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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: MS. SUCHITRA R KAMBLE & SHRI B.M. BIYANI
आदेश/ O R D E R
Per B.M. BIYANI, AM:
Feeling aggrieved by revision-order dated 15.02.2022 passed by Ld. Pr. Commissioner of Income-Tax (Appeal)-1, Indore [“Ld. PCIT”] u/s 263 of Income-tax Act, 1961 [“the Act”], which in turn arises out of assessment-order dated 31.07.2019 passed by learned ITO-2, Ratlam [“Ld. AO”] u/s 143(3) for Assessment-Year [“AY”] 2017-18, the assessee has filed this appeal on following grounds:
Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 2 of 21 “1. On the facts and in the circumstances of the case and in law, the Ld. Principal Commissioner of Income Tax, Indore -1 (“the Ld. PCIT"), has erred in invoking the provisions of Section 263 of the Income Tax Act, 1961 ('the Act') without appreciating that the Assessment Order u/s 143(3) of the Act passed by the Ld. Income Tax Officer-1, Ratlam (the Ld. AO") dated 31.07.2019 is neither erroneous nor prejudicial to the interest of the revenue. Thus, the Order u/s. 263 of the Act is liable to be quashed.
2. On the facts and in the circumstances of the case an in law, the Ld. PCIT has erred in holding that the Assessment order has been passed without conducting inquiries, without appreciating that the Ld. AO has passed the assessment order after making complete enquiries/investigation/verification and proper application of mind. Thus, the orderu/s 263 of the Act is liable to be quashed.
3. On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in invoking the provisions of Section 263 of the Act without appreciating that all the bank statements, cash book, summary of cash flow and point-wise reply to questionnaire issued during the course of regular assessment proceedings has been filed by the assessee, which has been duly considered and then accepted by the Ld. AO. Thus, the assessment order dated 31.07.2019 is neither erroneous nor prejudicial to the interest of revenue. Thus, the Order u/s. 263 of the Act is liable to be quashed.
4. On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in not appreciating that the return of income of the assessee was selected for limited scrutiny on the issue 'Cash deposit during the year', which has been duly explained/justified by the assessee before the Ld. AO during the course of regular assessment proceedings. Thus, initiating revision proceedings u/s. 263 of the Act for re-examining the same issue again tantamounts to change of opinion. Thus, revision proceedings are liable to be quashed and the Order u/s. 263 of the Act is liable to be set aside.
On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in initiating revision proceedings u/s. 263 of the Act on the basis of incorrect information by stating that the assessee has deposited cash of Rs. 3,19,62,000/- in her bank account, which is wrong and contrary to the facts of the case. Thus, the revision proceedings imitated on the basis of incorrect facts is without application of mind and is liable to be quashed.
6. On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in passing the Order u/s. 263 of the Act without considering the detailed submission made by the assessee during the course of revision proceedingswhich is wrong and contrary to the provisions of the Act and principle of natural justice. Thus, the Order u/s. 263 of the Act passed without considering submissions by the assessee and is liable to be quashed.
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7. On the facts and in the circumstances of the case and in law, the Ld. PCIT has erred in invoking the provisions of Section 263 of the Act without any fresh tangible material and merely on the basis of SFT information and without considering the assessment records and submissions made by assessee during the course of regular assessment proceedings.” 2. Heard the learned Representatives of both sides at length and case- records perused.
Briefly stated the facts are such that the assessee filed return of income on 29.08.2017 which was subjected to scrutiny by issuing statutory notices u/s 143(2)/142(1). Finally, Ld. AO completed assessment u/s 143(3) accepting the returned income. Subsequently, Ld. PCIT examined the record of assessment-proceeding and viewed that the assessment-order passed by Ld. AO is erroneous in so far it is prejudicial to the interest of revenue, which attracts revisionary-jurisdiction u/s 263. The reasons of framing such a view, as mentioned by Ld. PCIT in the show-cause notice dated 29.12.2021 are as follows:
(i) The Statement of Financial Transactions (SFT) available with the department revealed total cash deposits of Rs. 3,19,62,000/- in bank account during the year. But the cash-book of assessee showed deposits of Rs. 1,81,71,000/- only. The AO has not made any enquiry from bank nor asked to explain the difference. Further, the AO has not verified the cash deposit of Rs. 1,37,91,000/- (including cash deposit of Rs. 75,72,698/- during demonetization period). Further the AO has not verified saving account in individual name. Further, the cash balance as on 08.11.2016 was Rs. 9,09,254/- but the assessee had deposited much more in bank account during demonetization period. Ld. AO has not made enquiries in respect of these matters.
(ii) In respect of cash receipts and payments, the assessee submitted GST details of M/s Darsh Marketing but since the GST was implemented
Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 4 of 21 w.e.f. 01.07.2017, how there could be GST details for the period 01.04.2016 to 31.03.2017? Ld. AO has accepted submission of assessee without making further enquiry.
(iii) The assessee declared gross-receipts of Rs. 4,47,332/- and at the same time claimed total receipts of Rs. 1,85,12,236/- in the summary of cash- transactions. The AO should have made enquiry from DTH company regarding amount of recharge through assessee and commission thereon. Further, if the gross receipts were more than Rs. 1 crore, the assessee should have get the accounts audited u/s 44AB and section 44AD would not have been applicable to assessee.
(iv) The assessee had claimed to have received a sum of Rs. 1,66,08,693/- as recharge amount from Shyam Upadhyay (Shyam FOS). As per cash- book, each receipt is more than Rs. 10,000/-. The AO has not verified genuineness of such receipts.
4. By the aforesaid show-cause notice, the assessee was asked to explain as to why the assessment-order may not be revised. In response thereto, the assessee made a detailed submission to Ld. PCIT, which is re-produced in Para No. 3 of the revision-order.
5. However, none of those submissions impressed the Ld. PCIT. The Ld. PCIT further observed that since the section 263 has been amended and Explanation 2, as reproduced below, had been introduced therein, the assessment-order is deemed to be erroneous-cum-prejudicial to the interest of revenue if the same had been passed without inquiries or verification which should have been made:
“Explanation 2 – “For the purpose of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if in the opinion of the Principal Commissioner or Commissioner -
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(a) The order is passed without making inquiries or verification which should have been made; (b) The order is passed allowing any relief without inquiring into the claim; (c) …. (d) …”
Finally, the Ld. PCIT concluded that the Ld. AO has not carried out the inquiry/verification which he should have done and hence the assessment- order is erroneous in so far as it is prejudicial to the interest of revenue. Accordingly, the Ld. PCIT passed revision-order u/s 263 whereby the assessment-order was set aside to the file of Ld. AO with a direction to re- frame assessment de novo after examining the impugned issues.
7. Aggrieved by such revision-order, the assessee has filed this appeal.
By means of various grounds raised in the Appeal Memo, the appellant- assessee requires us to adjudicate whether or not the revision-order passed by Ld. PCIT u/s 263 is valid in the eyes of law?
Submission of Ld. AR:
Ld. AR drew our attention to the notice of scrutiny u/s 143(2) as well as the order of assessment and pointed out that the case of assessee was selected for “limited scrutiny” to examine “cash deposit during the year” in bank account only. Ld. AR then carried us to a Paper-Book filed by him and submitted that during the course of assessment-proceeding, the Ld. AO made specific queries qua the cash-deposits made in bank account and the assessee filed enough details/documents in response thereto, which is very much evident from the following details/documents forming part of assessment- record available with department:
(i) Paper Book Page No. 9 to 12 – Vide Point No. 3, 4 and 5 of the notice dated 03.04.2019 u/s 142(1), the AO raised following queries to Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 6 of 21 assessee:
“3. Please furnish the copies of all the Bank statements maintained by you/firm/company for the year under question and also submit the reconciliation, if any.
4. Please furnish the details of cash deposit in Bank and sources thereof alongwith evidence if any and also submit comparative details regarding deposit of cash in Bank for the preceding previous year.
5. Please justify reason description – Large cash deposits in bank account (s) during the year.”
(ii) Paper Book Page No. 13 to 14 – Vide Point No. 3, 4 and 5 of reply-letter dated 10.05.2019, the assessee made following submission to Ld. AO:
“3. Bank Statements of the following bank accounts for F.Y.2016-17 are herewith enclosed:
S. Name of Bank Type of A/c A/c No. Name of holder No.
Uco Bank Saving a/c 02060110000151 Ruchi Jain
Uco bank Current a/c 02060210001387 Vardhman Brokers
3. Uco Bank Current a/c 28020210000342 Darsh Marketing
Cash-Book of self and M/s Darsh Merketing and M/s Vardhman Brokers for the F.Y. 2016-17 are herewith enclosed as supporting documents in connection with source of cash deposit into bank such as amount received in cash from various customers, withdrawals from bank accounts and also expenses incurred in cash.
5. The amount of cash deposited into bank during the year under review is in the normal course of business as per the amount of cash in hand available. The following are details of cash deposited into bank accounts:
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Year of Bank Account No. Deposits Withdrawals Source of deposits deposit during the year during the year 2016-17 02060110000151 25000 on 300000 on Transfer from 15.07.2016 17.06.2016 Darsh Merketing of Rs.15000 per 300000 on month aggregating 15.09.2016 Rs.180000/- and 150000 on out of cash 19.11.2016 withdrawals on 17.06.2016 2016-17 02060210001387 160000 on 175000 on Out of cash 21.03.2017 09.02.2017 withdrawal on 09.02.2017 2016-17 28020210000342 18171000 0 As per cash Summary enclosed.
(iii) Paper Book Page No. 19 to 21 - The assessee filed complete statement of her personal Bank A/c to Ld. AO.
(iv) Paper Book Page No. 22 to 26 - The assessee filed complete bank statement of M/s Vardhman Brokers to Ld. AO.
(v) Paper Book Page No. 27 to 52 - The assessee filed complete bank statement of M/s Dash Marketing to Ld. AO.
(vi) Paper Book Page No. 53 to 54 – The assessee filed a full statement of cash-transactions for the period 01.04.2016 to 31.03.2017 giving the details of each inflow and outflow to Ld. AO. Ld. AR demonstrated that the total of all inflow entries is Rs. 1,85,12,236/- and there is a deposit of Rs. 1,81,71,000/- on outflow side of the statement; thus the assessee has given vehement details to Ld. AO.
Ld. AR then argued that all these details / documents as filed by assessee were duly examined and considered by Ld. AO and having done so, the Ld. AO completed assessment of assessee, which is very much clear from a Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 8 of 21 bare reading from Page No. 2 of the assessment-order itself, where the Ld. AO has noted:
After taking into consideration, the details submitted by the assessee and the explanation offered by her, the assessment is finalized and income shown in return of income is accepted.
Having successfully demonstrated that the Ld. AO has made detailed enquires on the subject-matter of scrutiny i.e. cash-deposits in bank account, Ld. AR also carried us to the reply filed by assessee to Ld. PCIT during revision- proceeding. We extract below the said reply, which is re-produced in Para No. 3 of revision-order itself, for an immediate reference:
“With reference to the above subject, and in furtherance of my request letter of even date to withdraw your above referred notice attached with this and forming part of this reply, I hereby strongly object to the proposed revision to be carried out. I hereby give the following point wise submissions/representations along with relevant information and documents in response to your above referred notice in the form of question and answer i.e., your Question/Observation and my Answer to it:- Q/O: As per SFT details 03 available on records, during the year under consideration total cash deposited at Rs. 3,19,62,000/- in bank account with Uco Bank. A: The SFT details 03 available on records of total cash deposit at Rs. 1,81,71,000/-in current account No. 28020210000342 in the name of M/s. Darsh Marketing with Uco Bank rightly matches with the cash deposits as per the Bank Statement submitted at the time of proceedings u's 143(2) and it was verified by the Assessing Officer at the time of scrutiny. But the SFT details 014 available on records of cash deposit during specified period at Rs. 1,37,91,000/- in the said current account with Uco Bank represent the period from 01/04/2016 to 30/12/2016 (the specified period has wrongly been taken as such). The cash deposits during the specified period i.e., the period from 09/11/2016 to 30/12/2016 amount to Rs. 22,83,000/-. Total cash deposits in 3 different bank accounts with Uco Bank during the year under consideration are as follows:-
Year of Bank Account No. Deposits during Withdrawals Name and deposit the year during the nature of year the account 2016-17 02060110000151 25000 on 300000 on Mr. Ruchi
Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 9 of 21
15.07.2016 17.06.2016 Jain Saving Account 300000 on 15.09.2016 150000 on 19.11.2016
2016-17 02060210001387 160000 on 175000 on M/s. 21.03.2017 09.02.2017 Vardhman Brokers Current account
2016-17 28020210000342 18171000 0 M/s. Darsh Marketing Current Account
The date wise details of deposits in the current account No. 28020210000342 in the name of M/s. Darsh Marketing is herewith enclosed for your verification which is summarized below:- Total Deposit during the year from 01/04/2016 to 31/03/2017 Rs. 1,81,71,000/-. Deposit during the period from 01/04/2016 to 30/12/2016 Rs. 1,37,91,000/-. Wrongly taken aggregate of these 2 amounts in your notice at Rs. 3,19,62,000. Deposit during demonetization period from 09/11/2016 to 30/12/2016 is Rs. 22,83,000/-. Q/O: Rs. 75,72,698/- was deposited during the demonetization period from 09/11/2016 to 30/12/2016. A: The all 3 above bank statements were submitted to the Assessing Officer which were duly verified by him. The cash deposited during the demonetization period from 09/11/2016 to 30/12/2016 in bank accounts with Uco Bank are as follows:- In Saving Bank account No. 02060110000151 Rs. 1,50,000/- deposited on 19/11/2016. In Current Account No. 28020210000342 Rs. 22,83,000/- deposited as per details enclosed. Therefore it is evident that total deposit during the demonetization period from 09/11/2016 to 30/12/2016 amounted to Rs. 24,33,000/- and not Rs.
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75,72,698/- as stated in the notice. Q/O: Further, as per cash book provided, the closing cash balance as on 08.11.2016 was Rs. 9,09,254/- while you have deposited much more amount in your bank account during the period of demonetization. A: Here it is rightly observed that the closing cash balance as on 08.11.2016 was Rs.9,09,254/- and it was in the books of Darsh Marketing. The closing cash balance as on 08.11.2016 was Rs. 8,026 in the books of Vardhman Borkers and Rs. 2,24,517/- in the books of Ruchi Jain. The cash deposits during the demonetization period were made both in the old currency notes of the denomination of 500 & 1000 and also the new currency notes. The details of the same are as follows:- The old currency notes of the denomination of 500 & 1000 were deposited as follows:- In Saving Bank account No. 02060110000151 in the name of Ruchi Jain Rs. 1,50,000/- deposited on 19/11/2016 out of cash in hand of Rs. 2,24,517/-as on 08/11/2016. In Current account No. 28020210000342 in the name of Darsh Marketing Rs. 8,00,000/- deposited on 12/11/2016 out of cash in hand of Rs. 9,09,254/- as on 08/11/2016. The remaining deposits of Rs. 14,83,000/- (24,33,000-9,50,000) in current account No. 28020210000342 in the name of Darsh Marketing were made in new currency notes only. Q/O: You have submitted GST details of Darsh Marketing in your individual book. Since, the GST has been implemented w.e.f. 01.07.2017 then how an account can be maintained with the name of GST in the FY 2016-17 ie., period from 01.04.2016 to 31.03.2017. It clearly indicates that it has been prepared afterward during the year under consideration and the sanctity of these account are doubtful. A: The accounts are maintained in Tally Software continuously from the beginning of the business of M/s. Darsh Marketing. The accounts are not broken year on year. So when you change any account name, the change is effected right from the beginning when such account was created. GST details added with Darsh Marketing w.e.f. 01/07/2017 when GST was implemented. The assessment proceedings for FY 2016-17 relevant to A.Y. 2017-18 were carried out during the F.Y. 2018-19 & 2019-20 and the books were submitted to the A.O. during FY 2019-20. Since the books were exported from Tally Software in PDF format to submit to the A.O. the same has shown the GST. Q/O: It is noticed that you have declared the income of Darsh Marketing u/s 44AD declaring receipts/tumover of Rs. 4,47,332/ and income on that receipt Rs. 1,02,752- If receipts/turnover is only Rs. 4,47,332/- then how
Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 11 of 21 claimed total receipts of Rs, 1,85,12,236/- in the summary of cash transactions. A: The firm Darsh Marketing has received recharge vouchers of the Gross amount of Rs 2,01,88,855 for which the net amount has 2,87,100/- through been paid of Rs. 1,92,87,100/- through Uco Bank current account. The difference amount of Rs. 9,01,755/- is the amount of discount received on recharge vouchers. Again these vouchers are distributed by Darsh Marketing to various venders and customers and discount is passed on to such venders and customers which amount to Rs. 5,83,373/-. The net amount is booked as income which amounts to Rs. 3,18,382/- (9,01,755 - 5,83,373). Q/O: If gross receipts are more than 1 crore then you should have got the books audited u/s 44AB of the Act and section 44AD is not applicable. A: The gross receipts of Rs. 4,47,332/- include the net discount received of Rs.3,18,382/- as shown in para above and the amount of sales of Tax paid Kit of Rs. 1,28,951/- and therefore section 44AB is not attracted. Q/O: You have claimed to have received a sum of Rs. 1,66,08,693/- as recharge amount from Shyam Upadhyay. A: Shyam Upadhyay is an employee of M/s. Darsh Marketing. He is responsible for distribution of recharge vouchers to various venders and customers and collect the amount from such venders and customers and deposit the same with the firm. He has collected Rs. 1,66,08,693/- from various venders and customers during F.Y. 2016- 17. Q/O: In view of the above, during the course of assessment proceedings, you have neither furnished any details nor explained the issues involved with relevant documentary evidence with regard to issues narrated above. It appears that the submission and details available on records was not enough to verify the reasons for selection of scrutiny under CASS A: Sir, I have complied with all the notices served on me during the course of proceedings u/s 143(2) and I have submitted all the relevant information and documents asked for by the A.O. I, therefore, humbly state that it is not correct to say that I have not furnished any details nor explained the issues involved with the relevant documentary evidence. I respectfully do not agree with your alleged statement that the AO, has not at all verified these issues and relevant facts involved therein while completing the assessment without any application of mind. Even though it is evident from above submission that the cash deposits during the year under consideration are verifiable with the records. The main reason for misunderstanding was due to wrong interpretation of transaction reflected in SFT. In the light of the above submissions/representations the assessment is Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 12 of 21 not erroneous. In the light of the above submissions/representations the assessment is not erroneous in the sense that it is prejudicial to the interest of revenue. Further the submission was also filed:- With reference to the above subject, I hereby strongly object to the proposed revision to be carried out. Before I give the pointwise submissions/ representations along with relevant information and documents in response to your above referred notice I humbly request you to kindly refer to para (4) on last page No. 4 of your notice which reads as follows. "For the reasons stated herein above, the order u/s 143(3) dated 22.10.2019 passed by the Assessing Officer in your case for the A.Y. 2012-13 appear to be erroneous in so far as it is prejudicial to the interest of the revenue. Accordingly, by virtue of the power vested in the undersigned as per the provisions of section 263 of the Income Tax Act, 1961, the said order is proposed to be revised under the said section". Sir, I have not been assessed u/s 143(2) for the A.Y. 2012-13 and I do not have any such order u/s 143(3) dated 22.10.2019 for A.Y. 2012- 13. Therefore, your above referred notice of revision u/s 263 is not valid because as per explanation 2 of section 263 there has to be an order passed by the Assessing Officer and therefore the notice aforesaid is liable to be quashed and the proceedings of revision u/s 263 are liable to be dropped. For other matters stated in your notice in para (2) & (3), my point wise submissions/representations follow this letter.”
Ld. AR carried us to the aforesaid reply of assessee line by line and demonstrated that the assessee has clearly explained to Ld. PCIT that the amount of total deposits for the period 01/04/2016 to 31/03/2017 was Rs. 1,81,71,000/- out of which the deposits during the period 01/04/2016 to 30/12/2016 was Rs. 1,37,91,000/-. However, in the show-cause notice u/s 263, aggregate of these sums at Rs. 3,19,62,000/- had been wrongly taken. Carrying us further, Ld. AR showed that the assessee has given point-wise meticulous replies/clarifications to all issues raised by Ld. PCIT.
With these submissions, Ld. AR argued twin-aspects, viz. (i) during assessment-proceeding, the Ld. AO has aptly enquired and the assessee has replied those enquiries with regard to the cash-deposit in bank account.
Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 13 of 21 Therefore, this is not a case of “no enquiry” as understood by Ld. PCIT; and (ii) during revision-proceeding, the assessee has submitted replies on all issues raised by Ld. PCIT.Still the Ld. PCIT has treated the assessment-order as erroneous-cum-prejudicial to the interest of revenue which is quite wrong. Ld. AR submitted that the revision-order passed by Ld. PCIT must be quashed.
Submission of Ld. DR:
Per contra, Ld. DR supported the revision-order. He submitted that mere raising queries before assessee and keeping response of assessee in the departmental file cannot be treated as conduct of enquiries by AO. According to Ld. DR, had the Ld. AO analysed the replies of assessee, he would have certainly made a detailed noting in the assessment-order but this is not so in present case. He submitted that the assessment-order is silent / cryptic on the issues raised by Ld. PCIT, which clearly demonstrate that the Ld. AO has not made enquiries to the extent required and hence the Ld. PCIT was constrained to conduct revision-proceeding. Ld. DR submitted that the action of Ld. PCIT is very much in accordance with the mandate of section 263 and must be upheld.
Our analysis:
We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of applicable legal positions. On a careful consideration of various documents placed in the Paper-Book, as noted in the foregoing discussion, we find that during the course of assessment-proceeding, there were specific queries raised by Ld. AO with regard to the issue of cash-deposit in the bank account and the assessee too made detailed replies / submissions. To this extent, there is no dispute or rebuttal by revenue. Clearly, therefore, it is discernible that the Ld. AO has considered those replies / submissions and thereafter taken a plausible view. Further, the action of Ld. AO in accepting the replies / submissions of Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 14 of 21 assessee does not lack bonafides and cannot be said to be faulty. Thus, everything hinges on the point as to whether the assessment-order can be said to be erroneous-cum-prejudicial to the interest of revenue merely for the reason that the Ld. AO has not made a detailed discussion in the assessment- order or in other words not written his assessment-order as a perfectionist. In our considered view, the writing of assessment-order is a task of AO and the same is neither controlled nor helped by the assessee. In fact, the assessee has no hand or mind in writing the assessment-order. Being so, we are afraid to accept the pleading of Ld. DR that the assessment-order could be said to be erroneous-cum-prejudicial for that reason. We are consciously aware of the decision taken by Hon’ble ITAT, Mumbai in Reliance Payment Solutions Ltd. Vs. Pr. CIT (2022) 136 taxmann.com 277 where the same view was upheld:
“9. Clearly, therefore, as long as the action of the Assessing Officer cannot be said to be lacking bonafides, his action in accepting an explanation of the assessee cannot be faulted merely because it could have been lawful to make mere detailed inquiries or because he did not write specific reasons of accepting the explanation. As for learned PCIT's observations regarding accepting the explanation "without appropriate evidence", there is nothing to question the bonafides of the Assessing Officer or to elaborate as to what should have been 'appropriate' evidence. The fact remains that the specific issue raised, in the revision order was specifically looked into, detailed submissions were made and these submissions were duly accepted by the Assessing Officer. Merely because the Assessing Officer did not write specific reasons for accepting the explanation of the assessee cannot be reason enough to invoke powers under section 263, and non-mentioning of these reasons do not render the assessment order "erroneous and prejudicial to the interest of the revenue". [Emphasis supplied] 16. Regarding introduction of Explanation 2 to section 263, as claimed by Ld. PCIT in his order, it is vehemently held in several decisions that the said Explanation does not give unfettered power to the PCIT 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
Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 15 of 21 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.
Hon’ble ITAT, Rajkot in M/s Pramukh Realty, Junagadh, dated 30.06.2022, has extensively dealt a case where the AO raised queries during assessment-proceeding and the assessee filed details / documents. After a thorough analysis, the Hon’ble Bench has held that in such circumstances, revision u/s 263 cannot be done. The relevant paragraphs of the decision are reproduced below:
“5. The learned AR before us filed a paper book 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 book 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 be 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.
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 Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 16 of 21
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 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 Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 17 of 21 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.
15. 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 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, 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 provision 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 Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 18 of 21
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 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.
Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 19 of 21 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. 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. XXX 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.”
In view of above discussion and for the reasons stated therein, we are persuaded to hold that the facts of the present case do not warrant application of section 263. Therefore, the revision-order passed by Ld. PCIT is not a valid
Ruchi Jain ITANo.76/Ind/2022 – AY 2017-18 Page 20 of 21 order. We, thus, quash the revision-order and restore the original assessment- order passed by Ld. AO. The assessee succeeds in this appeal.
Resultantly, this appeal of assessee is allowed.
Order pronounced as per Rule 34 of ITAT Rules, 1963 on 23/03/2023