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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: Ms. MADHUMITA ROY & SHRI BHAGIRATH MAL BIYANI
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the assessee is directed against the order dated 19.03.2019 passed by the Ld. Principal Commissioner of Income Tax-1, Bhopal (in short ‘PCIT’) under Section 263 of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’), arising out of the order dated 19.08.2016 passed by the ITO-2(5), Bhopal under section 143(3) of the Act for Assessment Year 2014-15.
The brief facts leading to this case is this that the assessee filed his return of income for A.Y. 2014-15 on 26.09.2014 declaring total income at Rs.14,59,590/- and agricultural income at Rs.18,50,000/-. The source of income of the assessee was salary from the firm, interest income and
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 2 - agricultural income. The case was selected for scrutiny under CASS. The scrutiny assessment was completed under Section 143(3) of the Act on 19.08.2016 accepting the return filed by the assessee.
It appears from the records that on 31.08.2015, the ITO-2(1), Bhopal, issued notice under Section 143(2) of the Act, which was duly served upon the assessee followed by the notices under Section 142(1) of the Act alongwith questionnaire issued on 15.10.2015. Different queries were raised by the ITO time-to-time had been duly replied by the assessee alongwith the details in support of the contention made by the assessee like Form No.26AS, computation of income, bank statement, details of sales on agricultural land, the land records lying with the Government Department and agreement entered into by the assessee and by agriculturists for performing agricultural activities on the land in question dated 15.06.2010 which was admittedly effective up to 15.06.2014 etc. In fact, the assessee during the course of assessment proceeding made a representation dated 03.08.2016 enclosing the entire set of documents and upon verification and examination of those documents, the assessment order was finalised accepting the return filed by the assessee.
Subsequently, a notice under Section 263 of the Act dated 19.03.2019 was issued by the Chief Commissioner of Income Tax and PCIT-1, Bhopal proposing reopening of assessment invoking the powers vested under Section 263 of the Act. The contents of the said notice dated 12.03.2019 is as follows:
“Please refer to the assessment order u/s 143(3) of Income Tax Act, 1961 dated 19.08.2016 passed by ITO-2(5), Bhopal for A.Y. 2014-15. On perusal of the assessment order and case record it is noticed that the Assessee had shown agriculture income at Rs.18,50,000/-. During the course of
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 3 - assessment proceedings the AO has verified the agricultural income on the basis of "Bhoo Adhikar and Rin Pustika" and copies of lease agreement and accepted the agricultural income shown by the assessee. During the assessment proceedings the assessee has not given any sale receipt of agriculture produce. There was no details regarding name of crops and evidence of agricultural operations. Therefore the assessee 's involvement in agriculture operation is doubtful. So the agriculture operation is doubtful. So the agriculture income of the assessee is required to be assessed as income from other sources. Keeping in view of the above, the assessment order passed by the Assessing Officer is considered to be erroneous in so far as it is prejudicial to the interest of revenue, and therefore, I, propose to invoke powers vested u/s 263 of the Income Tax Act, 1961 in respect of the order referred to .above. You are hereby given an opportunity of being heard as per section 263 (1) of the Income Tax Act to present yourself in person or through an authorized representative on 19.03.2019 at 11:30 AM to explain your case. In case, no reply is received by stipulated date, it will be presumed that you have nothing to say in the matter and a decision will be taken on the basis of records available in this office. A soft copy of reply should also be furnished.”
The contention of the Ld.PCIT is this that the evidence in regard to the agricultural produce has not been handed over to the concerned ITO during the course of assessment proceeding and therefore, the agricultural operation remained doubtful. On this premise, he has considered the assessment order passed by the Ld.AO is erroneous in so far as prejudicial to the interest of the Revenue.
In response to the said notice dated 12.03.2019, the assessee duly submitted his written notes of submission on 19.03.2019 before the Ld. PCIT placing this particular fact of query raised regarding explanation of agricultural income shown by the assessee for the year under consideration were duly submitted before the Ld. AO. In support of this contention made by the assessee, a written submission filed before the Ld. AO., during the course of assessment proceeding was also again enclosed to that reply dated 19.03.2019 before the Ld. PCIT and in that view of the matter, the Ld. AO had passed an order upon due application of mind and the same cannot be treated as erroneous as of the ultimate prayer of the assessee
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 4 - made before the PCIT on 19.03.2019 which is appearing at page 2 of the paper book filed before us. The contents whereof is as follows:
“The assesses, has received notice dt.12-03-2019 u/s 263. In the above said notice it is mentioned that, your honour after perusing the records, have found that, at the time of passing order u/5 143(3) on 19-08-2016 in the case of the assessee for the assmt. Year 2014-15, the A.O. did not verify the sale receipts with regard to the agriculture income shown by the assessee. In the above matter, it is submitted that, before invoking the provisions of section 263 the twin conditions required to be satisfied that, the order should be erroneous as well as it should be prejudicial to the interest of the revenue. In this regard, it is submitted that during the course of assessment proceedings for the assmt. Year 2014-15, written submission of the notice u/s 142(1) issued by the department, was submitted by the assessee, in response to which the LD. A.O. had raised further query regarding explanation of agriculture income shown by the assessee. The assessee duly submitted all the details regarding agriculture income shown by the assessee for the assmt. Year - 2014-l5. The photocopy of the written submission filed before the A.O. is enclosed herewith for your reference. In the instant case of the assessee, it may be appreciated that the order passed u/s 143(3) dtd. 19-08-2016 by the A.O" was after proper application of mind therefore, the same may not be treated as erroneous. It may be clear from the above facts that the A.O. after proper application of mind accepted the agriculture income as shown by the assessee. It is further submitted that, the assessee has received one more notice from the office of the Income Tax Officer - (5) dtd. 31-03-2018 after almost 19 months from the date of order passed u/s 143(3) for verification of the agriculture receipts. The A.O. specifically raised the query and requested the assessee to produce details of agriculture produce sale receipt of mandi samiti and khasra khatounee in response to agriculture income shown by the assessee. The assessee furnished all the details before the A.O. and being satisfied by the same the A.O. accepted the same and no further information was called from the assessee with respect to the agriculture income shown by him. The photocopy of the notice is enclosed herewith. Therefore, in view of the above, it is requested that the action u/s 263 may kindly not be initiated against the assessee. It is further requested that in this regards, if your goodselves require any further details, the assessee may kindly be given opportunity of being heard before taking any adverse action.”
However, the submission made by the assessee was not found to be acceptable and finally with a finding that the assessment order is erroneous and prejudicial to the interest of the Revenue, the issue has been set aside to the file of Ld.AO for re-examining the same upon affording the opportunity of being heard to the assessee.
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 5 - 7. Being aggrieved by and / or dissatisfied with the order passed by the Ld. PCIT dated 19.03.2019, the assessee has come up in appeal before us.
We have heard the rival submissions made by the respective parties. We have also perused the relevant materials available on record.
8.1 The assessee on 03.08.2016 filed reply before the Ld. AO annexed at page 10 of the paper book filed before us.
8.2 It appears that before the Ld. AO on 03.08.2016, the assessee made a detailed submission wherein the complete details of agricultural income to the tune of Rs.18,50,000/- as shown in the returned income has been provided. The assessee further stated this particular fact that the income was earned by carrying out agricultural activities on the land owned by the assessee as well as the land taken on lease from other parties. The area of land owned by the assessee and the area of land taken on lease from other land owners including the Private Limited Company, namely, Steel Innovation P. Ltd. where the assessee is one of the Directors also known to the Ld. AO. Apart from that the assessee was cultivating land of company of 15 Acres, located at Village Kanpura and Hinotia, without any lease payment to them. The crops, mainly, soyabean, chana, wheat, corn, white musli Barseem (Cattle feed) etc. were grown on the different pieces of land for the year under consideration were also placed before the ITO. In fact, it appears from the above submission dated 03.08.2016, the assessee did his best to satisfy the Revenue authorities of performing agricultural activities on the piece of land owned by him or lease hold land and taken from other land owners and also the income earned by the assessee, out of such agricultural activity performed by the assessee. As it appears from the above documents and other documents available before us being part of the
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 6 - paper book filed by the assessee shows that the crop details i.e. soyabean, chana, wheat, corn, white musli Barseem and land details whether it is fully irrigated, fertile and known for its fertility and high yields. The assessee produced the receipts of sales of agricultural produce including Mandi Committee bills specifically appeared at page nos. 13 to 27 of the Paper Book. The 100 Acres of land taken by assessee on lease, the agreement whereof appearing at page Nos. 40 to 47 of the paper book and further the self occupied land being 44 Acres as purchased by the assessee with the purchase deed appearing at 48 to 98 of the paper book establishes the fact of onus cast upon the assessee has been discharged satisfactorily, the claim of exemption of agricultural income made by the assessee has been substantially proved with corroborative evidence before the ITO upon examination of which only the ITO has accepted the return filed by the assessee completing the assessment under Section 143(3) of the Act.
8.3 We have carefully considered these documents and we do not find any iota of doubt in respect of submission of all these documents before the Ld.AO and further examination of the same by the Ld.AO which is reflecting from paragraph 2 & 3 of assessment order.
8.4 Under these circumstances, we need to examine the maintainability of the proceedings under Section 263 of the Act, the statutory provision exercised by the Ld.PCIT in interfering with the order passed by the Ld.AO. In fact, it is to be examined under this particular facts and circumstances of the case whether the order passed by the Ld.AO can be interfered with by the revisional power of the Commissioner of the Income Tax unless the said order is found to be really erroneous and prejudicial to the interest of the Revenue.
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 7 - 8.5 The phrase “prejudicial to the interest of the Revenue” has to be read in conjunction with an erroneous order passed by the Ld. AO. Moreso, every order of Revenue cannot be treated as prejudicial to the interest of the Revenue as a consequence of an order of the Ld.AO. Apart from that 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 or prejudicial to the interest of the Revenue unless the view taken by the ITO is unsustainable in law. On this ground, the Ld. A.R. has relied upon the judgment passed by the Hon’ble High Court of Gujarat in the case of CIT vs. Nirma Chemicals Works Pvt. Ltd. Reported in (2009) 182 taxman 183 (Gujarat). It was further argued by him that upon considering the entire documents, and upon examining different memos issued by different authorities clarifying the distance of the land and upon exhaustive enquiry, the Ld. AO has finalized the assessment accepting the return filed by the assessee which is evident from the assessment order itself and also from the noting made the Ld. AO in the regular order sheet entries, the same cannot be interfered with by the Ld. PCIT. On the contrary, the Revenue pointed out that the same is not reflecting from the order passed by the Ld.AO. In reply, it was submitted by the assessee’s Counsel that the assessment order cannot give detailed reasons in respect of each and every item of deduction, which would cause impossible burden on the AO. On this count, he has further relied upon the judgment passed by the Hon’ble High Court of Gujarat in the case of CIT vs. Kamal Galani, reported in (2018) 95 taxmann.com 261 (Gujarat) and CIT vs. Nirma Chemicals Works (P.) Ltd., reported in [2009] 309 ITR 67 (Guj.), wherein Hon’ble High Court held as under:
“22. The contention on behalf of the revenue that the assessment border does not reflect any application of mind as to the eligibility or otherwise under section 80-1 of the Act requires to be noted to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it does so, an
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 8 - assessment order would cease to be an order and become an epic some. The reasons are not far to seek. Firstly, it would cast an almost impossible burden on the Assessing Officer, considering the workload that he carries and the period of limitation within which an order is required to be made; and, secondly, the order is an appealable order. An appeal lies, would be filed, only against disallowances which an assessee feels aggrieved with. 23. As far as absence of discussion in the assessment order is concerned, this is what has been laid down by this court in the case of Rayon Silk Mills v. CIT [1996] 221 ITR 155 :— "In the first instance it was contended by learned counsel for the assessee that the very premise on which order under section 263 was made against the assessee, namely, that the Income-tax Officer has not at all examined the goodwill account is not existent. According to him, it is apparent from the record that the goodwill account was thoroughly examined by the Income- tax Officer before making the assessment and after examining when he accepted the contention of the assessee its discussion did not find place in the assessment order, as no additions were going to be made or no modifications in the return filed by the assessee were required to be made in that regard. This contention of the assessee appears to be well-founded. It is true that the assessment order does not speak about the examination of goodwill account as such. However, as we have noticed above, the assessee in his reply to the show-cause notice under section 263 had specifically mentioned that the entire matter was scrutinised and accepted while passing the assessment order. Our attention was also drawn to annexure 'D’. A submission made by the assessee to the Income-tax Officer, Surat, dated 18- 10-1976, regarding the assessment year 1974-75 giving detailed chronological data of the constitution of the firm on November 11, 1968, induction of four more partners on 7-11-1972, the creation of goodwill in the books of account of the firm by debiting the goodwill account and crediting the old partners' capital accounts in their profit sharing ratio on that date, formation of a private limited company in the name of Rayon Silk Mills (P.) Ltd., and its induction into the firm as partner by the deed of partnership dated 27-10-1973, and the dissolution of the partnership firm on 23-2-1974, leaving the private limited company as a sole proprietor thereof and the valuation of the business at the book value as on that date. After giving the chronological sequence of events, the assessee also contended in his submission before the Income-tax Officer that there was no actual transfer of any asset inasmuch as when a partner is admitted into the firm no transfer takes place. It was also contended that no cash transfer took place from person to person and the transfer and the dissolution of the firm also did not result in accrual of capital gains. In the face of this material on record, it is difficult to explain that the assessment order was made without making any enquiry into the goodwill account of Rs. 10,75,000. . . ." (p. 158)
[Except the fact to be pleaded separately in this particular paragraph]
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 9 - 8.6 So far as the jurisdiction of the Ld.PCIT under Section 263 of the Act is concerned, we have carefully considered the judgment relied upon by the assessee in the case of CIT vs. Nirma Chemicals Works (P.) Ltd. (supra). We find, while holding the Tribunal committed an error in upholding the exercise of powers under section 263 of the Act by the Ld. CIT(A) to be valid in the facts and circumstances of the case, the Hon’ble Court has been pleased to observe as follows:
“24. There is another aspect of the matter. The assessee had challenged jurisdiction of the Commissioner of Income-tax to exercise powers under section 263 of the Act. For an order of the Assessing Officer to be interfered with in exercise of revisional powers the Commissioner of Income-tax has to find in the first instance that the order is erroneous and, secondly, the order is prejudicial to the interests of the revenue. The conditions are twin condition's as held by the Apex Court and both of them have to be fulfilled before the Commissioner of Income-tax can exercise jurisdiction under section 263 of the Act. In the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 the Apex Court has held (headnote) : "The phrase 'prejudicial to the interests of the revenue1 has to be read in conjunction with an erroneous order passed by the Assessing Officer. 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 Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer 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 Income-tax Officer is unsustainable in law."
Applying the aforesaid tests to the facts of the case it is not possible to uphold the order of the Tribunal as regards jurisdiction after considering the law enunciated by the Apex Court. The Assessing Officer after making due inquiries, as noted hereinbefore, adopted one view and granted partial relief under section 80-1 of the Act. The Commissioner of Income-tax takes a different view of the matter. However, that would not be sufficient to permit the Commissioner of Income-tax to exercise powers under section 263 of the Act because when two views are possible and the Commissioner of Income-tax does not agree with the view taken by the Assessing Officer, the assessment order cannot be treated as erroneous and prejudicial to the interests of the revenue unless the view taken by the Assessing Officer is unsustainable in law. That is not the position in the present case. In fact even the partial denial of relief under section 80-1 of the Act has been found to be incorrect by the appellate authority. Therefore, existence of two views stands established. In the aforesaid circumstances, the Commissioner of Income-tax could not have exercised jurisdiction under section 263 of the Act as per settled legal position.
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 10 - 26. The view expressed by this court in the case of Shashi Theatre (P.) Ltd. (supra), therefore, is in consonance with not only the requirement of law but concludes the issue insofar as the present case is concerned. Just as it is not possible to decide grant of investment allowance in relation to one or the other item without considering the eligibility thereof, similarly deduction under section 80-1 of the Act cannot be considered without deciding whether a particular portion of profits and gains has been derived from an industrial undertaking which fulfils the requisite conditions stipulated by the section. 27. In the aforesaid set of facts and circumstances of the case and the view that the court has adopted, it is not necessary to enter into any discussion as regards merits of the controversy which has been brought before this court by the other questions at the instance of the assessee and the question at the instance of the revenue. The reference is answered accordingly by holding that the Tribunal committed an error in upholding the exercise of powers under section 263 of the Act by the Commissioner of Income-tax to be valid in the facts and circumstances of the case, when not only was there a prohibition as stipulated by Explanation (c) of section 263 of the Act but even the twin requirements, viz., pre-conditions for exercise of jurisdiction under section 263 of the Act were not fulfilled. 28. The reference stands disposed of accordingly. There shall be no order as to costs.”
8.7 Regarding introduction of Explanation 2 to section 263, as claimed by Ld.PCIT in his order, we only need to submit that the present case involves AY 2014-15 and the said amendment introduced through Finance Act, 2015 w.e.f. 01.06.2015 is interpreted to be applicable prospectively and not to A.Y. 2014-15. Hence in the first blush, Explanation 2 is not applicable to present case. Even otherwise, it is also held in several decisions that the said Explanation does not give unlettered power to the PC1T to assume revisional-jurisdiction to revise every order of the Assessing Officer to re-examine the issues already examined during assessment-proceeding. It is judicially interpreted in several decisions that the intention of legislature behind introduction of Explanation 2 could not have been to enable the PCIT to find fault with each and every assessment- order in unlimited terms, since such an interpretation would lead to unending litigation and there would not be any point of finality of assessment-proceeding done by Ld. AO.
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 11 - 8.8 At this stage, we refer a recent decision of ITAT, Rajkot in M/s Pramukh Realty, Junagadh, ITA No. 93/Rjt/2022 dated 30.06.2022, where the Hon'ble Bench has extensively dealt a similar case where (i) the assessee had filed details / documents to Assessing Officer during assessment-proceeding; (ii) the AO had considered the same and passed assessment-order thereafter; (iii) Ld. PCIT has made revision invoking Explanation 2 to Section 263 of the Act. After a thorough analysis, the Hon'ble Bench has held that in such circumstances, revision u/s 263 of the Act cannot be done. The relevant paragraphs of the decision are reproduced below:
"5. The learned AR before us filed a paper hook running from pages 1 to 157 and contended that all the necessary details about the advances received from the parties, sales shown in the financial statement and details of the service tax returns were filed during the assessment proceedings. The learned AR further contended that the assessment was framed by the AO after considering the, necessary details and verification and application of mind. The learned AR in support of his contention drew our attention on pages 151 to 153 of the paper hook where the copy of the notice under section 142(1) of the Act was placed. Likewise, the learned AR also drew our attention on pages 154 to 157 of the paper book where the reply of the assessee in response to the notice issued under section 142(1) of the Act was placed. Thus, the learned AR contended that there cannot he said that the assessment order is erroneous and causing prejudice to the interest of Revenue in the given facts and circumstances on account non-verification. 6. On the contrary, the learned DR before us contended that reconciliation of the amount shown in the service tax return and financial statement was not available before the AO during the assessment proceedings. Accordingly the learned DR vehemently supported the order of the learned PCIT. 7. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether the assessment order has been passed by AO without making inquiries or verification with respect to the difference in the figures as discussed above and hence the assessment is erroneous insofar prejudicial to the interest of the Revenue. Thus, requiring revision by Pr. CIT u/s 263 of the Act. 7.1 An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer’s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 12 - under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various Hon’ble High Courts in this regard.
7.2 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. The relevant observation of Hon’ble Delhi High Court reads as under:
“12. …. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open.———
From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income- tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed.
Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 13 - Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.”
7.3 The Hon’ble Bombay High Court in case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the following manner:
“The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity.
7.4 The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words:-
“20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provison shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the 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. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.”
7.5 The Hon’ble Supreme Court in recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates*[2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revised order after making addition to assessee's income under section 69A in respect of on-money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 14 - such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revised order under section 263 on ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed by Commissioner. The Hon’ble High Court upheld Tribunal's order. The Hon’ble Supreme Court while dismissing the SLP filed by the Department held as under:-
“We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed”
7.6 The Supreme Court in the another recent case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd[2020] 114 taxmann.com 545 (SC), dismissed the Revenue’s SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations:
“Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The Assessing Officer has taken a plausible view. More importantly, if the Commissioner was of the opinion that on the available facts from record it could be conclusively held that income arose from other sources, he could and ought to have so held in the order of revision. There was simply no necessity to remand the proceedings to the Assessing Officer when no further inquiries were called for or directed”
7.7 From an analysis of the above judicial precedents, the principle which emerges is that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. 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 Assessing Officer adopts one of the course permissible in law and it has resulted in loss of revenue; or where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax does not agree, it cannot be treated as an erroneous order causing prejudice to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law, or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind.
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 15 - 7.8 Now in the facts before us, in the case of the assessee the AO during the course of assessment proceedings, made enquiries on this issue and after consideration of written submissions filed by the assessee and documents / evidence placed on record, framed the assessment under section 143(3) of the Act without making the addition of the amount as note above. This fact can be verified from the notice under section 142(1) of the Act by the AO and submission in reply of the assessee against such notice. XXXX 7.9 From the above it is revealed that it is not the case that the AO has not made any enquiry. Indeed the Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of cash deposited during the demonization period. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the AO had made enquiries and after consideration of materials placed on record accepted the genuineness of the claim of the assessee. 7.10 At this juncture, it is also important to note that the learned PCIT in his order passed under section 263 of the Act has made reference to the explanation 2 of section 263 of the Act. It was attempted by the learned PCIT to hold that there were certain necessary enquiries which should have been made by the AO during the assessment proceedings but not conducted by him. Therefore, on this reasoning the order of the AO is also erroneous insofar prejudicial to the interest of revenue. In this regard, we make our observation that the learned PCIT has also not specified the nature and the manner in which the enquiries which should have been conducted by the AO in the assessment proceedings. Thus, in the absence of any specific finding of the learned PCIT with respect to the enquiries which should have been made, we are not convinced by his order passed under section 263 of the Act.”
8.9 We are in respectful agreement with the aforesaid decision of Hon’ble ITAT which is on the similar set of facts and law as in the present appeal. Therefore, we too hold that the revision order passed in present case by Ld. PCIT is not a valid order in terms of Section 263 of the Act.
8.10 Thus, considering the entire aspects of the matter, we find that when the original assessment order has been passed under Section 143(3) of the Act by the Ld.AO after due verification of the same issue as raised in the order impugned passed under Section 263 of the Act and that too upon causing exhaustive enquiry and finalising the same after taking a possible view, the invocation of provision of Section 263 of the Act on the basis of
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 16 - change of opinion is, thus, not found to be sustainable. We have also found substance in the arguments advanced by the Ld. AR that the original order needs not to give detailed reason. Further that, when one possible view has been taken by the Ld.AO the said cannot be treated as erroneous and prejudicial to the interest of the Revenue. In this regard, we are also inspired by the ratio laid down by the Hon’ble Gujarat High Court in the judgment passed in the matter of CIT vs. Nirma Chemicals Works (P.) Ltd. (supra) and CIT vs. Kamal Galani (supra). Under this circumstance, we find the order passed by the Ld. PCIT under Section 263 of the Act is not sustainable and thus quashed.
In the result, assessee’s appeal is allowed.
This Order pronounced on 24 /11/2022
Sd/- Sd/- (BHAGIRATH MAL BIYANI) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore; Dated 24 /11/2022 S. K. Sinha, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, / DR, ITAT, Indore 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,
(Sr. Private Secretary) ITAT, Indore
ITA No. 561/Ind/2019 (Shri Prashant Agrawal vs.Pr.CIT) Asst.Year.– 2014-15 - 17 -
1.Date of dictation on 15.11.2022 2.Date on which the typed draft is placed before the Dictating Member 17.11.2022 3.Date on which the approved draft comes to the Sr.P.S./P.S. 4.Date on which the fair order is placed before the Dictating Member for pronouncement 5.Date on which the fair order comes back to the Sr.P.S./P.S 6.Date on which the file goes to the Bench Clerk 7.Date on which the file goes to the Head Clerk…………. 8.The date on which the file goes to the Asstt. Registrar for signature on the order…………………… 9.Date of Despatch of the Order………Date on which the typed draft is placed before the Dictating Member 19.12.2019 1. Other Member………………Date on which the approved draft comes to