SHRI NITIN BOTHRA,INDORE vs. HE PCIT -1 INDORE, INDORE

आदेश/O R D E R

Per B.M. Biyani, A.M.:

Shri Nitin Bothra Assessment year 2017-18 his return declaring a total income of Rs. 6,06,51,160/- [inclusive of the additional income of Rs. 4,07,04,688/- disclosed during surveywhich had two components, viz. (i) excess-stock of Rs. 3,02,04,688/-, and (ii) receivables of Rs. 1,05,00,000/- from various persons]. The case of assessee was subjected to scrutiny-proceeding and the assessment was framed u/s 143(3) wherein the Ld. AO accepted the returned-income. Subsequently,the 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 Ld. PCIT found two-fold discrepancies in the assessment-order:

(i) The assessee had disclosed the additional income of Rs. 4,07,04,688/- surrendered during the survey at normal rate of tax and not u/s 115BBE. Neither the AO has made any enquiry in this regard nor the assessee had filed any relevant details to justify and explain the correct chargeability of the additional income disclosed during survey.

(ii) The assessee had taken loans from four persons, detailed below, who had given loans immediately after cash-deposits in their respective bank accounts, but the Ld. AO has not verified the identity, genuineness and creditworthiness as required u/s 68.

1 Kamal Chand Bothra HUF 2,75,000 2 Kamal Chand Bothra Individual 4,12,000 3 Anita Bothra 2,00,000 4 Kusum Bothra 6,00,000

Shri Nitin Bothra Assessment year 2017-18 submission vide written-reply, which is re-produced in Para No. 3 to 5 of the revision-order.

“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 - (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) …”

6. 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 for a de novo assessment with a direction to examine the issues raised by Ld. PCIT.

7. Aggrieved by such revision-order, the assessee has filed this appeal.

Submission of Ld. AR:

Shri Nitin Bothra Assessment year 2017-18 9. Ld. AR straightaway carried us to a Paper-Book filed by him and submitted that during the course of assessment-proceeding, the Ld. AO has made specific queries to assessee qua the twin-issues raised by Ld. PCIT in the show-cause notice u/s 263 and the assessee has also filed enough details/documents in response thereto, which is very much evident from the following details/documents forming part of assessment-record available with the department:

(i) Issue No. 1 – Applicability of section 115BBE to surrendered income:

For this issue, Ld. AR submitted thatduring the course of assessment- proceeding, the Ld. AO raised specific query through order-sheet with regard to the applicability of section 115BBE. In response to AO’s query, the assessee filed a detailed reply dated 18.12.2019 running over 14 pages specifically over the issue of section 115BBE itself, which is placed at Paper Book Page No. 96 to 109.Referring to various paragraphs of the reply, Ld. AR submitted that the assessee has given a detailed narration to Ld. AO as to how the impugned excess-stock / receivable did not attract the provisions of section 69, 69A, etc. and therefore section 115BBE was not applicable. We reproduce below a few paragraphs for immediate reference:

“4.03 Sir, it is further submitted that, although during the course of making the statement the assesee could not spell out clearly, but the fact remains that the assessee has not carried out any other activity then its regular business activity of manufacturing and trading of readymade garments and cloth. It is submitted that the assessee is carrying out the business since the year 1996 and in the initial years, beside manufacturing the readymade garments, the assessee was also trading in the cloth which is a major raw material or the garments. However, gradually the activity of trading in the cloth got reduced and the assessee focused more on manufacturing of readymade garments. As the assessee had not got complete detached from the business of cloth, during the previous year under consideration, some out stationed wholesale cloth merchants contacted the assessee and made an offer before him to carry out the business of trading in cloth in volume, as at the relevant time, there was a lucrative margin of profit in the cloth trading due to substantial difference in rates of cloth in other cities and that in Indore. Accordingly, the assessee made purchases of cloth from the wholesale cloth merchants hailing from Delhi, Surat Bhilwara, Ahmedabad, Mumbai etc. Who used to sale cloth, in grey

Shri Nitin Bothra Assessment year 2017-18 market to the assessee at the whole sale rates andin turn, the assessee used to sale such cloth to various very small readymade garments manufacturers on semi-wholesale rated. However, both the transactions of purchases and sales were carried out on cash on delivery basis, on recording of such transactions were made in the regular books of account of the assessee. It is submitted that for such transaction of purchases and sales no pakka bill used to be used by any of the parties and all the transactions were carried out on Kachi slips only which used to be destroyed from time to time. Further, none of the parties to the transactions used to disclose their full identity to other party. From carrying out such trading in cloth, the assessee earned a substantial sum if the date of survey, whichwas partly invested for purchasing the material or manufacturing of readymade garments and partly in the activities of income some excess stock in the form of raw materials, packing materials and finished goods of readymade garments was found and further, some cash advances to the extent of Rs.1,05,00,000/- were found. It is submitted that after the date of survey, the assessee had completely discontinued the out of books trading of cloth and after the date of survey every transaction relating to the business, whether related to the cloth trading or readymade garments manufacturing is being fully and truly recorded in the regular books of accounts of the assessee. In order to establish the veracity of our claim, that the assessee had carried out the activities of purchasing and trading of cloth, in his regular business, we are submitting herewith some specimen of Kachi slips through which good were purchased by the assessee as Annexure C-1.01 to C-1.04. similarly, we are also submitting herewith copies of Kachi slips through which sales were effected, as Annexure C-2.01 to C-2.03. it is further submitted that in order to establish the veracity of the assertions, made hereinabove, the assessee is prepared to produce some buyers of cloth before your good self for making necessary verification from them. 4.04 Sir although the assessee could notmaintain the regular books of account in respectof trading activities in cloth, which by all means, is an incidental activity to the corebusiness of manufacturing ofreadymade" garments on real time basis, but theassessee was inclined to maintain separate books of accounts in respect of such transactions. The assessee was in the process of seeking advice from his counsel as to how the income from such additional activitiesin the existing business could be incorporated in the return of income. But before he could have taken any call, the survey operations got initiated in his case. Since, the assessee had duly disclosed the income emanating from such activities before the survey party and further since he had discontinued such activities, after the survey, he did consider it necessary to maintain regular books in respect of such activities. 5.01 Sir, in view of the facts stated above, it shall be appreciated that the sources of excess stock found during the co0urse of the survey proceedings are fully explained and therefore the same would not fall within the mischief of the provision of section 69/69B of the Act. And consequently, the provisions of section 115BBE cannot be made applicable qua such income. 5.02 Sir, likewise the sources of advancing money aggregating to Rs.1,05,00,000/- being out of the unrecorded business of trading in cloth are fully explained, now the therefore, the same would also not fall withinthe Shri Nitin Bothra Assessment year 2017-18 mischief of the deeming provisions of section 69/69B of the Act and consequently, the provisions of section 115BBE cannot be made applicable qua such income too. 5.03 In view of the above facts, it shall be appreciated by your good self that the assessee, having satisfactorily explained the nature as well as sources of the unaccounted income, as found during the course of survey proceedings, being emanated from definite source of income being business income and which in its tur, are duly supported by documentary evidences, the deeming provisions of section 68, 69,69A,69B & 69D cannot be invoked in his case.

(ii) Issue No. 2 – Unsecured loans:

For this issue, Ld. AR carried us to Paper Book Page No. 74 where Point No. 6 of the notice dated 11.09.2019 u/s 142(1) issued by the Ld. AO queried the assessee as under:

“6. Details of unsecured loans including squared up loans accepted during the year including squared up loan and establish genuine of transactions, capacity of lenders and their identity with cogent evidences besides their confirmation of loan accounts. Please note that as per col. 31, audit report is silent whether loans accepted were through account payee cheques / drafts or not and therefore establish the same were accepted through account payee cheques / drafts with evidences.” In response to the above queries, the assessee filed reply dated 02.12.2019, copy of which is placed at Page No. 79 and 80 of the Paper-Book. The submission made by assessee is extracted below:

“6. DETAILS OF UNSECURED LOANS: As regard the unsecured loans, we are submitting herewith the following Shri Nitin Bothra Assessment year 2017-18 documents: i. A statement showing complete name, address and PAN of the persons from whom unsecured loans were taken/repaid by the assessee company during the relevant previous year (Annexure A-3.00).On a perusal of such statement, it would be appreciated by your good self that all the persons from whom loans were taken by the assessee company are regularly assessed to Income Tax. It is also worthwhile to note that all the transactions of the loans have taken place through account payee cheques only. ii. Copy of confirmation letters duly signed by creditors for the year under review, iii. Copy of acknowledgement of income tax return of the lenders, in evidence of their identity and creditworthiness and iv. Copy of relevant bank passbook of the loan creditors, in evidence of the creditworthiness & genuineness of loans. All the aforesaid documents are enclosed herewith for kind perusal and record of your good self, as Annexure A-3.01 to A-3.42” Further, the assessee filed a complete “Statement showing details of the unsecured loans” in a tabular format comprising the information such as S.No., Name of the depositor, Address, PAN, Opening balance as on 01.04.2016, loans taken during the year, interest, total, repayment during the year, closing balance as on 31-03-2017 and a brief reference of the documentary evidences, a copy of the Statement is placed at Page No. 136 to 137 of the Paper-Book. Ld. AR demonstrated that the documents relating to the 4 persons, noted by Ld. PCIT, were filed to Ld. AO and copies of the same are placed at Page No. 138 to 161 of the Paper-Book. These documents are in the form of Confirmation letter, ITR and Bank statements of the persons. The loans have been taken through banking channel. The Ld. AO has verified these documents which clearly prove the identity, creditworthiness and genuineness of transactions.

Shri Nitin Bothra Assessment year 2017-18 11. Clearly therefore, the Ld. AR contended, the assessee had filed all details / documents during the course of assessment. Therefore, this is not a case of “no enquiry” as understood by Ld. PCIT.He further submitted that the Ld. AO has taken one of the possible view on the issues, therefore also the assessment-order cannot be said be erroneous as per judicial rulings. Ld. AR also argued that the Ld. PCIT has conducted revision only because the Ld. AO has not discussed the issues in assessment-order. Ld. AR submitted that such an approach of Ld. PCIT is not permissible u/s 263, therefore the order passed by Ld. PCIT is not in accordance with the law of section 263 and liable to be quashed.

Submission of Ld. DR:

Shri Nitin Bothra Assessment year 2017-18 arise suspicion on the genuineness of transactions, still the Ld. AO had not verified the same resulting into error in the assessment-order.

15. Finally, Ld. DR relied upon the Explanation 2 to section 263 (re- produced above) according to which if the “assessment-order is passed without making inquiries or verification which should have been made”, it is deemed to be erroneous.

Our analysis:

“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] 18. Regarding applicability of Explanation 2 to section 263, as claimed by Ld. PCIT in his orderand also relied upon by Ld. DR, we only need to mention that it has been 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 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.

Shri Nitin Bothra Assessment year 2017-18 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.

Shri Nitin Bothra Assessment year 2017-18 “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.

Shri Nitin Bothra Assessment year 2017-18 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 assesseeduring 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. 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 Shri Nitin Bothra Assessment year 2017-18 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.”

“9.2 In the instant case, the assessee has offered the entire cash seized as part of the income and paid duly the taxes thereon. The A.O. had taken a conscious decision while passing the assessment order u/s 143(3) r.w.s. 153A of the I.T.Act. When two views are possible and the A.O. adopts one of the views, the PCIT cannot treat the assessment order as erroneous and prejudicial to the interest of the revenue. In support of the above proposition, we rely on the judgment of the Hon'ble Apex Court in the case of CIT v. Max India Limited reported in (2007) 295 ITR 282 (SC). The Hon'ble Delhi High Court in the case of CIT v. Sunbeam Auto Limited reported in (2011) 332 ITR 167 (Delhi) had held that lack of inquiry or inadequate inquiry by the A.O. cannot be a reason to invoke the revisionary powers u/s 263 of the I.T.Act. The relevant finding of the Hon'ble Delhi High Court reads as follows:- "..... therefore one has to see from the record whether there was application of mind before allowing the expenditure in question as revenue expenditure. If there was an enquiry, even inadequate that Shri Nitin Bothra Assessment year 2017-18 would not by itself give occasion to the CIT to pass order u/s 263, merely because he has different opinion in the matter. It is only in cases of lack of enquiry that such a course of action would be open. (p14a 12 to 15).... In sum and substance the accounting practice of the assessee is questioned.......It is clear that view taken by the A.O. was one of the possible views and therefore, the assessment order passed by the A.O. could not be held to be prejudicial to the Revenue. Thus from whatever angle the matter is to be looked into, the conclusion could be that the order of the Tribunal does not call for any interference (paras 16, 18 & 21). ....the A.O. having made enquiries, elicited replies and thereafter allowed the expenditure....it cannot be said that it is a case of lack of enquiry." 9.3 In the instant case, on perusal of the assessment order, it is clear that the enquiry was made by the Assessing Officer, and accordingly, the assessment order was concluded. The shortfall of enquiry or inadequacy of enquiry cannot be termed as total lack of enquiry. Hence, the order of the assessment cannot be held to erroneous.”

Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 09/02/2023 Order pronounced in the open court on ….../……/2023