BIPINBHAI MORADIYA,AHMEDABAD vs. THE PCIT-3, AHMEDABAD

We shall take up the case of Manojbhai Padaliya in ITA No.1045/Ahd/2024 for AY 2013-14, which shall serve as the lead assessment year and our observations for this year would be applicable to the case of other assessee’s and other assessment years as well. The assessee has raised the following grounds of appeal:

1 The Ld. CIT has failed to appreciate that the Assessing Officer had made inquiry in respect receipt from M/s V Nitin and M/s Kiran Gems Pvt. Ltd. and after considering the explanation given to him accepted genuineness of receipts. Thus, the assessment order was not erroneous and prejudicial to interest of revenue. The different view held by CIT does not justify involving Section-263. 3. In law and in the facts and circumstances of the Appellant's case, the order passed by the Ld. CIT may please be held to be unjustified, unwarranted and may please be quashed.

The appellant craves leave to add to amend or to raise any further grounds of appeal as case may arise.

The brief facts of the case are that the assessee file his original return of income for AY 2013-14 declaring total income at Rs.3,31,310/-. The case was re- opened u/s.147 of the Act for verification of the transactions of Rs.1,64,28,519/- with Mr. V Nitin and M/s. Kiran Gems Pvt. Ltd. The assessment was finalized, without making any addition.

The Ld.PCIT on verification of the case records observed that during the year under consideration, in the case of another assessee Shri Mahendrakuma S Mathukiya for AY 2013-14 had also received similar amount of money

In response to notice u/s.263 of the Act, the assessee filed several details and submitted that this issue was duly examined during the course of re- assessment proceedings in the case of the assessee u/s.148 of the Act. No addition/disallowance in the case of M/s.Kiran Gems Pvt. Ltd. for corresponding payment to the assessee were made for AY 2013-14. The AO on examination of the assessee’s set of facts took a legally plausible view and therefore, in the instant case the assessment order cannot be held to be erroneous and prejudicial to the interest of Revenue. However, the Ld.PCIT held that in one of the labour contractor’s case, being Mahendrakumar S Mathukiya, the Ld. AO had made addition u/s.68 of the Act with respect to similar receipt of income from same parties i.e Mr. V Nitin and M/s.Kiran Gems Pvt. Ltd. and therefore the AO was directed to verify the facts submitted by the assessee and if the assessee is not able to prove the veracity of its submission, the AO would be at liberty to pass an appropriate order in accordance with law.

Before us, the first contention of the Ld.Counsel for the assessee is that on perusal of notice u/s.263 of the Act, it is evident that there is no specific allegation as to how the assessment order was erroneous and prejudicial to the interest of the revenue. Secondly, the Ld.Counsel for the assessee drew our attention on the reasons recorded for re-opening the assessment u/s.147 of the Act and pointed out that the very reason for re-opening the case of the assessee u/s.147 of the Act was that the assessee was a beneficiary of suspicious transaction with Mr. V Nitin & M/s.Kiran Gems Pvt Ltd. and the assessee was required to furnished details of unexplained credits in his bank account of Rs.1,64,28,519/- from Mr. V

In response, the Ld.DR submitted that a perusal of the assessment order would demonstrate that the same is very cryptic in nature and it is a non-speaking order in which the critical issue regarding the suspicious unexplained credit has not been discussed. The Ld.DR submitted that in the instant case Explanation to section 263 of the Act is liable to be invoked since necessary verification was not carried out by the AO, which was required to be done looking into the instant fact. Accordingly, the Ld.DR was of the view that the Ld.PCIT has correctly set-aside

We have heard the rival contentions and perused the material available on record. The first fact which we observe on reading of 263 order is that the Ld.PCIT has not recorded any satisfaction/has not given any specific finding as to how the assessment order is erroneous and prejudicial to the interest of Revenue. A perusal of 263 order shows that the only basis of issuance of notice u/s.263 of the Act is that in case of similar labour payments to one Shri Mahindrakumar Shantilal Mathukiya for AY 2013-14 from Mr. V N Nitin and M/s. Kiran Gems Pvt Ltd. amounting to Rs.1,50,95,178/- an addition was made u/s.68 of the Act. However, in our considered view in order to invoke the provisions of section 263 of the Act, the foundation/ basis of initiation of 263 proceedings must emanate from the findings given by the AO in his assessment order of the assessee itself and 263 cannot be initiated on the basis of “borrowed satisfaction” (i.e on the basis of findings in assessment done in case of a third person). Therefore, in our considered view, the very basis of initiation of 263 proceeding in the present case is fallacious and for this reason u/s.263 proceedings are liable to be set-aside.

Secondly, we observe from the contents of the 263 order that the Ld.PCIT has not given any specific findings or observation nor has pointed any defect in the assessment order so as to make the assessment order erroneous and prejudicial to the interest of Revenue. Further, there is also no specific observation in 263 order that there was any lack of inquiry by the AO, during the course of assessment proceedings. It would be useful to reproduce the relevant extract of the 263 order for ready reference.

1 It is observed that notice under Section 263 of the Act was issued mainly on the ground that in reassessment order passed in one of the labour contractors being Mr. Mahendra Mathukiya for AY 2013-14, addition under Section 68 was made whereas assessee has brought on record that in subsequent year, order under Section 148A(d) for AY 2014-15 was accepted in the case of the, same contractor. The assessee has further claimed that when labour payment has been found to be genuine in the case of V. Nitin and Kiran Gems Pvt Limited for year under consideration, then same labour receipt in the hand of assessee contractor cannot be disallowed considering it to be non genuine particularly when in other labour contractors case as referred by assessee, same is allowed. In light of above referred submission and evidences filed by assessee, the Assessing Officer is directed to verify above referred facts and if it is found that order under Section 148A(d) has been passed in assessee's own case in other assessment years or in the case of Mahendra Mathukiya for AY 2014-15, without any adverse view and relevant submissions were filed before Assessing Officer in reassessment proceedings and if labour payment has been held to be genuine in the case of V Nitin or Kiran Gems Pvt Limited, no adverse view can be taken in the hands of labour contractor for same labour payment receipt. However, if assessee is not able to prove such contentions as stated herein above, Assessing Officer would pass necessary order after giving proper opportunity of being heard to assessee.

2 In view of above observations, the reassessment order passed by the A.O. u/s 147 of the IT Act dated 12-03-2022is hereby set aside and the A.O. is directed to pass a fresh assessment order as per direction contained herein above. The assessee will be at liberty to adduce the relevant evidence/material before the Assessing Officer and the Assessing Officer shall allow the assessee adequate opportunity of being heard and to make relevant submissions.

From the contents of the 263 order it is seen that the Ld.PCIT has only asked the AO to make the further inquiries on the basis of additions made in the case of a third person, who had received similar payments from Mr.V Nitin and M/s.Kiran Gems Pvt. Ltd. and in the 263 order and there is no specific finding/observation as to how the assessment order is erroneous and prejudicial to the interest of Revenue. Therefore, for this reason as well, the order u/s.263 of the Act is liable to be set-aside.

The next issue for consideration is whether from the case records of the assessee, can it be concluded that there was lack of inquiry on the part of the AO, while finalizing order u/s.147 of the Act. We observe that, the very basis of initiation of proceeding u/s.147 of the Act was on account of suspicious receipt from Mr. V Nitin and M/s.Kiran Gems Pvt. Ltd. where AO on various dates had issued notices to the assesse for giving explanation regarding source of credits from these two parties appearing in the assessee’s bank account. The assessee also filed replies to the specific query raised by the AO along with the supporting documents. It was after taken into consideration the replies filed by the assessee that no additions were made in the hands of the assessee. The details of correspondence between the AO and the assessee have been reproduced in earlier part of the order. It is also observed that the assessee had also furnished various details including copy of bank statements, confirmation of ledger account from M/s. Kiran Gems Pvt. Ltd., tax audit report, copy of bank statement, copy of form 26AS which demonstrates that all payment to the assessee were subject to tax deduction at source etc. Therefore, the facts as coming from the case records itself shows that there is no lack of inquiry on the part of the AO, looking into this ITA no.1045/AHD/2024 with 8 others A.Y. 2013-14

We observe that the facts and issues for consideration in other assessment years and the basis of order u/s.263 of the Act, passed by the Ld.PCIT is also same. Therefore, in the light of the above observations, the order u/s.263 of the Act for other assessee’s are also directed to be set-aside. In the result, the appeals of the assessee are allowed for all the assessment years before us.

In the combined result, the appeals filed by the different assessee are allowed.

""यथ" / The Respondent. 3. संबंिधत आयकर आयु" / Concerned CIT 4. आयकर आयु"(अपील) / The CIT(A) 5. िवभागीय "ितिनिध, आयकर अपीलीय अिधकरण / DR, ITAT, 6. गाड" फाईल / Guard file.