SONAL SANDEEP SATAV,PUNE vs. PCIT, PUNE-2, PUNE

The assessee has raised the following solitary ground of appeal :- “1. Under the facts and circumstances of the case and in law, Ld. Principal Commissioner of Income Tax, is erred in setting aside the Assessment Order u/s 143(3) dated 13th April, 2021 issued by Ld. Assessing Officer.”

Briefly stated, the assessee is an individual engaged in the business of transportation of cement of Laxmi Cement Ltd. She e-filed her return of income for AY 2018-19 on 13.10.2018 declaring income at Rs. Nil and claiming carry forward of business loss of Rs.1,06,15,157/-. The case was selected for scrutiny under the E-assessment Scheme, 2019 on the following issues-(i) non-furnishing of quantitative details; (ii) securities (derivative) transaction; (iii) unsecured loans; (iv) business expenses; and (v) securities transaction.

Details of Unsecured Loan Unsecured Loan reflected in Balance Sheet of Rs.2,95,25,561/- is received from Mr. Sandeep Satav having Pan BKAPS6883E. Sandeep Satav is my husband. Opening Balance: 75,99,000/- Additions: 3,37,65,561/- Repayment: 1,18,39,000/- Closing Balance: 2,95,25,561/- Purpose of Loan: For trading in shares, Futures & Options Rate of Interest, TDS: As loan is taken from Husband, no interest is paid. ITR of Last 3 years: Attached Herewith."

Now, if the order dated 23/12/2009 made by the AO is perused, we find merit in the contention of Ms. Linhares that there was no consideration whatsoever of the information provided by the Assessee in the context of its claim for deduction under section 10B of the IT Act. The assessment order dated 23/12/2009 indicates that the AO has not even considered, much less, applied his mind to such information before allowing the deduction under section 10B of the IT Act. On perusal of the assessment order dated 23/12/2009, an impression is created that the AO proceeded on the basis that such deduction was allowable without considering whether the same was actually allowable at all in the context of the various prerequisites provided in Section 10B of the IT Act.

Analysis of the assessment order dated 23/12/2009 indicates that in its first three paragraphs, there is a reference to the nature of business undertaken by the Assessee and reference of the case of the Assessee under section 92CA of the IT Act to the Transfer Pricing Officer for determination of arm's length price in respect of international transactions reported for the relevant assessment year. Then paragraph 4, along with its sub paragraphs 4.1 to 47 deal with disallowance under section 40(a)(ia) in the context of commission exceeding Re. 18.00 crore paid by the Assessee during the relevant assessment year, even though the TDS on the commission paint was negligible. Paragraph 5 deals with the expenditure incurred fowants research and development Paragraph 6 deals with the issue of depreciation on UPS. Finally, paragraph 7 deals with computation on the basis of the opinion in paragraphs 4.5 and 6. Thus, on the issue of deduction under section 100 of the IT Act, there is absolutely no consideration and yet, the AO has allowed such deduction. This is, according to us, is a case of ho consideration' as opposed to mere inadequate consideration. This is, acconting to us, a clear case of non- application of mind to the material on record, without even going into the issue whether the material supplied by the Assessee was adequate or inadequate to determine its claim for deduction under section 108 of the IT Act. in such a situation, the exercise of revision jurisdiction by the CIT under section 263 of the IT Act, cannot be said to be prohibited even based upon the decisions relied upon by Mr. Pardiwalla, the learned Counsel for the Assessee in this matter.

In Vodafone Essar South Ltd. (supra), Delhi High Court has held that if there is some inquiry by the AO in the original proceedings, even if inadequate that cannot clothe the Commissioner with jurisdiction under section 263 of the IT Act merely because he has formed another opinion in the matter. This decision is basically an authority for the proposition that revision powers under section 263 of the IT Act cannot be exercised merely because the Commissioner may have formed another opinion in the matter. This decision is also an authority for the proposition that revision jurisdiction is not to be exercised merely because the Commissioner is of the opinion that the inquiries made by the AO were inadequate.

In the present case, however, whatever status of the queries, it is apparent that the AO did not even bother to look into or consider the information provided by the Assessee in the context of the claim for deduction under section 10 of the IT Act. Therefore, this is not a case of some inadequate inquiries. This is a case of no inquines. This is a case of non-consideration and consequently, non- application of mind to the material on record.

In Malabar Industrial Co Ltd. (supra), the Hon'ble Supreme Court has held that the revision jurisdiction under section 263 of the IT Act cannot be Invoked to correct each and every type of mistake or error committed by the AG. It is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. Further, where the AO adopts one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO 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 AO is unsustainable in law.

Further, the Hon'ble Supreme Court noted that the AO in the case before it, passed the order of nil assessment without application of mind. The Court also recorded a finding that the AO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. The AO in the said case, accepted an entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. The Hon'ble Apex Court then held that on these facts, the conclusion that the order of the AO was erroneous was irresistible. Therefore, the High Court had rightly upheld that the exercise of the jurisdiction by the Commissioner under section 263(1) of the IT Act.

This decision, according to us, assists the case of the Revenue, since, in the present case as well, there was no inquiry by the AO on the issue of fulfillment of requirements under section 108 of the IT Act. The mere seeking of information but thereafter, not even looking into the same is not the same thing as inquiring into the matter. Further, the AO has to consider the information so furnished and after applying the mind, arrive at a decision one way or the other on the issue before him.

In Gabriel India Ltd. (supra), this Court has held that the decision of the AO cannot be regarded as erroneous simply because the AO did not make an elaborate discussion in the order. In our case, as noted earlier, there is no discussion whatsoever, much less any inadequate discussion. Moreover, in Gabriel India Ltd. (supra), the Commissioner after initiating proceedings for revision, could not himself say that the allowance of the claim of the Assessee was erroneous and that the expenditure was not revenue expenditure, but an expenditure of capital nature. It is in these circumstances that the exercise of revision jurisdiction was interfered with by this Court.

In CIT v. Nirav Modi [2016] 71 taxmann.com 272/241 Taxman 255/[2017] 390 ITR 292 (Bom.), this Court noted that the AO had not only made detailed inquiries, but recorded a finding that the Assessee had duly proved the identity, source and creditworthiness of donors. In these circumstances, the Court held that if two views are possible and the AO has taken one of the possible views, no occasion to exercise powers of revision can arise. In this case, this Court has also observed that power of revision can be exercised only where there was no inquiry as required under law and not where inquiry was held and the same was inadequate. ……………….. ……………….. 45. In a case of this nature, it is not sufficient that the AO merely raises queries or poses questions. If such queries are answered, it is the duty of the AO to consider such answers and based thereon, to take further steps to arrive at a reasoned decision. Perusal of the impugned order does not indicate that the AO has even adverted to, much less, considered the responses filed by the Assessee. There is not even finding in the assessment order that the Assessee was entitled to deduction under section 10B of the IT Act on account of the answers furnished by the Assessee to the queries raised by the AO. In respect of such order, the CIT was entitled to exercise the revision jurisdiction since the order is both, erroneous as well as prejudicial to the interests of the Revenue. 46. Ms. Linhares has quite correctly relied upon Rampyari Devi Saraogi (supra), in which the Hon'ble Supreme Court has held that the Commissioner can regard the AO's order as erroneous on the ground, that in the circumstances of the case, the AO should have made further inquiries before accepting the statement made by the Assessee in his rectum. Besides, the Hon'ble Supreme Court, in the facts of the said case, held that the Assessee had not suffered in any way from the failure of the Commissioner to indicate results of inquiries since, the Assessee would have full opportunity of showing the AO whether he has jurisdiction or not, and whether the income assessed in the assessment orders which were originally passed was correct or not."

It is against the direction of the Ld. PCIT to the Ld. AO to revise the impugned assessment order in the light of the aforesaid discussion that the assessee is in appeal before the Tribunal and the solitary ground raised by the assessee relates thereto.

The Ld. AR submitted that the impugned assessment order is neither erroneous nor prejudicial to the interest of the Revenue. He submitted that initiation of revision proceedings by the Ld. PCIT is not contested by the assessee. The grievance of the assessee is that the Ld. PCIT passed the impugned order without considering the additional evidence/details filed by the assessee during the revisionary proceedings before him. The Ld. AR argued that the Ld. PCIT ought to have considered the additional documents/details filed. The Ld. AR then took us through the assessment order and pointed out that the Ld. AO has clearly mentioned in his order that the details and evidences furnished by the assessee have been duly examined by him. The Ld. AR further reiterated the arguments taken before the Ld. PCIT and submitted that it may be the case of inadequate enquiry by the Ld. AO but not lack of enquiry or non-enquiry. He submitted that the identity of the lender was duly proved before the Ld. AO as also the genuineness of the loan transaction which is evident from the tax audit report for AY 2018-19 uploaded by the assessee on ITBA portal showing the details of loan taken by the assessee from Mr. Sandeep Satav and repayment of the same. He further submitted that the movement of loan i.e. the opening balance, addition, repayment and closing balance was also explained before the Ld. AO. He emphasized that the assessee filed additional documents in support of her claim before the Ld. PCIT which establishes the genuineness of the transaction and creditworthiness of the lender Mr. Sandeep Satav. If the Ld. PCIT was of the view that the assessment order was erroneous, instead of remitting the impugned issue back to the Ld. AO for framing fresh assessment, he should have made the enquiry himself considering the additional details/documents filed by the assessee before him. He, therefore pleaded that the Ld. PCIT was not justified in invoking his revisionary powers u/s 263 of the Act and remitting the impugned issue back to the file of the Ld. AO for fresh assessment thereon. In support of his arguments, the Ld. AR filed a legal compilation comprising of the following decisions : i. Bagsu Devi Bafna Vs. Commissioner of Income Tax & Ors. (1966) 62 ITR 506 (Cal.); ii. Commissioner of Income Tax Vs. Gabriel India Ltd. (1993) 203 ITR 108 (Bom.); iii. Commissioner of Income Tax Vs. Trustees Anupam Charitable Trust (1987) 167 ITR 129 (Raj.).

The Ld. DR referred to the relevant paras of the assessment order and pointed out that the Ld. AO has passed the assessment order without carrying out necessary enquiry/verification in relation to the issues (including unsecured loans) for which the case of the assessee was selected for scrutiny through CASS under the E-Assessment Scheme. With regard to the impugned issue of unsecured loans of Rs.3,37,65,561/-, the Ld. DR argued that the assessee failed to prove the genuineness of the transaction as well as the creditworthiness of the lender by filing the relevant details/documents before the Ld. AO. The assessment order is cryptic. The Ld. AO has accepted the claim of the assessee on the face of it without probing any enquiry thereto. This indicates non-application of mind by the Ld. AO. In support of his arguments, he submitted a legal compilation comprising of the following cases : i. Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax (2000) 243 ITR 83 (SC); ii. Sesa Starlite Ltd. Vs. Commissioner of Income Tax (2021) 430 ITR 121 (Bom.); iii. CIT Vs. Maithan International (2015) 375 ITR 123 (Calcutta); iv. Nagal Garment Industris (P.) Ltd. Vs. Commissioner of Income Tax (2020) 113 taxmann.com 4 (MP); v. Rajamandir Estates (P.) Ltd. Vs. PCIT (2016) 386 ITR 162 (Cal.);

We have heard the Ld. Representatives of the parties and perused the records and also considered the various judicial precedents cited by the Ld. AR as well as Ld. DR in support of their respective arguments. It is revealed from para 1 and para 3 of the assessment order that during the course of assessment proceedings the Ld. AO communicated the issues (including unsecured loans) for selection of case under E- assessment Scheme and sought the explanation of the assessee. However, there is no inkling in the assessment order as to what explanation was given by the assessee. In para 4 it is merely stated by the Ld. AO that in response to the statutory notice, the assessee furnished the details through the e-filing portal. What details were filed is not forthcoming from the assessment order. Para 6 of the assessment order states that the reply and details uploaded by the assessee were carefully examined but what details were examined by the Ld. AO are not known. No reasons have been recorded by him to arrive at a conclusion that the income returned by the assessee at Rs. Nil is acceptable and confirms the legal position. Nothing is discernible as to how the issues raised were examined and found acceptable by him. Before us the Ld. AR admitted that there was inadequate enquiry on the impugned issue by the Ld. AO. Therefore, the Ld. PCIT was justified in invoking his power u/s 263 of the Act. However, since the assessee subsequently furnished the additional evidence/details before the Ld. PCIT, he should have considered the same instead of holding the assessment order erroneous and prejudicial to the interest of the Revenue and directing the Ld. AO to revise the assessment order.

The Finance Act, 2015 inserted Explanation-2 to section 263 of the Act w.e.f. 01.06.2015 and CBDT in Circular No. 19 of 2015, dated 27.11.2015; (2015) 379 ITR (ST) 19 has explained that interpretation of the expression “erroneous in so far as it is prejudicial to the interest of the Revenue” has been a contentious one. In order to provide the clarity of the issue, section 263 of the Act has been amended to provide that order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue if, in the opinion of the Principal Commissioner or Commissioner the order is passed without making enquiries or verification which, should have been made. Thus, by virtue of the above amendment assessment order passed without making requisite enquiry or verification shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue. This will enable the Ld. PCIT to exercise jurisdiction u/s 263(1) of the Act in respect of such an assessment order passed by the Ld. AO. Moreover, the documentary evidence available in the records which the Ld. AO admits to have examined the veracity thereof amply demonstrate that the Ld. AO has not made the requisite enquiry in relation to the transaction in question / dispute.

On the factual matrix set out above, it is for our consideration whether the Ld. PCIT was justified in directing the Ld. AO to frame fresh assessment by assuming jurisdiction u/s 263 of the Act. It is now well established that incorrect assumption of fact and incorrect application of law will satisfy the requirement of assessment order being erroneous. In the assessee’s case it would be obvious that the Ld. AO has not conducted proper enquiry as regards the genuineness of the loan transaction and creditworthiness of the lender. This indicates non- application of mind by the Ld. AO on the impugned issue. In our opinion, the impugned order of the Ld. AO is erroneous and prejudicial to the interest of the Revenue in the given facts and law related to them.

On perusing the various judicial precedents relied upon by the Ld. AR, we find that these decisions are not of much assistance to the assessee in light of the present facts of the assessee’s case under consideration. The observations and findings of the Ld. PCIT clearly shows the non-application of mind by the Ld. AO while accepting the assessee’s submissions on the impugned issue of unsecured loans. We notice that the Ld. PCIT has duly considered the query raised by the Ld. AO in respect of the loan transaction between the assessee and her husband, Mr. Sandeep Satav and the response filed by the assessee in respect thereof. Only after considering the same, the Ld. PCIT observed that reply of the assessee was not enough to prove the three required limps i.e. identity of the lender, genuineness of the transaction and creditworthiness of the lender. We also notice that the Ld. AO accepted the reply and details filed by the assessee before him without making any further enquiry. In this view of the matter, we find force in the argument of the Ld. DR that the Ld. PCIT was justified in treating the assessment order as erroneous and prejudicial to the interest of the Revenue and directing the Ld. AO to frame assessment order afresh. The Ld. AO has accepted the creditworthiness of the lender merely on the basis of the copies of the acknowledgement of ITRs for the past three years without even considering the fact that the complete set of ITRs remained undisclosed by the assessee. It is thus evident that the Ld. AO passed a cryptic order by simply accepting the version of the assessee without application of mind. The Ld. AO therefore failed to make the necessary enquiry/verification that should have been made and hence the impugned assessment order, in our considered view, becomes erroneous and prejudicial to the interest of the Revenue.

In such a scenario wherein the assessment is completed without adequate enquiry/verification of the issue involved, the Hon’ble Delhi High Court in the case of Gee Vee Enterprises Vs. Addl. CIT 99 ITR 375 (Del.) held that the assessment order is erroneous as also prejudicial to the interest of the Revenue as it caused prejudice to the Revenue administration as emphasized by the Hon’ble Madras High Court in the case of Venktakrishna Rice Co. Vs. CIT 163 ITR 129 (Mad.). Therefore, we are of the view that the Ld. PCIT was justified in resorting to the provisions of section 263 of the Act.

Similar view has been taken by the Jurisdictional Bombay High Court in the case of Sesa Starlite Ltd. Vs. Commissioner of Income Tax (supra) which has also been relied upon by the Ld. PCIT.

In the assessee’s case in hand, there is an evident lack of proper enquiry by the Ld. AO during the course of assessment proceedings. Therefore, the Ld. PCIT, in our view, has not erred in holding the order passed by the Ld. AO as erroneous and prejudicial to the interest of the Revenue and directing him to make assessment afresh. This view finds support by the decision of the Rajkot Tribunal in the case of Lado Ceramic (P.) Ltd. Vs. Principal Commissioner of Income Tax (2023) 157 taxmann.com 194 (Rajkot-Trib.). The relevant finding is reproduced below: “6. We have heard the rival contentions and perused the material on record. On going to the facts of the instant case, we observe that in the instant case, undeniably the Assessing Officer had made certain enquiries during the course of assessment proceedings, in response to which the assessee had also filed certain details. However, there are also certain glaring discrepancies in the facts of the assessee’s case, in respect of which evidently Assessing Officer did not make any observations/made necessary enquiries during the course of assessment proceedings. In this case, the principal CIT has observed that the substantial investment was made in the shareholding of the assessee company, but during the course of assessment there is no explanation on record for the source of investment in the hands of the subscribers. Further, out of 21 persons, only four persons had filed their balance sheets, it was observed that huge amount of unsecured loans was availed by these persons and accordingly, the aforesaid investments in the share capital of the assessee company were made out of borrowed funds. Further, the shareholders referred to above also gave substantial amount of unsecured loans to the assessee company, but a perusal of the return of income shows that they did not have sufficient means to make the aforesaid investments/give unsecured loans to the assessee company. Accordingly, looking into the facts of the instant case we are of the considered view is that the principal CIT has correctly observed that there was an evident lack of enquiry by the Assessing Officer into the source of investment, which should have been made by the Ld. AO, looking into the facts of the instant case. Also, we observe that the Gujarat High Court in the case of Umesh Krishnani (supra) has also given a specific finding that when immediately before the issuance of funds to the assessee company there was immediate credit in the bank accounts of some of the investors, for which there is no plausible explanation, then addition under Section 68 of the Act is liable to be made. Even in the present facts, the principal CIT observed that in some of the cases prior to making the investments in the assessee company, there was immediate credits in the bank accounts of some of the investors, for which no explanation has been provided by the assessee during the course of assessment proceedings. In the case of Malabar Industrial Co. Ltd. 109 Taxman 66 (SC), the Hon'ble Supreme Court held that if due to an erroneous order of ITO, Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to interests of revenue. In the case of Neelkantha Commosales (P.) Ltd. 135 taxmann.com 326 (Calcutta), the High Court held that even under non-amended provision of Section 68, an Income-tax Officer was not precluded from making an inquiry about true nature and source of sum found credited in books of assessee, even if same was credited as receipt of share application money. In the case of Nisha Sharma146 taxmann.com 209 (Jabalpur - Trib.), the ITAT held that where assessee's case was selected for limited scrutiny for reasons that it deposited large cash during demonetization and showed large agricultural income, however AO merely relied on assessee's submissions which included sale bills for agricultural income and claimed that cash deposits were made out of past savings, since AO did not make any findings related to opening cash ascribed to past savings nor there was mention of land holdings, crop cultivated and sold, Principal Commissioner was right in invoking revisionary proceedings. In the case of Himachal Pradesh Financial Corpn. 186 Taxman 105 (Himachal Pradesh), the High Court held that the expression 'prejudicial to interest of revenue' as understood in its ordinary meaning is of wide import and not confined to loss of tax alone. Further, if due to an erroneous order of Assessing Officer, revenue is losing tax lawfully payable by a person, it should be certainly prejudicial to interest of revenue. In the case of Deepak Kumar Garg 299 ITR 435 (Madhya Pradesh), the High Court held that where from order of Assessing Officer, it was clear that where the Assessing Officer had done only a semblance of enquiry and, that too, in very slipshod manner and Assessing Officer had accepted version of assessee without proper enquiry, as a result of which substantial amount of taxable income was not brought to tax, Commissioner rightly held assessment order as erroneous and prejudicial to interest of revenue. Accordingly, looking into the facts of the instant case, we find an evident lack of proper enquiry by the Assessing Officer during the course of assessment proceedings. In our considered view, the enquiry made by the Assessing Officer was not adequate and he simply accepted the version of the assessee without application of mind. Accordingly, looking into the facts of the instant case and the judicial precedents on the subject, we are of the considered view that the Principal CIT has not erred in facts and in law in holding that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the revenue.”

On the facts and in the circumstances of the case and the legal position enumerated above, we find no substance in the ground taken by the assessee which we hereby reject.

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