, it

cannot be said that the AO has not made inquiries. In this preposition, the ld. A/R

submitted that recently the Jaipur Bench of the Tribunal in the case of Mahendra

Singh Dhankhar HUF vs. ACIT ITA No. 265/JP/2020 dated June 30, 2021

(2021) 62 CCH 0271 (Jaipur Trib) where it has been held as under :-

“Revision—Ordering revision where case is selected for limited scrutiny— Assessee firm is a real estate firm engaged in colonizing and developing

10 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

residential projects—Case of assessee was selected for limited scrutiny through CASS on account of mismatch of AIR and CIB data, and mismatch in sale turnover reported in audit report and ITR—An addition for wrong calculation of LTCG was made by A.O. which was not challenged by assessee—Subsequently, on basis of certain audit objections, PCIT issued notice u/s 263—Assessee submitted that it is a case outside jurisdiction of Commissioner of Income tax to raise objections outside scope of limited scrutiny—PCIT ordered for 'Denovo' assessment without considering reply filed by assessee—Held, there is no dispute that scope of enquiry in case of limited scrutiny is only to extent of issues for which case was selected for scrutiny under CASS—CBDT has issued instructions from time to time in this respect and has specifically instructed taxing authorities that scope of enquiry should be limited to verification of all particulars for which limited scrutiny was taken up under CASS—However, in case during assessment proceeding if AO is of view that substantial verification of other issue is also required then case may be taken up for comprehensive scrutiny with approval of Pr.CIT/DIT concerned—It is also instructed that such an approval shall be accorded by Pr.CIT/DIT in writing after being satisfied about merits of issue(s) necessitating wider and detailed scrutiny in case—AO is duty bound to follow instructions in case limited scrutiny assessment proceeding are proposed to be converted into complete scrutiny and without following said procedure and necessary approval of competent authority conducting an enquiry on issue which is outside limited scrutiny would be beyond jurisdiction of AO—As a necessary corollary, Pr. CIT u/s 263 cannot be permitted to traverse beyond jurisdiction that was vested with A.O while framing assessment as what cannot be done directly cannot be done indirectly—Therefore, where matter was selected for limited scrutiny, revisional jurisdiction cannot be exercised for broadening scope of jurisdiction that was originally vested with A.O while framing assessment— As per PCIT, reason for which matter was selected for limited scrutiny i.e, mis-match of sales turnover vis-à-vis ITR, CIB & AIR has a direct bearing on opening and closing stock of cost of construction and W.I.P and in turn, on taxable income, therefore, AO was duty bound to examine these issues and AO having failed to examine these issues, AO has effectively failed to

11 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

examine issues for which matter was selected for limited scrutiny—As far as matters for which case was selected for limited scrutiny in terms of mis- match of sales turnover, same has been duly examined by AO and even PCIT has not recorded any adverse findings in terms of lack of enquiry or inadequate enquiry on part of AO—Order passed by PCIT u/s 263 is set aside—Assessee’s appeal allowed.”

The ld. A/R further submitted that the Chandigarh Bench of the Tribunal in

the case of Paul Bharwaj vs. Pr.CIT in ITA No. 463/Chd/2019 May 13,

2021 (2021) 62 CCH 0120 (Chd Trib) held as under :

Revision—Order erroneous or prejudicial to revenue—Over exercise of power—Assessee an individual filed his return declaring income and agricultural income—Case was selected for limited scrutiny for reason that there was a substantial increase in capital during year relevant to assessment year under consideration—AO accepted return filed by assessee—Pr. CIT issued notice to assessee u/s 263 and directed AO to make assessment afresh on issues mentioned in notice—Held, Tribunal in case of M/s Su-Raj Diamond Dealers Pvt. Ltd. CIT ITA No 3098/ Mum has quashed order passed u/s 263 in case of limited scrutiny assessment, holding that Pr. CIT under garb of section 263, cannot exceed his jurisdiction holding that when case of assessee was selected for limited scrutiny for reasons viz. (i) Large other expenses claimed in P&L A/c; and (ii) Low income in comparison to High Loans/advance /Investment in shares, therefore, no infirmity could be attributed to assessment framed by A.O on ground that he had failed to deal with other issues which though did not fall within realm of limited reasons for which case was selected for scrutiny assessment—In other words, Pr. CIT in garb of his revisional jurisdiction u/s 263 cannot be permitted to traverse beyond jurisdiction that was vested with A.O while framing assessment—As A.O had aptly confined himself to issues for which case of assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order, for reason, that he had failed to dwell upon certain other issues which did not form part of reasons for which case was selected

12 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

for limited scrutiny under CASS—Case of assessee was selected for limited scrutiny under CASS for reason that there is substantial increase in capital in relevant year and AO passed assessment order and accepted return filed by assessee after examining issue regarding increase in capital account as assessee had credited his capital account with agricultural income and capital gain from sale of flat—Assessee has reflected that same in its capital account—Further in response to letter issued by AO during assessment proceedings, assessee submitted his reply explaining reason for increase in capital—However, Pr. CIT exercising jurisdiction under section 263, directed AO to make fresh assessment on issues which were not subject matter of limited scrutiny—Since, issue raised by assessee in this case has already been decided in favour of assessee Pr. CIT(A) has exceeded jurisdiction u/s 263 by directing AO to make fresh assessment on issues which were not subject matter of assessment framed on basis of limited scrutiny—Assessee’s appeal allowed. Thus in the present case the position are same and the principal of the above judgments are also applicable in the present case. Thus in the light of the facts and position the Pr. CIT cannot be said to be justified in holding that assessment order was passed without making inquiry or verification when firstly the case of reopened for the limited purpose secondary despite the same assessee has produced all the details which examined and deduction allowed.

In this connection the ld. A/R also relied on the of following decisions : -

A) In the Deccan Paper Mills Co. Ltd. vs. CIT in ITA 1013 AND 1635/PUN/2015, Pune Bench of the Tribunal held that - “40. Now, coming to the aspect of book profits which was considered by the Commissioner and the order of the Assessing Officer was held to be erroneous and prejudicial to the interest of revenue. In this regard, it may be pointed out that the case of assessee was picked up for scrutiny under CASS for the limited purpose of verifying the Chapter VI-A deduction. Once the case is picked up for specific purpose under CASS, then it is outside the purview of the Assessing Officer to look into any other aspect other than the aspect for which it is picked up. Hence, the Assessing Officer has not formed any opinion in respect of computation of book profits in the hands of assessee. Once, no such opinion has been formed by the Assessing Officer,

13 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

the Commissioner has erred in holding the order of the Assessing Officer to be erroneous and prejudicial to the interest of revenue in this regard. Accordingly, we reverse the findings of the Commissioner. Accordingly, we hold that the order passed by the Commissioner under section 263 of the Act is invalid and the same is quashed for both the assessment years.”

B) In M/s R.H. Property vs. PCIT, ITA No. 1906/Mum/2019 it was held that,- “As a matter of fact, what cannot be done directly cannot be done indirectly. Accordingly, in terms of our aforesaid observations, we are of the considered view that as the A. O had aptly confined himself to the issue for which the case of the assessee was selected for limited scrutiny, therefore, no infirmity can be attributed to his order for the reason. that he had failed to dwell upon certain other issues which were clearly beyond the realm of the reason for which the case of the assessee was selected for limited scrutiny as per the AIR information. We thus not being able to concur with the view taken by the fJr. CIT that the order passed by the A.O under Sec. 143(3), dated 10.10.2016 is erroneous, therefore, set aside his order and restore the order passed by the A.O. As we have quashed the order passed by the Pr. CIT under Sec. 263 on the ground of invalid assumption of jurisdiction by him, therefore, we refrain from adverting to and therein adjudicating the contentions advanced by the Id. A. Ron the merits of the case, which thus are left open. ” C) Hon’ble ITAT Delhi Bench Delhi in the case of Shri Balvinder Kumar Vs PCIT (ITA No. 485/Del/2020 held that :

“when the assessing officer is bound to follow the CBDT instructions and while following such instructions and after verification of the material furnished by the assessee on the aspect covered by the limited scrutiny, is not open for the Ld. PCIT to say that not adverting to the other aspects of the competition would render the assessment order erroneous and prejudicial to the interest of the Revenue.” Further in the notice issued u/s 263 did not specifically furnish any reasons to say why original order passed u/s 143(3) is erroneous sofaras prejudicial to the interest of revenue.

In view of the above submissions, facts of the case, CBDT instructions and the

decisions of various Benches of the Tribunal, the ld. A/R submitted that it is grossly

14 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

wrong, unjustified and bad in law in holding that the view taken in the assessment

order is erroneous insofar as it is prejudicial to the interest of the Revenue.

4.4. Without prejudice to the above submissions, the ld. A/R further submitted

that it is evident and verifiable that A.O. made enquiries on the issues and assessee

complied with the requirements and accordingly furnished the required details. Thus

it is not a case where the A.O. made no enquiry or verification which should have

been made. It is clear from the reading of notice u/s 263 of the IT Act, 1961 that

the proceedings u/s 263 has been started on the same issue which have already

been considered and examined by the then A.O. Thus the proceeding u/s 263 is a

step to start again a second scrutiny/investigation of facts without there being any

material to hold even prima-facie that the assessment order passed by A.O. is

erroneous which is not valid in the eyes of law (CIT Vs. Trustees Anupam Charitable

Trust (1987) 167 ITR (129) (Rajasthan), CIT Vs. Godawari Sugar Mills Ltd. (1993)

203 ITR 108 (Bom.) and CIT Vs. Shakti Charities (2000) 160 CTR 107 (Mad.). The

facts and submissions are verifiable from the assessment record. The Hon’ble

Supreme Court in case of CIT Vs. Green World Corporation (2009) 314 ITR 81 (SC)

held that ‘The jurisdiction under section 263 can be exercised only when both the

following conditions are satisfied (i) the order of the assessing officer should be

erroneous and (ii) it should be prejudicial to the interest of the Revenue. These

conditions are conjunctive. An order of assessment passed by the Assessing officer

should not be interfered with only because another view is possible. “The Rajasthan

High Court in a recent judgement in case of CIT Vs. Chambal Fertilizers and

Chemicals Ltd. (2013) 258 CTR (Raj.) 540 has held “The law is that the CIT cannot

15 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

invoke the powers to correct each and every mistake or error committed by the A.O.

Every loss to the Revenue cannot be treated as prejudicial to the interest of the

Revenue and if the AO has adopted one of the courses permissible under the law or

where two views are possible and the AO has taken one view which the CIT does

not agree, it cannot be treated as an order erroneous and prejudicial to the interest

of the Revenue, the AO exercises quasi judicial power vested in him and if he

exercises such powers in accordance with law, arrives at a just conclusion such

conclusion cannot be termed to be erroneous only because the CIT does not feel

satisfied with the conclusion. The Hon’ble Delhi High Court in case of CIT Vs.

Kelvinator of India Ltd. (2011) 332 ITR 231 (Delhi) it has held that Assessing officer

taking one of two possible views with which Commissioner not agreeing the

assessment order cannot be treated as an erroneous order prejudicial to the interest

of revenue. The Hon’ble Karnataka High Court after considering various judicial

pronouncements, in the case of CIT Vs. Gokul Das Exports (2011) 333 ITR 214 (Kar)

has held that assessing officer taking one out of two views the assessment order is

not prejudicial to interest of revenue. In view of the above judicial pronouncements

and various other judgements on the issue, the assessment order passed by A.O.

cannot be treated as an erroneous and prejudicial to the interest of revenue. In the

case of CIT Vs. Vodafone Essar South Ltd. (2013) 2012 Taxman 184, Hon'ble Delhi

High Court held that assessing officer before passing assessment order made an

enquiry and directed his mind on all aspects. View adopted by him was clearly one

among two plausible views that could have been taken. Commissioner did not

specifically furnish any reasons to say why original order was unsupportable in law.

16 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

Commissioner could not have validity exercised his revisionary power u/s 263 in

instant case.

4.5. The order is not prejudicial to revenue as A.O. was correct in law and on the

facts of the case. Thus the Ld. Pr. CIT is wrong in holding that A.O. did not make

any enquiry or verification so as to invoke jurisdiction u/s 263. Even newly inserted

Explanation 2 (a) to section 263 does not authorize or give unfettered powers to the

Commissioner to revise each and every order, if in his opinion, same has been

passed without making enquiries or verification which should have been made, since

the Pr. CIT had not brought any material on record to substantiate his inference,

and so the impugned revision order is only to carry out fishing enquiries with

objective of substituting his views with that of the Assessing Officer which is not

permissible in law (refer Narayan Tatu Rane Vs. I.T.O. (2016) 70 Taxman.com 227

(Mumb-Trib).

4.6. Further, the ld. A/R submitted that it seems the ld. Pr. CIT has not gone in to

the merits of the assessee’s case or arguments or contentions available on

assessment record, if it is so then how it can be said or found out whether any

prejudice in fact has been caused to revenue or not due to lack of inquiry on the

part of the AO. If no loss of revenue is caused, the result remains the same even

after conducting the inquiry. It is very settled principle and legal position by various

courts or judgments that it will be wrong to say that merely because proper enquiry

was not conducted, the assessment would become prejudicial. It was incumbent

upon the Pr. CIT to have shown as to how the order was prejudicial to the interest

of the Revenue. In the instant case, the appellant had furnished a detailed reply

17 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

which was available in the record by making the reference to the facts of the case.

Despite that, the Pr. CIT did not prove or bring any material or circumstantial

evidence on record in support of his contention. Thus, he has not looked into the

merits of the case in their true perspective and sense and not applied his mind on

the same despite available before him. He was only of the view that the AO has not

made proper & detailed i.e deep inquiry on the issue. He has only stated that the

order of the AO is erroneous and prejudicial to the interest of the Revenue. Hence

the conclusion of the Pr. CIT that the order is prejudicial to the interest of the

Revenue is not a matter of subjective satisfaction of the Pr. CIT. He, therefore ought

to have found out this on the basis of Objective material after assessing the

contention raised by the assessee in its reply. He, however failed to do so and

reached a conclusion that the order was prejudicial with a view that the present AO

shall undertake that exercise after the assessment has been set aside for his

consideration. Such a view or action is not well founded in the law or by various

Hon’ble Courts. Kindly refer direct decisions in case of Smt. Leela Choudhary v/s PR.

CIT 289 ITR 226(Gau.). Also refer Saw Pipes Ltd v/s Add. PR. CIT 94 TTJ 1036

(Del), Malabar Industrial Co. Ltd. v/s PR. CIT 159 CTR(1)(SC), PR. CIT v/s Rayn Silk

Mills 221 ITR 155(Guj.). Same view has been expressed in the case of Kamal

Kumar Gupta v/s Pr. CIT 142 TTJ 9(Jp) wherein it has been held that “assessee was

asked by the AO to file the details of trade creditors which are shown in the name of

agriculturalist. In the reply, assessee filed written submission enclosing the list of

creditors. Thus, the AO made the inquiry and it is not a case of lack of inquiry but

can be case of insufficient enquiry. Pr. CIT was not justified in passing the order u/s

18 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

263.” In the present case also the position is same and also followed in the case of

Sh. Gyan Chand Jain v/s Pr. CIT 50 TW 109(Jp).

4.7. The ld. A/R submitted that there is no fix formula or limit or extent of

Inquiry. Thus, here it is not the case of the Pr. CIT that no inquiry has been made

by the AO on these issues. The AO has made the inquiry on the above issues

although the very base of scrutiny of the case was limited issue. On perusal of the

assessment order, assessee’s reply and query of the AO shall reveal that the

required details have been filed and explained to the AO. No one can read the mind

of other person while doing the work on its sprite and cannot guess the expectation

or manner of his superior authority. Here the meaning is that non making of an

enquiry may render the subject assessment erroneous, however the process of

making enquiries may be endless. For someone, some enquiries may be sufficient,

however, the same may be insufficient for the others. There is no straight jacket

formula or parameter to make inquiry in the assessment proceedings. What is

required is that the AO should frame the assessment in accordance with the

provisions of the Act, as interpreted and in the light of the relevant judicial

pronouncements, as available on the date of framing the assessment or material

available before him. The AO being a quasi-judicial authority can also take support

from one set of the decisions, if there are diversions of opinion. He can’t be directed

to make an assessment in a particular manner, as specifically prohibited by Section

V/s Pr. CIT Udaipur in ITA No. 383/Jodh/2019 dt. 21.12.2020. The ld. A/R

submitted that on same plea, the Mumbai Bench of the Tribunal in the case of

19 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

Dorabji Tata Trust vs. DCIT (EXEMPTION) ITA No. 3909/Mum/2019 28th

December, 2020 (2021) 209 TTJ 0409 (Mumbai), has observed as under:

“20. Undoubtedly, the expression used in Explanation 2 to Section 263 is “when Commissioner is of the view,” but that does not mean that the view so formed by the Commissioner is not subject to any judicial scrutiny or that such a view being formed is at the unfettered discretion of the Commissioner. The formation of his view has to be in a reasonable manner, it must stand the test of judicial scrutiny, and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once Commissioner records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a view and we must uphold the validity of revision order, for the recording of that view alone, it would result in a situation that the Commissioner can de facto exercise unfettered powers to subject any order to revision proceedings. To exercise such a revision power, if that proposition is to be upheld, will mean that virtually any order can be subjected to revision proceedings; all that will be necessary is the recording of the Commissioner’s view that “the order is passed without making inquiries or verification which should have been made”. Such an approach will be clearly incongruous. The legal position is fairly well settled that when a public authority has the power to do something in aid of enforcement of a right of a citizen, it is imperative upon him to exercise such powers when circumstances so 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 Income Tax Officer [(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 Assessing Officer 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 Assessing Officer is expected to be, Commissioner cannot legitimately form the view that “the order is passed without making inquiries or verification

20 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur. which should have been made”. The true test for finding out whether Explanation 2(a) has been rightly invoked or not is, therefore, not simply existence of the view, as professed by the Commissioner, about the lack of necessary inquiries and verifications, but an objective finding that the Assessing Officer 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 Assessing Officer is expected to be.

21 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur. 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 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 of Malabar Industrial Co Ltd Vs 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 bonafides 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 coordinate bench of the Tribunal, in the case of Narayan T Rane vs ITO [(2016) 70 taxmann.com 227 (Mum)] has observed as follows :

22 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made.

The ld. A/R submitted that on perusal of the order in the present case, the ld. Pr.

CIT has taken action u/s 263 only on the assumption and presumption that the no

inquiry has been made by the AO on the issues and not verified. In this regard he

has referred the judgment of Hon’ble Rajasthan High Court in the case of CIT v/s

Paras Cotton Co. 288 ITR 211(Raj.) wherein it has been held that CIT could not

have acted on mere assumption. Mere suspicion cannot take place of proof and the

order of CIT u/s 263 cannot be sustained.

4.8. The ld. A/R further submitted that proceedings under sec. 263 cannot be

taken on the ground that the AO has not made sufficient enquiry. The learned PR.

CIT can assume jurisdiction if there has been lack of enquiry. In the instant case,

the enquiry has been made, though the enquiry may not be sufficient in the opinion

of the learned PR. CIT. The reliance is placed upon the decision of Hon’ble Delhi

High Court in the case of CIT v. Hindustan Marketing & Advertising Co. Ltd. [2010]

46 DTR (Del.) 109. The attention is drawn towards the decision of Hon’ble

jurisdictional High Court in the case of PR. CIT v. Trustees Anupam Charitable Trust

[1987] 65 CTR (Raj.) 30 : [1987] 167 ITR 129 (Raj.) Thus, it is clear that Assessing

Officer has made enquiry but sufficiency of enquiry can be depend upon from

person to person. The AO cannot remain passive in the face of a return which is

apparently in order but calls for further enquiry. It is the duty of the AO to ascertain

the truth of the facts stated in the return when the circumstances of the case are

23 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

such as to provoke an enquiry. The ld. A/R has further relied on the decision of

Jaipur Bench of the Tribunal in the case of Shri Ashutosh Bhargava Vs. Pr. CIT-2,

Jaipur in ITA No. 20/JP/2021 dated 06-01-2022 having Identical facts.

4.9. The ld. A/R therefore prayed that looking to the above facts, legal position of

law and circumstances of the case and material available on record, it cannot be

said that the order of the AO is erroneous in so far as it is prejudicial to the interest

of the Revenue. Thus he requested that there is no case made out for invoking

Section 263 of I.T. Act, 1961 and the proceedings being wrong and bad in law, the

same may kindly be quashed.

Commissioner may call for and examine the records of any proceeding under the

Act. For this purpose, he does not need to show any reason. It is a part of his

administrative control to call for records and examine them. She further submitted

that the ld. Principal Commissioner may consider that any order passed under the

Act by the AO is erroneous in so far as it is prejudicial to the interests of the

revenue. This consideration, having regard to the language of section 263,

apparently is a consideration which he exercises by calling for and examining the

records as indicated above. During this particular stage of consideration, there is no

question of the assessee appearing or making any submission. If after calling for and

examining the records the Pr. Commissioner “considers” that the order of the AO is

erroneous, in so far as it is prejudicial to the interests of the revenue. She has

referred to the Explanation 2 and submitted that the order passed by the AO 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 ld. PCIT or ld. CIT the order is passed without making enquiry

24 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

or verification which should have been made. Further, if the order is passed

allowing any relief without enquiring into the claim. Thus, in the case in hand, the

AO has not conducted any enquiry on the issue of unsecured loans of Rs.

2,59,25,611/- and fresh capital introduced of Rs. 11,59,55,000/- reflected in the

balance sheet. The ld. D/R has relied upon the decision of Mumbai Benches of the

Tribunal dated 01.02.2016 in the case of Crompton Greaves Ltd. vs. CIT in ITA No.

1994/Mum/2013. The ld. D/R has further relied upon the decision of Hon’ble

Supreme Court in the case of CIT vs. Amitabh Bachchan, 384 ITR 200 (SC) as well

as a series of other decisions including the decision of Hon’ble Jurisdictional High

Court. The ld. D/R submitted that the specific provisions of section 263 of the Act

lays down that a satisfaction that an order passed by the Authority under the Act is

erroneous and prejudicial to the interests of the revenue is the basic pre-condition

for exercise of jurisdiction under section 263 of the Act. Both are twin conditions

that have to be conjointly present. Once such satisfaction is reached, jurisdiction to

exercise the power would be available subject to observance of the principles of

natural justice which is implicit in the requirement cast by the section to give the

assessee an opportunity of being heard. The above conditions have been fulfilled in

the instant case. In view of the above submissions, it is requested that the matter

may be decided on merits keeping in view the various judicial pronouncements

which have been relied upon by the Department and it is requested that the order of

Pr. CIT may kindly be upheld.

relevant material placed on record. We have carefully perused the assessment

order passed by the AO under section 143(3), show cause notice issued by the ld.

25 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

PCIT under section 263 of the Act as well as the impugned order passed under

section 263. We have also deliberated upon the decisions cited in the orders passed

by the authorities below as well as cited before us. It is manifest from the record

that the case of the assessee was taken up for limited scrutiny as per the notice

issued under section 143(2) dated 20.09.2016, the relevant part of the said notice

listing the issues identified for examination are as under :-

“ This is for your kind information that the return of income for Assessment Year 2015-16 filed vide ack. No. 750673821310815 on 31/08/2015 has been selected for Scrutiny. Following issues have been identified for examination :-

i. Interest expenses

ii. Increase in Capital

Thus it is clear that the case was selected for limited scrutiny on the issue of Interest

expenses and Increase in Capital. The AO also issued notice under section 142(1)

dated 20.09.2016 along with a questionnaire. Thereafter upon change of incumbent

of charges, notice u/s 142(1) along with questionnaire issued on 18.12.2017 fixing

the hearing on 19.12.2017. These facts are also evident from the assessment order

as under :-

“ The assessee e-filed his return of income for the Assessment Year 2015-16 on 31.08.2015 at total income of Rs. 1,88,03,770/-. The case was selected for limited scrutiny through CASS and accordingly, notice u/s 143(2) of the I.T. Act, 1961 was issued on 20.09.2016 by DCIT, Circle-3, Jaipur, which was duly served. Notice u/s 142(1) along with

26 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

questionnaire seeking details was issued on 20.09.2016. The case was transferred from DCIT, Circle-3, Jaipur to this circle, vide order u/s 127. Due to change of incumbent, notice/s 142(1) was issued on 18.12.2017 fixing hearing on 19.12.2017. In compliance to the notices so issued, Shri R.K. Bhatra, CA/AR appeared from time to time, furnished relevant details and the case was discussed with him.

The assessee is engaged in the business of real estate.

After discussion returned income is accepted. Issue necessary forms. Computation in ITNS 150 is enclosed which is part of this order.”

Thus in response to the notice issued under section 142(1), the assessee attended

the proceedings through his A/R and also furnished the required details/documents

as well as books of account which were examined by the AO. There is no dispute

that the AO(s) has conducted the enquiry on the issue for which the case was

selected for scrutiny and after satisfying himself the AO finally concluded that the

assessee is engaged in the business of real estate and after examining the details

and records produced before him and discussion with the A/R the returned income is

accepted. Thus it is not a case of lack of enquiry on the part of the AO as once he

was satisfied with the supporting evidences produced by the assessee he has

accepted the claim. The ld. Pr. CIT-2 has invoked the provisions of section 263 of

the IT Act, 1961 by issuing the show cause notice dated 16.03.2021 at pages 68 &

68A of the paper book as under :-

27 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

28 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

Thus it is clear from the show cause notice issued under section 263 that the ld.

PCIT has invoked the provisions of section 263 only on the issue (a) that

genuineness of fresh inflow of unsecured loan of Rs. 2,16,90,980/- is not verified

upon which high interest expenditure amounting to Rs. 39,94,965/- has been

debited and (b) Further, it is seen that veracity of capital added amounting to Rs.

11,59,55,000/- during the year has not been proved. Thus the ground for initiating

29 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

the proceedings under section 263 by the ld. PCIT is that in his view the assessment

order passed under section 143(3) of the IT. Act, 1961 on 21.12.2017 is erroneous

in so far as it is prejudicial to the interest of the revenue. As apparent from the

show cause notice that the scope of proceedings under section 263 was limited only

on the issue of allowability of interest expenses out of business income and veracity

of capital added amounting to Rs. 11,59,55,000/- during the year as apparent from

the documentary evidence available on record and as well as the assessment order

that the above said issues were duly examined by the AO and after applying his

mind and taking a reasonable and possible view he was satisfied about the limited

scrutiny issues raised in the show cause notice. Further, there was no allegation by

the ld. PCIT about no enquiry on the part of the AO while passing the assessment

order. Even otherwise, it is clear from the show cause notice issued that the case

was selected for limited scrutiny only on the issue of Interest expenses and Increase

in Capital. Therefore, the question of lack of enquiry does not arise when the AO

has taken up the scrutiny and issued the notice under section 142(1) along with a

questionnaire calling for all the details relevant to the Interest expenses and

Increase in Capital. It is also not in dispute that the assessee produced the relevant

details and evidences and specifically the purchase bills of the assets, return of

income, computation of total income, balance sheet, profit & loss account, capital

account and personal bank statement of the assessee and complete books of

accounts. It is further noticed from the reply furnished by the assessee to the AO as

well as to the ld. PCIT that the interest expenditure claimed in Profit & Loss account

were of car loan and there was no work-in-progress, and no other interest was

claimed out of business income on account of alleged addition to fixed assets. It is

30 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

also undisputed fact that in the fixed assets the additions were of computer for Rs.

11,700/- and Refrigerator & AC of Rs. 38,800/- during the year. Accordingly no high

interest expenses were claimed very against the new capital added and addition

made to the fixed assets. Regarding the addition in capital account, the assessee

furnished a copy of his personal bank account explaining the nature and source of

the credit entries and the ld. AO after verification of the same from the relevant

records and books of account accepted the same. It is evident and verifiable from

the order passed by the ld. PCIT that he has not doubted/pointed out any deficiency

in the said details. Thus the provisions of section 263 were invoked by the ld. PCIT

due to the reason that he has a different view regarding the allowability of deduction

under section 57 & section 68 of the IT Act in respect of the Interest expenses and

Increase in Capital respectively. There is no quarrel on the point that lack of

enquiry renders the order of the AO as erroneous so far as prejudicial to the

interests of the revenue. However, when there is no allegation and even otherwise

it is manifest from the record that this is not a case of lack of enquiry on the part of

the AO but the AO after satisfying himself about the claim of Interest expenses and

Increase in capital consequent upon the examination and verification of the

concerned details, evidences and books of account produced by the assessee,

allowed the claim of the assessee and accepted the source of addition made to the

capital. Further, though the ld. PCIT has not alleged that there is inadequate

enquiry on the part of the AO, however, even in case there is inadequate enquiry on

the part of the AO, the ld. PCIT can give a concluding finding while passing the

revision order after considering the complete record as well as conducting a

31 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

necessary enquiry. In this case the assessee has contended before the ld. Pr. CIT

vide letter dated 22.03.2021 at pages 71-72 of the paper book as under :-

“ In this connection it is submitted that as evident and verifiable from the profit & loss account and balance sheet of both the proprietorship concerns available on assessment record that there was no WIP/substantial addition to the fixed assets during the year under assessment. The assessee in his written submission filed during the course of assessment proceedings that the only additions to fixed assets during the year under consideration was of purchase of computer for Rs. 11700/- and Refrigerator and AC for Rs. 38800/- in proprietorship concern M/s. Green Leaf for which no interest was paid. Further no interest expenses of Rs. 39,94,965/- has been claimed under the head business & profession. The said interest expenses of Rs. 39,94,965/- pertain to income from other sources and was claimed by the assessee u/s 57 of the IT Act, 1961 against the interest income shown under the head income from other sources. It is also submitted that said entire interest of Rs. 39,94,965/- was paid to the following family members old and running accounts :-

Radha Govind Lashkari HUF (Assessee is Karta in HUF) 23,76,792/- Sunita Devi Garg (Wife of assessee) 13,80,369/- Rimika Lashkari (Daughter of Assessee) 1,64,767/- Kratika Lashkari (Daughter of Assessee) 56,237/- Asha Devi Garg (Sister in Law of assessee) 16,800/- ---------------- Total : 39,94,965/- ----------------

As per above particulars it is verifiable that out of the above said total interest expenses amounting to Rs. 39,94,965/-, a sum of Rs. 37,57,161/- were paid to assessee’s own HUF and his wife Sunita Devi Garg. Confirmation letters of both the loan creditors along with their return of income, balance sheet and Bank statement are enclosed herewith. In this connection it is also submitted that the family

32 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

members loans except Smt. Asha Devi Garg are partly old and partly fresh loans. The facts are evident from the copy of account confirmation that nature of loan accounts are mainly running/current accounts.

Regarding addition to capital account during the course of hearing it was submitted that assessee is a proprietor of M/s. Green Leaf. The capital account in the year has been increased from opening balance of Rs. 17,60,547/- to closing balance of Rs. 10,49,15,623/-. The addition in capital account with proprietary firm M/s. Green Leaf was made by assessee from the amount transferred from his personal bank account. For verification of submission made a copy of his capital account and personal bank statement was duly submitted during the course of assessment proceedings before the ld. AO. Further addition to individual capital account M/s. Radha Govind Lashkari is self explanatory being only addition in capital account is profit of current year. Thus the addition in capital account(s) is fully verifiable.

In view of the above facts as evident and verifiable from the assessment record that the conclusion drawn by your honour that the genuineness of fresh in flow of unsecured loan is not verified is factually not correct. Regarding second observation of addition to capital proprietorship concern M/s. Green Leaf the assessee produced and filed copy of his saving bank account for verification of amount transferred from his SB A/c to proprietary concern. Thus source of investment was not from outside but the transferred from one pocket to another pocket of same persons and the said facts have duly been verified by the ld. AO during the course of assessment proceedings. Thus this observation is also factually not correct.

The assessee further submitted before the ld. Pr.CIT that the AO could not have

travelled beyond inquiry into the increase in capital and interest expenses in view of

33 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

the CBDT Instruction No. 7/2014, 20/2015 and 5/2016 and also the CBDT letter dated 30th November, 2017, and thus asking further details was beyond the purview

of the assessment. The assessee has cited various decisions in support of his claim

viz. CIT vs. Trustees Anupam Charitable Trust (1987) 167 ITR 129 (Raj.), CIT vs.

Godawari Sugar Mills Ltd. (1993) 203 ITR 108 (Bom.), CIT vs. Shakti Charities

(2000) 160 CTR 107 (Mad.), Deccan Paper Mills Co. Ltd. vs. CIT in ITA No. 1013 &

1635/Pun/2015 (Pune Bench), M/s. R.H. Property vs. PCIT in ITA No.

1906/Mum/2019 (Mumbai) and Shri Balvinder Kumar vs. PCIT in ITA No.

485/Del/2020 (Delhi). Further the issue of loan creditor of Rs. 2,59,25,611/- was

not in the limited scrutiny notice. The ld. PCIT after considering the reply of the

assessee had arrived to the conclusion that the AO has failed to consider/apply his

mind to the information available on record with regard to the verification and

examination of the unsecured loans as shown in the Balance sheet filed during the

course of assessment proceedings and failed to verify the increase in capital. The ld.

PCIT has turned down the contentions of the assessee and has gone further to

verify the facts by conducting an enquiry. Accordingly, the order passed by the AO

was set aside with the direction to reframe the assessment denovo after providing

adequate opportunity to the assessee. In our considered view that this exercise of

the ld. PCIT of conducting the enquiry on the same issue which have already been

examined and accepted by the AO and the issue of loan creditor was not there. Thus

the direction issued and to set aside the assessment order passed by the AO is

beyond the powers and scope of section 263 of the IT Act, 1961. We are also of the

view that the ld. PCIT has travelled beyond the scope of proceedings as initiated

vide show cause notice dated 16.03.2021 as the assessee has explained and

34 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

produced the record relating to the interest expenses of Rs. 39,94,965/- claimed by

the assessee under section 57 of the IT Act and increase in capital from opening

balance of Rs. 17,60,547/- to closing balance of Rs. 10,49,15,623/- from assessee’s

personal bank account, then even if the said explanation which was accepted by the

AO was found to be inadequate, the ld. PCIT was required to have decided the issue

conclusively. We find that when the explanation furnished by the assessee on this

issue is satisfactory and the AO has taken a possible view then the ld. PCIT is not

permitted to take a different view merely because the view taken by the AO was not

acceptable to the ld. PCIT. Therefore, the proceedings which are beyond the scope

of the revisional proceedings, are not permissible. In view of the above undisputed

facts and legal position on the issue decided by various courts, and also clarifications

issued by the CBDT by way of various circulars which are binding on the taxing

authorities, we quash the order passed u/s 263 of the IT Act, 1961 by the ld. Pr.CIT.

creditors was not mentioned in limited scrutiny notice. However, it is submitted by

the ld. A/R that during the course of proceedings under section 263 assessee filed

confirmations of the family members along with copies of IT Returns and bank

accounts explaining the addition made in their old loan accounts. It is also submitted

by the ld. A/R that the loans were of the family members and not of outsiders. The

ld. A.R also submitted that it is evident and verifiable from the order passed under

section 263 by the ld. Pr.CIT that no adverse/defect and/or deficiency was pointed

out by the ld. Pr. CIT regarding the said documents filed before him in his impugned

order passed under section 263. Regarding the addition to capital account

amounting to Rs. 11,59,55,000/-. It is further submitted by the ld. A/R that the said

35 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

capital was transferred from his personal bank account, and a copy of bank account

explaining the nature and source of credit which were either withdrawal from the

partnership firm’s capital account or realization from debtors. The said copy of bank

account along with copy of Balance Sheet and other financial statements were duly

produced before the ld. AO and the copy of bank statement and other relevant

supporting documentary evidences were also filed before the ld. Pr. CIT. The ld. A/R

further submitted that the ld. Pr.CIT has also not pointed out any defect or

deficiency in the said documents filed. In view of the above facts duly supported by

documentary evidences available on assessment record, the sources of fresh capital

introduced were duly explained by the assessee and which were after taking possible

view and a considered opinion the ld. AO has correctly accepted as explained.

and also relied on the various judgments cited by the ld. Pr.CIT.

upon by the ld. Pr.CIT are distinguishable on facts of the case which is evident from

the issues discussed and decided in the said case laws.

the case mentioned supra that the case of the assessee was selected for limited

scrutiny and accordingly the ld. AO could not travel beyond his jurisdiction. The AO

after taking into consideration the evidences and documents filed by the assessee

and on examination of the said documents, and on being satisfied himself, accepted

the income returned by the assessee. The ld. Pr. CIT has not mentioned that the AO

has not examined the issues raised in the limited scrutiny show cause notice. We,

therefore, are of the view that the observations made by the ld. Pr. CIT are beyond

36 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur. the points mentioned for limited scrutiny. Thus we find no force in the order of the ld. Pr. CIT which is quashed. 11. In the result, this appeal of the assessee is allowed.

Order pronounced in the open court on 12/04/2022.

Sd/- Sd/- ¼lanhi xkslkbZ½ ¼ jkBkSM+ deys'k t;arHkkbZ ½ (RATHOD KAMLESH JAYANTBHAI ) (SANDEEP GOSAIN) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 12/04/2022. Das/ आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत

37 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.

38 ITA No. 32/JP/2021 Shri Radha Govind Lashkari, Jaipur.