BHAGWANRAM CHIMNARAMJI PRAJAPAT ,HYDERABAD vs. INCOME TAX OFFICER, WARD-11(3), HYDERABAD

(निर्धारण वर्ा/Assessment Year: 2014-15) Bhagwanram Chimnaramji Vs. Income Tax Officer Prajapat Ward-11(3) Hyderabad Hyderabad [PAN :AKBPP6841R] (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri P.Murali Mohan Rao, AR रधजस् व द्वधरध/Revenue by:: Shri K.Meghnath Chowhan, CIT, DR सुिवधई की तधरीख/Date of hearing: 14/11/2024 घोर्णध की तधरीख/Date of 20/11/2024 Pronouncement: आदेश / ORDER PER. MANJUNATHA G., A.M: This appeal filed by the assessee is directed against the order passed by the Principal Commissioner of Income Tax (Ld.PCIT)-5, Hyderabad u/s 263 of the Income tax Act, 1961 (“the Act”) for the A.Y.2014-15 on the following grounds :

1. The order u/s 263 of the Income Of the Income tax Act, 1961 passed by the Ld.Pr.CIT is bad both in law and on facts.

2. The Ld.Pr.CIT erred in initiating proceedings u/s 263 of the Act by holding that the assessment order passed by the AO u/s 143(3) dated 22.07.2016 is erroneous and 2 prejudicial to the interest of revenue, which makes the order u/s 263 as ‘void abinitio’.

3. The Ld.Pr.CIT erred in passing the order u/s 263 of the Act directing the AO to pass the assessment order afresh without considering the facts and circumstances submitted by the assessee.

4. The Ld.Pr.CIT ought to have appreciated the fact that the assessee’s case has been selected for limited scrutiny under CASS and the AO was satisfied by the explanations provided by assessee, as such the assessment was completed u/s 143(3) of the IT Act, 1961 without making any disallowances / additions.

5. The Ld.Pr.CIT ought to have appreciated the fact that on the request of Assessing Officer, the assessee has submitted the confirmation letters from creditors which forms the basic evidence.

7. The Ld.Pr.CIT ought to have appreciated that no higher forum can create satisfaction on AO to impose on an assessee even when he is satisfied and came to conclusion that it is not a fit case for disallowance on the ground of large number of creditors.

3 extract. The Ld.AO after verification of details filed by the assessee, completed the assessment accepting the income declared by the assessee.

4 insofar of the issue of sundry creditors shown in the books of accounts, which is evident from the facts on record, where the Ld.AO has simply accepted the confirmation letters furnished by the assessee, even though the said confirmation letters are not supported by evidences like, transport bill, delivery challans, copy of invoices raised, VAT payment proof etc. The Ld.PCIT further noted that in few cases the appellant has paid cash in excess of Rs.20,000/- to sundry creditors in contravention of provisions of section 40A(3A) of the Act. The Ld.AO without considering relevant facts, simply completed the assessment, which renders the assessment order erroneous insofar as it is prejudicial to the interest of the Revenue. Therefore, set aside the assessment order passed by the Ld.AO u/s 143(3) of the Act dated 22/07/2016 and directed the Ld.AO to redo the assessment as per discussion, after verifying the genuineness of sundry creditors backed by evidences, keeping in view all the provisions of section 41(1) and 40A(3A) of the Act.

6. Ld.Counsel for the assessee submitted that the Ld.PCIT erred in initiating proceedings u/s 263 of the Act by holding that the assessment order passed by the Ld.AO u/s 143(3) of the Act is erroneous and prejudicial to the interest of the Revenue, without appreciating the fact that the sole purpose of taking up the case for assessment is to verify the large amount of sundry creditors and the same has been thoroughly examined by the Ld.AO in light of confirmation letters filed by the assessee. Ld.Counsel for the 5 assessee further submitted that the Ld.PCIT without making out a case of erroneous order passed by the Ld.AO, which caused prejudice to the interest of the Revenue, simply set aside the order for the purpose of further verification of sundry creditors, even though as per Explanation to section 263 of the Act, there is no power to the PCIT to set aside the order on the ground of inadequate enquiry or insufficient enquiry. In this regard, he relied upon the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd Vs. Commissioner of Income Tax [2000] 109 Taxman 66 (SC) and the decision of Hon'ble High Court of Bombay in the case of Commissioner of Income Tax Vs.Development Credit Bank Ltd. [2010] 323 ITR 206 (Bombay).

6 8. We have heard both the parties, perused the material on record and gone through the orders of the authorities below. We have also carefully considered the relevant reasons given by the Ld.PCIT to set aside the order passed by the Ld.AO u/s 143(3) dated 22/07/2016 in terms of provisions of section 263 of the Act. The sole basis for the scrutiny assessment in the present case is to verify large amount of sundry creditors. During the course of assessment proceedings, the Ld.AO called upon the assessee to submit necessary evidences including confirmations from the parties to prove the genuineness of sundry creditors. In response, the assessee has filed confirmation letters from all parties. The Ld.AO after considering relevant confirmation letters filed by the assessee has accepted the explanation with regard to genuineness of sundry creditors and completed the assessment u/s 143(3) of the Act. If we go by the reasons mentioned by the Ld.PCIT to set aside the assessment order u/s 263 of the Act in light of the material available on record, we find that the assessee has filed all evidences in respect of sundry creditors in response to a specific notice from the Ld.AO u/s 142(1) dated 09/05/2016 and 10/06/2016 and proved the creditors with relevant evidences. Therefore, the Ld.PCIT having noticed the fact that the sole basis for the Ld.AO to take up the case for scrutiny to verify sundry creditors and further the Ld.AO has carried out relevant enquiries in light of confirmation letters filed by the assessee, in our considered view, the Ld.PCIT ought not to have invoked his jurisdiction u/s 263 of the Act to set aside the assessment order on the ground that the order passed by the Ld.AO is erroneous and prejudicial to the interest of the Revenue. A reading of the order passed by the Ld.PCIT would show the main objection which 7 the revisional authority expressed against the order of the Ld.AO was the alleged failure of the Ld.AO to examine the genuineness of the sundry creditors claimed by the assessee. From the material on record, it was evident that the assessee in response to a specific query from the Ld.AO supplied the details of sundry creditors and the explanation of the assessee in that connection was accepted by the Ld.AO and came to a conclusion that the sundry creditors shown in the books of accounts is genuine which are supported by necessary evidences. Therefore, in our considered view, there was no basis or justification for the Ld.PCIT to invoke the provisions of section 263 of the Act, unless he makes out a case that the assessment order passed by the Ld.AO is erroneous insofar as it is prejudicial to the interest of the Revenue.

10 that the High Court was justified in concluding that the said amount was a taxable receipt under the head ‘Income from other sources.’ 11. The assessee had also relied upon the decision of Hon'ble High Court of Bombay in the case of CIT Vs. Development Credit Bank Ltd. (supra). Hon'ble High Court of Bombay has considered identical issue in light of revisionary powers of the Commissioner u/s 263 of the Act and held as under :

“A reading of the order passed by the Commissioner would show that the principal objection which the revisional authority expressed against the order of the Assessing Officer was an alleged failure of the Assessing Officer to examine: firstly, whether the capital gain had been earned by the assessee on transactions relating to investments ‘held to maturity’; and secondly, whether the depreciation was claimed on investments which were held as stock-in-trade. From the material on record, it was evident that the assessee, in response to a specific query of the Assessing Officer, supplied details of the long-term investments held for a period in excess of one year which the assessee treated as investments held to maturity. The profit on those investments was computed at Rs.1.26 crores. Insofar as the aspect of depreciation on investments held as stock-in-trade was concerned, the assessee had similarly supplied details of the current investments in response to the query of the Assessing Officer. The explanation of the assessee in that connection was accepted and the Assessing Officer came to the conclusion that depreciation had been claimed towards investments held and classified as stock-in-trade. There was no basis or justification for the Commissioner to invoke the provisions of section 263. In the order of the assessment, the Assessing Officer had after making an enquiry and eliciting a response from the assessee, came to the conclusion that the assessee was entitled to depreciation on the value of securities held in the trading account. In the absence of any tangible material to the contrary, the Commissioner could not have treated that finding to be erroneous or to be prejudicial to the interest of the revenue. The observation of the Commissioner that the Assessing Officer had arrived at his findings without conducting an enquiry was erroneous, since an enquiry was specifically held with reference to which a 11 disclosure of details was called for by the Assessing Officer and made by the assessee. In those circumstances, the Tribunal was justified in coming to the conclusion that recourse to the powers under section 263 was not warranted in the facts and circumstances of the case.[Para 8]”

Order pronounced in the Open Court on 20th November, 2024.