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Income Tax Appellate Tribunal, RAJKOT BENCH, RAJKOT
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This assessee’s appeal for A.Y. 2017-18, arises from order of the PCIT, Rajkot-1 dated 17-02-2022, in proceedings under section 263 of the Income Tax Act, 1961; in short “the Act”.
The assessee has raised the following grounds of appeal:-
Page No 2 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT
“1) That on the facts and in the circumstances of the case, the Ld. CIT has erred in initiating and passing the order u/s.263 of the Income Tax Act, 1961. 2) That on the facts and in the circumstances of the case, the Ld. CIT has erred in setting aside the order passed u/s.143(3) of the Income Tax Act, 1961 by the Ld. A.O. 3) That, on the facts and in the circumstances of the case, the Ld. CIT has erred in directing to examine again the genuineness of 50% agricultural income i.e. Rs. 14,32,782/- which is correctly accepted by Learned Assessing officer as agricultural income after in-depth examination of facts of the case. 4) That the order passed by the Ld. CIT u/s. 263 of the I.T. Act, 1961 was arbitrary, bad in law and unjust. 5) That the assessee craves leave to urge such other ground or grounds before or at the time of hearing of appeal.”
The brief facts of the case are that the assessee filed return of income for assessment year 2017-18 declaring total income of � Nil. The assessment was completed under section 143(3) of the Act assessing the income at � 14,32,782/-
The PCIT observed that the assessee had shown gross agricultural income of � � 40.43 lakhs and agricultural expenses of 11.77 lakhs and thereby the net agricultural income was declared at � 28.65 lakhs. The assessee had shown that the entire agricultural income was out of cotton sales, however, on examination of revenue records it was noticed that the assessee had only sold groundnut crop. Accordingly, there was mismatch between what was declared by the assessee in the return of income and what was coming from the revenue records. The AO also had noticed the above discrepancy at the time of assessment proceedings and in the assessment order, the AO held that 50% of the agricultural income was liable to be Page No 3 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT treated as income from unaccounted sources, which was brought in the guise of agricultural income. In the assessment order, the AO had treated 50% of the agricultural income as unaccounted income brought in the guise of exempt agricultural income and added the same to the total income of the assessee under section 68 r.w.s. 115 BBE of the Act, being unexplained cash credits. According to the PCIT, the AO has erred in only adding 50% of the agricultural income as unexplained/unaccounted income, whereas on a proper consideration of facts, the AO should have treated the entire agricultural income of � 28.65 lakhs as unexplained income under section 68 of the Act. Further, as per the PCIT, the AO should have also disallowed the entire agricultural expenses of � 11.77 lakhs on the ground that since cotton has not been grown therefore agricultural expenses had also not be incurred by the assessee. Therefore, as per the PCIT the entire gross receipts of the agricultural produce should have been considered as undisclosed income and entire agricultural expenses should have been disallowed and since the AO failed to examine the above facts, the PCIT held that this has rendered the order erroneous and prejudicial to the interests of the Revenue.
The assessee is in appeal before us against the aforesaid order passed by the PCIT holding that the assessment order is erroneous and prejudicial to the interests of the Revenue. Before us, the counsel for the assessee submitted that the assessee had filed appeal against the order of the AO holding that 50% of the agricultural income was unaccounted income under section 68 of the Act. The Ld. CIT(Appeals) has already considered this issue regarding taxability of agricultural income in the appellate proceedings and therefore since the issue regarding taxability of agricultural income was Page No 4 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT already considered by Ld. CIT(Appeals), the PCIT cannot again consider the issue again in revisionary proceedings under section 263 of the Act. The counsel for the assessee also argued that the Rajkot ITAT has held that Revenue records do not conclusively determine the nature of agricultural produce and the Department is precluded from relying on the revenue records for the purpose of making additions. Without prejudice, it was also submitted that the issue regarding the taxability of agricultural income has already been adjudicated and considered by the AO during the course of assessment proceedings, and therefore once the AO has already applied his mind to the issue during the course of assessment proceedings, the PCIT cannot again take up this issue in 263 proceedings only with a view to revise/enhance the original assessment order. In response, the DR relied upon the observations made by the PCIT in the 263 order.
We have heard the rival contentions and perused the material on record. In our considered view, the issue before us is twofold: firstly, we observe that this issue has already been examined by the AO during the course of assessment proceedings. The AO, during the course of assessment proceedings, called for the relevant records, also issued notices to the persons to whom the alleged cotton sales were made and after due consideration of material on hand, treated 50% of the agricultural income as unaccounted income taxable under section 68 r.w.s. 115 BBE of the Act. Therefore, in our view it is not a case where the AO had not made due enquiries and also not the case where the AO had not applied his mind during the course of assessment proceedings on the issue in hand. Regarding the scope of proceedings u/s 263 of the Act, if an inquiry made by the Page No 5 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT Assessing Officer is considered inadequate by the Commissioner of Income Tax, this itself cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to 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 that are required 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 High Courts in this regard.
6.1 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 on the ground of inadequate inquiry
“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 Page No 6 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT 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 Page No 7 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT 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.
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’.”
6.2 In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113)
“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- Page No 8 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT 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.
6.3 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 provison 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 Page No 9 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT 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 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.
6.4 Before deciding the issue, it would be useful to refer to some Supreme Court decisions on this subject which would throw useful light on the scope of enquiry under Explanation (a) to section 263 of the Act.
6.5 The Supreme Court of India in the case of Principal Commissioner of Income-tax, Surat-2 v. Shreeji Prints (P.) Ltd.[2021] 130 taxmann.com 294 (SC) dismissed SLP filed by the assessee against order passed by High Court holding that where assessee-company had received unsecured loans from two different companies and Assessing Officer had made inquires in detail and accepted genuineness of same, such view of Assessing Officer being a plausible view could not be considered erroneous or prejudicial to interest of revenue. The facts of this case were that respondent assessee has filed its return of income showing total income of Rs. 62,55,900/- which was assessed under section 143(3) of the Act, 1961 by an assessment order dated 14th March 2016. The respondent company received unsecured loans from M/s. Georgett Tradecom Pvt. Ltd and M/s. Purba Agro Food Pvt. Ltd amounting to Rs. 2.49 Crore and the Assessing Officer allowed these unsecured loans. The Principal Commissioner of Page No 10 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT Income-tax invoked section 263 of the Act, 1961 for revising the assessed income of the respondent assessee. It was noticed by the PCIT that the unsecured loans obtained by the respondent assessee are shown as investment in the name of the assessee in the share application as well as in the balance sheet of the respective companies. The PCIT passed an order under section 263 of the Act directing the Assessing Officer to pass fresh assessment order under section 143(3) of the Act, 1961 on the aspect of unsecured loans shown by the respondent assessee. The Hon’ble Supreme Court made the following observation while deciding in favour of the assessee:
“Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue.”
6.6 The Supreme Court in another 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 revisional order 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 on-money receipts and said Page No 11 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT 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 revisional 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 onmoney transactions and Tribunal thus set aside revisional order passed by Commissioner. The High Court upheld Tribunal's order. The 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”
The Supreme Court in the recent case of Principal Commissioner of 6.7 Income-tax-2, Meerut v. Canara Bank Securities Ltd[2020] 114 taxmann.com 545 (SC), dismissed the Revenue’s SLP holding that 263 Page No 12 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT 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”
6.8 The Supreme Court in the case of Principal Commissioner of Income-tax--8 Mumbai v. SumatichandTolamalGouti [2019] 111 taxmann.com 287 (SC) held that where High Court upheld Tribunal's order holding that AO had made detailed enquiries while allowing assessee's claim for deduction of business expenditure and, thus, revisional order passed by Commissioner was not sustainable, SLP filed against High Court's order was liable to be dismissed. The facts of this case were that in course of assessment, Assessing Officer allowed assessee's claim for deduction of certain expenditure on purchase of CDs on Jain Religion by expending an amount of Rs. 10.4 crores, after due examination. The Commissioner passed revisional order holding that Assessing Officer had not carried out any Page No 13 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT enquiries as to nature of expenditure being capital or not. The Tribunal, however, allowed assessee's appeal holding that Assessing Officer had carried out detailed enquiries and taken a view which was a plausible view. Accordingly, Tribunal set aside revisional order passed by Commissioner. The High Court upheld order passed by Tribunal. The Supreme Court on consideration of above facts held that SLP filed against High Court's order was to liable to be dismissed. The Supreme Court made the following observations, while passing the order:
“It is by now well settled that, the Commissioner can exercise revisional powers under Section 263 of the Act only when it is found that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. In the present case, the Tribunal noted the observations of the Assessing Officer in the order of remand to the effect that Jain munis do not advocate spread of religion through use of computers, source of electronic media is usually shunned, very small section of the community uses computer technology for religious purposes as plenty of printed literature is available in the market. All these factors led to the market value of the CDs declining dramatically. It was on account of these reasons, that the assessee had incurred substantial loss arising out of reduction in the value of stock lying at the end of the year. The Tribunal, therefore noted that the Assessing Officer had carried out detailed enquiries and taken a plausible view.”
Page No 14 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT 6.9 Now coming to the instant facts, we observe that the issue under consideration has already been examined at length by the AO during the course of assessment proceedings. After having considered the issue on hand, the AO treated 50% of the agricultural income as unaccounted sales and tax the same under section 68 of the Act. Accordingly, it is clearly not a case where the AO has failed to apply his mind to the issue on hand. Further, it is also not a case where there was a clear omission on the part of the AO during the course of assessment proceedings. Further, it is also in our view is not a case where the AO has taken a view which is clearly implausible under law. It is a well-settled principle of law that 263 proceedings cannot be taken recourse to only for the purpose of supplanting the view of the PCIT in place of the view taken by the AO during the course of proceedings simply on the ground that the alternate view would have levelled higher rate of taxation on the assessee or the alternate view taken by the PCIT seems to be more plausible view in the instant set of facts. The AO, in the instant set of facts had applied his mind to the issue under consideration and had taken a view, which in our view, was not a legally implausible view.
6.10 The second issue for consideration before us that the assessee had appealed against the order passed by AO before Ld. CIT(Appeals), who on consideration of material on hand had passed an order on the issue under consideration. Therefore, once the issue under consideration has already been adjudicated by the Ld. CIT(Appeals), then the question that arises for our consideration is whether the PCIT can again pass order under section 263 of the Act with respect to the taxability of the same agricultural income (although from a different perspective) and substitute his opinion by holding Page No 15 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT that the original assessment order was erroneous and prejudicial to the interests of the revenue. In our considered view, once the issue of taxability of agricultural income has been examined by the AO and also by the Ld. CIT(Appeals) in appellate proceedings, the PCIT is precluded from taxing the same agricultural income, albeit from a different perspective, since the subject income has already been taken into consideration by Ld. CIT(Appeals) in the appellate proceedings. In the case of Smt. Renuka Philip v. ITO [2019] 101 taxmann.com 119 (Madras), the High Court held that where assessee sold a property and invested sale consideration from same for purchase of another property and claimed exemption under section 54, however, Assessing Officer allowed exemption under section 54F instead of section 54, and, assessee filed an appeal against said order, since larger issue was pending before Commissioner (Appeals), Commissioner could not invoke jurisdiction under section 263 against said order of Assessing Officer on account of statutory bar. In the case of CIT v. Vam Resorts & Hotels (P.) Ltd [2019] 111 taxmann.com 62 (Allahabad), when an appeal is pending before Commissioner (Appeals), exercise of jurisdiction under section 263 by Commissioner would be barred. The ITAT Rajkot in the case of Parin Furniture Ltd. in ITA Number 86 to 89/ Rajkot/ 2022 vide order dated 20-07-2022 held that when an appeal is preferred by the assessee under section 250 of the Act for CIT Appeals is pending against order passed by the learned AO under section 147 of the Act, the same cannot be revised under section 263 of the Act. In view of the above observations, since the issues is in respect of which 263 proceedings were initiated and the order passed by the AO was held to be erroneous and prejudicial to the interest of revenue, have been adjudicated upon by Ld. Page No 16 Shri Chandubhai Ramjibhai Kaqthiriya vs. Pr. CIT CIT(Appeals) in appeal filed by the assessee under section 250 of the Act, then, the Principal CIT cannot proceed to simultaneously assume jurisdiction with respect to the same issues which have been considered before CIT(Appeals).
6.11 Accordingly, in view of the above observations and in light of judicial precedents highlighted above, we are of the considered view that the order passed by Principal CIT is unsustainable and is therefore set aside.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 14-03-2023