BHAVENDRA HASMUKHLAL PATADIA. LEGAL HEIR OF HASMUKHLAL PATADIA.,CUTTACK vs. ITO WARD-!(1), CUTTACK

आयकर अऩीऱीय अधधकरण, कटक न्यायऩीठ,कटक IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK श्री जाजज माथन, न्याययक सदस्य एवं श्री अरुण खोड़पऩया ऱेखा सदस्य के समक्ष । BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI ARUN KHODPIA, ACCOUNTANT MEMBER आयकर अऩीऱ सं/ITA No.125/CTK/2022 (ननधाारण वषा / Assessment Year :2015-2016) Bhavendra Hasmukhlal Patadia, Vs ITO, Ward-1(1), Cuttack Legal heir of Hasmukhlal Patadia, Nayabazar, Chauliaganj, Cuttack-753004 PAN No. :ADAPP 6256 G (अऩीऱाथी /Appellant) .. (प्रत्यथी / Respondent) ननधााररती की ओर से /Assessee by : Shri Deepak Shah, AR राजस्व की ओर से /Revenue by : Shri M.K.Gautam, CIT-DR सुनवाई की तारीख / Date of Hearing : 26/12/2022 घोषणा की तारीख/Date of Pronouncement : 26/12/2022 आदेश / O R D E R Per Bench : This is an appeal filed by the assessee against the order of the ld Pr.CIT, Cuttack, passed in ITBA/COM/F/17/2019-20/1026790827(1), dated 19.03.2020, for the assessment year 2015-2016. Head on the question of condonation of delay 2. On perusal of the appeal record, it is found that the appeal of the assessee is barred by 784 days. In this regard, the assessee has filed an application for condonation of delay dated 11.07.2022 along with affidavit stating therein that due to continuous lockdown on account of spread of Covid-19, the assessee could not file the present appeal in time, therefore, he prayed that delay of 784 days in filing the present appeal may kindly be condoned. On the other hand, ld. CIT-DR did not object to the above submission of the ld. AR. Considering the above, we condone

2 ITA No.125/CTK/2022 the delay of 784 days in filing the present appeal by the assessee and appeal is heard finally. 3. It was submitted by the ld. AR that the assessee is an individual, who derives income from letting out of house property and income from share transaction. The assessee had filed its return of income on 13.02.2017 and the same was processed u/s.143(3) of the Act and the assessment came to be completed on 29.12.2017 by the AO determining the total income of the assessee at Rs.54,94,530/- for the year under consideration. It was submitted that the order passed u/s.143(3) of the Act was the subject matter of revision u/s.263 of the Act, wherein the ld. Pr.CIT had proposed the order passed u/s.143(3) of the Act by the AO as erroneous and prejudicial to the interest of revenue on the following five grounds :- i) agricultural income disclosed by the assessee at Rs.16,76,505/-; ii) advance received from the sale of land at Rs.28,80,000/-; iii) income from house property at Rs.16,95,000/-; iv) brokerage & commission income at Rs.4,25,700/-; and v) sundry creditors to an extent of Rs.70,87,500/-. 4. Ld. AR submitted that this issue had already been considered by the AO in his assessment order. Ld. AR drew our attention to page 2 para 2 of the assessment order, wherein in para 2.1, the AO, after considering the assessee’s written submission, source of cash deposited in the bank account in respect of sale proceeds on the agricultural income of Rs.16,76,505/-, receipt of the advance from the sale of land to the tune of Rs.28,80,000/-, income from house property of Rs.16,95,000/- and brokerage & commission amounting to Rs.4,25,700/-, totaling to

3 ITA No.125/CTK/2022 Rs.66,77,205/-, had been accepted, however, a balance of cash deposit of Rs.42,32,795/- was not accepted by the AO treating the same as unexplained income deposited in the bank account and added same back to the total income of the assessee. It was submitted that in respect of the issue of agricultural income, the advance sale of land, income from house property and brokerage & commission, had been considered by the AO and had been specifically accepted by the AO after due examination. It was the submission that the creditors for the amount of Rs.17,87,500/- representing the opening balance in respect of the land development expenses, ld. AR drew our attention to page 44 of the paper book which is a copy of the balance sheet for the year ending 31.03.2014. It was submitted that in the balance sheet, the sundry creditors (land development expenses) has been shown at Rs.74,02,500/-. Further, the ld. AR drew our attention to page 63, which is a copy of the balance sheet for the year ending 31.03.2015 being the impugned assessment year, wherein the sundry creditors (land development expenses) has been shown at Rs.70,87,500/-. He further drew our attention to page 70 of the paper book, which is a copy of the balance sheet for the year ending 31.03.2016, wherein also the said sundry creditors (land development expenses) have been shown at Rs.70,87,500/-. It was submitted that the amount of Rs.70,87,500/- represents the sundry creditors, opening balance and there was no new creditors during the relevant assessment year under consideration. It was submitted that all the details in respect of agricultural income, advance for sale of land, income from house property

4 ITA No.125/CTK/2022 and brokerage & commission, had been produced before the AO. It was submitted that the details in respect of sundry creditors had not been produced before the AO during the relevant assessment year but the same had been considered in the scrutiny assessment for the assessment year 2014-2015, being the immediately preceding assessment year and the year in which the sundry creditors did appear for the first time. It was the submission that the details having been called for and examined and no adverse view has been given on this issue, it cannot be said that there was lack of enquiry much less no enquiry. It was the submission that no specific reasons need to be recorded in the assessment order, if the claim as made by the assessee is found to be correct. He placed reliance on the decision of the Hon’ble Bombay High Court in the case of Gabriel India Ltd., reported in 203 ITR 108 (Bom) to support his submissions that revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, the Commissioner considers that any order passed therein by the ITO is ‘erroneous insofar as it is prejudicial to the interest of revenue’. The Commissioner cannot initiate the proceedings with the view to starting fishing and roving enquiries in the matters or orders or on issues which are already concluded. It was the submission that the order passed u/s.263 of the Act is liable to be quashed. 5. In reply, the ld. CIT-DR submitted that this is not a case of limited scrutiny. He placed before us a copy of the notice issued u/s.143(2) of the Act, wherein it has categorically been mentioned that it is a case of

5 ITA No.125/CTK/2022 complete scrutiny. It was the submission that questionnaires have been issued by the AO on 20.10.2019 in respect of the cash deposit in the bank to the extent of Rs.1,09,10,000/-. The assessee had given various sources being agricultural receipts of Rs.40 lakhs, advance from the sale of land of Rs.28,80,000/-, income from house property at Rs.16,95,000/-, brokerage & commission income at Rs.4,25,2700/-. The AO without considering or examining the explanations given by the assessee, had made an adhoc disallowance of Rs.42,32,795/- and accepted the source for the cash deposit to the extent of Rs.66,77,205/-. It was the submission that the replies given by the assessee were insufficient and were just taken on record. It was not investigated or not enquired into, no details of agricultural income submitted, the types of crops raised, details of land purchased, details of the expenditure were not given, sale bills in respect of the agricultural income were also not verified by the AO. It was submitted that the assessee has also claimed that the land had been outsourced to farmers, no names of the farmers were provided by the assessee. In respect of the issue of advance from the sale of land, it was the submission that the AO had not examined who had given the advance against the land. It was also submitted that sale agreements were not examined and the claim was only a concocted story. In respect of the rent and brokerage income, the assessee had not shown that it was rental income and the brokerage commission which has been deposited in the bank. It is therefore, submitted that the AO has not examined as to whether the rental income and brokerage income has really been

6 ITA No.125/CTK/2022 received in cash. In regard to the land development expenses, it was the submission that it was impossible to accept that labourers and sundry workers would wait for three years without payment. It was the submission that the details of the same were also not produced before the AO. Ld. CIT-DR filed his written submissions, which are extracted as follows :- This is the assessee's appeal against the revision order dated 19.03.2020 passed by the Pr.CIT, Cuttack. On plain reading of revision order u/s.263 of the Act, it is clear that the AO. had not carried out any inquiries regarding the agricultural income and cash deposits in the bank account. Even the basic details regarding the agricultural income such as size of landholding, nature of crops grown, details of expenses incurred in earning agricultural income and details of sale of agricultural produce were not sought by the AO. As per the Id. AR of the assessee, gross agricultural income was at Rs. 40 lakhs and expenses of Rs.23,24,000/- were claimed. The land was given to the farmers on contract farming. But neither the names of farmers, alleged contracts and sharing ratio were sought by the AO. nor any inquiries were made by him. In fact, the Id. AR of the appellant had placed written submissions of earlier year Le. AY 2014-15 on record which were accepted blindly by the AO. The AO. did not seek details of advances allegedly received on sale of land which were claimed to have been deposited in the bank account. Further the AO. did not apply his mind to the fact that gross receipts of Rs.40 lakhs on account of agricultural income could not have been available to the assessee for making cash deposits as he had incurred expenses of Rs.23,24,000/-. The AO. also did not attempt to find out whether rental income and brokerage income had been received in cash or not. As regards the sundry creditors, the AO. had not raised any question/query in the questionnaire dated 20.10.2017. i.) In the case of Malabar Industrial Co. Ltd. (243 ITR BV. the assessee company entered into an agreement for sale of estate of rubber plantation. The agreement provided, inter alia, for payment of the consideration in installments as scheduled therein. However, the purchaser could not adhere to the Schedules and on his request the parties agreed to the extension of time for payment of the installments on condition of vendee paying compensation/damages for loss of agricultural income and other liabilities. Accordingly, the assessee company passed a resolution also to that effect and the purchaser paid the said amount. In the return filed by it, the amount was noted as compensation and damages for loss of agricultural income. The Assessing Officer accepted the same and endorsed nil assessment for that year. Exercising his jurisdiction under section 263, the Commissioner held that the said amount was unconnected with any agricultural

7 ITA No.125/CTK/2022 operation activity and was liable to be taxed under the head 'Income from other sources'. The Tribunal dismissed the assessee's appeal. On reference, the High Court also favoured the department. On further appeal, the Hon'ble Supreme Court held as under: "10. In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appeared that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the ITO was erroneous was irresistible. We are, therefore, of the opinion that the High Court had rightly held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified. 11. The second contention has to be rejected in view of the finding of fact recorded by the High Court. It was not shown at any stage of the proceedings that the amount in question was fixed or quantified as loss of agricultural income and, admittedly, it is not so found by the Tribunal. The further question whether it will be agricultural income within the meaning of section 2(lA) of the Act as elucidated by this Court in CIT vs. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 does not arise for consideration. It is evident from the order of the High Court that the findings recorded by the Tribunal that the appellant stopped agricultural operation in November 1982 and the receipt under consideration did not relate to any agricultural operation carried on by the appellant, were not questioned before it. Though we do not agree with the High Court that the amount was paid for breach of contract as indeed it was paid in modification/relaxation of the terms of the contract, we hold that the High Court is justified in concluding that the said amount was a taxable receipt under the head 'Income from other sources'. The Hon'ble Supreme Court further held in para-7 that an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The Hon'ble Supreme Court further held in para-8 that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. ii.) The Hon'ble Allahabad High Court also dealt with the same issue in the case of CIT vs. Bhagwan Das (142 Taxman 1). The ITO

8 ITA No.125/CTK/2022 assessed the total income of the assessee after granting exemption to income from agriculture and poultry farming. The Commissioner initiated proceedings under section 263 on the ground that in making the assessment, the ITO did not make any enquiry or investigation as regards the nature, source or extent of income derived from agriculture and poultry farming or investment from which those income arose nor did he take any steps to verify as to whether the income from those sources as claimed was fully exempt. Accordingly, the Commissioner set aside the assessment made by the ITO. On appeal, the Tribunal held that during the original assessment proceedings, the assessee, in support of his claim for exemption to income from agriculture and poultry farming from tax, had filed copies of certain agreements and after considering the same, the ITO allowed exemption to the assessee and, thus, it was a case of change of opinion on the part of the Commissioner which was not warranted under the provisions of section 263 and, accordingly, reversed the order of the Commissioner. On appeal, the Hon'ble Allahabad High Court held in para-4 & 5 as under: "4. Having heard the learned counsel for the revenue, we find that in the assessment order, there is no discussion regarding the question as to whether the amount of income shown by the assessee which is being claimed to be exempt has actually been earned by him or not and, further, whether the entire amount of income from Agriculture and Poultry farming is exempt from tax. The Commissioner of Income-tax has rightly initiated proceedings under section 263 of the Act as exemption has been granted without any application of mind. The Apex Court in the case of Malabar Indus trial Co. Ltd. (supra) while interpreting section 263 of the Act held as follows :- "A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous insofar as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the revenue. If one of them is absent-if the order of the Income-tax Officer is erroneous but is not prejudicial to the revenue or if it is not erroneous but is prejudicial to the revenue recourse cannot be had to section 263(1) of the Act. There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind." [Emphasis supplied] (p. 87)

9 ITA No.125/CTK/2022

10 ITA No.125/CTK/2022 hearted or incomplete enquiry on the basis whereof no definite conclusion could be arrived at. 8. The learned Commissioner of Income-tax in the present case only gave direction to decide afresh. Such a direction does not cause prejudice to the assessee as has also been held by the hon'ble Madhya Pradesh High Court in the case of CIT vs. Deepak Kumar Garg [2008] 299 ITR 435. The learned Commissioner of Income-tax, therefore, is found justified in setting aside the order of the Assessing Officer to be erroneous in so far as it is prejudicial to the interests of the Revenue on this issue." iv.) The Hon'ble Chennai ITAT in the case of Avathan Marimuthu vs. ACIT (84 taxmann.com 104) dealt with the issue of cash deposits in the bank account. In cited case, as source of cash deposit made in savings bank account, the assessee claimed that said amount was received on closure of loans earlier given by him. However, there was complete absence of any record in respect of advances made by assessee and amount recovered as well as interest/commission earned in this process. In fact, there was nothing to indicate that assessee had a running money lending business. In view of these facts, it was held that Principal Commissioner was justified in setting aside assessment made by Assessing Officer accepting assessee's explanation. The findings of Hon'ble Chennai ITAT in para-4.2 to 5 are reproduced as under: "4.2 The cash deposits in the bank accounts need to be satisfactorily explained, else are liable to be added as unexplained income u/s, 69/69A of the Act. There is no explanation as to the source of the deposits. Merely stating that the same are a return of the loans given earlier, without in any manner substantiating the same, i.e., the loans given earlier and/or their return, would be of little consequence, both in law and in fact in-as-much as the law mandates the same to be satisfactorily explained, so that the same would require being reasonably established as a fact. There is nothing to indicate a running, money lending business. Further, it needs to be borne in mind that the law deems the same as unexplained income for the year in which the asset (deposit) is found (made), i.e., the current year. It is only for the current year that, by virtue of the information in the possession of the Revenue of the cash deposits in the assessee's bank accounts, leads to the inference of the assessee being the owner of the said sums, as the law deems (section 110 of the Indian Evidence Act) and, accordingly, is deemed as the assessee's income for the relevant year, i.e., where not satisfactorily explained as to its nature and source. Sections 68, 69, etc. are only rules of evidence incorporating the principles of common law jurisprudence. There is further nothing adduced at any stage to show that the deposits, value of which remains unspecified, formed part of the disclosed assets or income for an earlier year, so that the disclosed capital becomes the explanation for the source of the deposits during the current year. In both cases, as shall be readily seen, there is no

11 ITA No.125/CTK/2022 finding by the AO who merely records what the assessee states per its communications, as to whether it is indeed so, i.e., the cash deposits represent a receipt, along with interest, of the loans given earlier. Further, even going by the assessee's explanation, which could no doubt be true, or have a element of truth, so that the assessee's capital as invested in the said business, is rotated, the capital invested in the said business is liable to be estimated and brought to tax, i.e., apart from the income by way of interest/commission from the financing business. What is this capital? What is the amount of debtors (receivable) as at the year- end, or the balances in the bank accounts at the beginning as well as end of the year. All this is conspicuous by its absence. Again, as stated by the Id. Pr. CIT, there is nothing to show that the disclosure of interest/commission income is true and correct. An average lending period of 7 to 10 days, as stated, would imply an annual turnover ratio in the range of 36 to 52, and provide a basis for the estimation of both the capital invested as well as the interest income. 4.3 We have already explained that a failure to make proper enquiry would make an order per se erroneous and prejudicial to the interest of the Revenue, liable for revision. This in fact represents trite law, and for which we may, apart from the decision in Gee Vee Enterprises case (supra) (which itself draws on several decisions, including by the Apex Court, to two of which we may refer, i.e., Rampyari Devi Saraogi vs. CIT [1968] 67 ITR 84 (SC) and Smt. Tara Devi Aggarwal vs. CIT [1973] 88 ITR 323, advert to a series of decisions, including by the Hon'ble Apex and jurisdictional High Court, as follows, viz. Malabar Industrial Co. Ltd. vs. CIT [2000] 243 ITR 83/109 Taxman 66 (SC); CIT vs. Mc Millan & Co. [1958] 33 ITR 182 (SC); Iai Bharath Tanners vs. CIT [2003] 264 ITR 673/128 Taxman 880 (Mad.); Ashok Leyland Ltd. vs. CIT [2003] 260 ITR 599/[2002] 125 Taxman 965 (Mad.); and Thalibai F. Iain vs. ITO [1975] 101 ITR 1 (Karnataka HC), to cite some. The same stands in fact made a part of the law by insertion of Explanation 2(a) to s. 263, referred to earlier. The initiation of revision proceedings in both these cases, by issue of show cause notice/s u/s, 263 (in February and March, 2016), is only after the amended law comes into force. 5. In view of the foregoing, we have no hesitation in upholding the impugned orders. We decide accordingly." v.) In the present case, the A.O. has simply issued a questionnaire dated 20.10.2019 and submissions of the appellant were placed on record without applying the mind or making an inquiry with due diligence. Hence it is a case of no inquiry and not inadequate inquiry. No question was raised in the questionnaire as regards the outstanding sundry creditors. Reliance is placed on the judgement of Hon'ble Mumbai High Court in the case of Jeevan Investment & Finance Ltd. (88 taxmann.com 552). In this case, the A.O. had raised a query regarding method of valuation of stock. In response, it was submitted that the shares were valued at cost but the method

12 ITA No.125/CTK/2022 of valuation was not submitted. The A.O. allowed the loss in the shares without conducting further inquiries. It was held by the Hon'ble Mumbai High Court in para-10 that it was a case of no enquiry. The observations of the Hon'ble High Court in para- 10 are reproduced as under: "10. We have examined the rival submissions made before us. We find that during the course of assessment proceedings, the Assessing Officer had by a letter dated 12th January, 2000 for the subject Assessment Year sought various details along with documentary evidence, if any, to enable the Assessing Officer to complete the Assessment. One enquiry in the letter dated 12th January, 2000 mentioned at Serial NO.8 thereof was the method of valuation in case of unquoted shares (ie.listed shares) namely M/s. Mayo India Ltd. The Appellant responded to the above letter dated 12th January, 2000 by its letter dated 31st January, 2000. However, the letter dated 31st January, 2000 did not address the enquiry at Sr. NO.8 in the letter dated 12th January, 2000 namely method of valuation of unlisted shares. The Appellant's response was only that the to unquoted shares are valued at costs. This is begging the question. No method of valuation of the shares was submitted to the Assessing Officer during the proceedings, leading to the Assessment Order dated 24th February, 2000. It is, therefore, to be noted that the Assessing Officer after having asked a pertinent question of the method of valuing unlisted shares in his letter dated 12th January, 2000 did not pursue that line of enquiry. The required information was not furnished by the Appellant nor any explanation offered for not furnishing the same. It is also not a case where the Assessing Officer was satisfied with regard to his query by some other explanation offered by the Appellant. In fact, merely asking a question which goes to the root of the matter and not carrying it further is a case of non-enquiry, if the query is not otherwise satisfied while responding to another query. In the present facts, the question raised has not been responded to by some explanation which would render the enquiry commenced, futile. In fact, the CIT in his order dated 20th March, 2002 specifically exercised powers under Section 263 of the Act on the basis that the necessary information was not furnished by the Appellant in support of its claim nor the Assessing Officer enquired into the same. Thus, this is a case of non-enquiry and not inadequate enquiry. Therefore, the order of the Assessing Officer is certainly erroneous. There is no dispute that the order of the Assessing Officer is prejudicial to the Revenue". vi.) In the case of Renu Gupta vs. CIT (301 ITR 45), the submissions of the assessee were placed on record by the AO. without causing any inquiry. The Hon'ble Rajasthan high Court held that the assessment order was passed by the AO. in a routine manner without applying his mind. Hence the revision order passed by the CIT was justified.

13 ITA No.125/CTK/2022 vii.) In the case of CIT vs. Deepak Kumar Garg (299 ITR 435), it was held by the Hon'ble Madhya Pradesh High Court in para-4 that issuing a questionnaire and placing submissions on record by the AO. is a case of no enquiry. If the AR of the assessee still emphasizes that the AO. had made an enquiry for the sake of an argument, then it is only a semblance of enquiry and that too in a very slipshod manner and the AO. has agreed to the version of the assessee without proper enquiry. Hence the revision order passed by the CIT was held to be valid. viii.) In the case of Virbhadra Singh (HUF) vs. Pr. CIT (86 taxmann.com 113), the assessee had initially filed return of income showing agricultural income of Rs.15 lakhs. During the course of scrutiny proceedings, the assessee filed revised return of income wherein the claim of agricultural income was enhanced to Rs.2.81crores (which was 1872% higher). The AO. did not apply his mind to this aspect. The Hon'ble Himachal Pradesh High Court held in para-119 & 120 held that any enquiry by the AO. without application of mind is non-est. The view taken by the AO. was not plausible in law. It was further held that the AO. in the given facts, should have done complete and proper enquiry. ix.) The Hon'ble Delhi High Court in the case of Gee Vee Enterprises (99 ITR 375) held as under: "The reason is that it is not the Income-tax Officer but a superior officer like the Commissioner who is exercising a revisional jurisdiction suo motu there under. The superior officer could be trusted with a larger power. The only requirement for the exercise of this power is that the Commissioner should consider that the order passed by the Income-tax Officer is " erroneous in so far as it is prejudicial to the interests of the revenue ". What is the meaning of " erroneous " in this context ? It was argued for the assessees by Shri G. C. Sharma that the word " erroneous " means that the order must appear to be wrong on the face of it. In other words, he equated the " error " with " error of law apparent on the face of record " which is a well-known ground for the review of a quasi- judicial order by this court under article 226. We are unable to agree with this interpretation. The intention of the legislature was to give a wide power to the Commissioner. He may consider the order of the Income-tax Officer as erroneous not only because it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for in the circumstances of the case. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word" erroneous" in section 263

14 ITA No.125/CTK/2022 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct". x.) The Id. AR of the appellant has failed to demonstrate as to what kind of inquiries were conducted by the A.O. on this issue. In the case of NUT vs. Commissioner of Income-tax (Central-II) (60 taxmann.com 313), the Hon'ble Delhi ITAT analyzed plethora of judgments on the issue and through order dated 27.03.2015, gave a ratio that the AO is required to conduct the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry. The relevant portion of the order of Hon'ble IT AT is reproduced below:- "28.1 Ld. Special counsel has rightly pointed out that the expression, 'inquiry, 'lack of inquiry' and 'inadequate inquiry', have not been defined and, therefore, when the action of the AO would be suggestive of lack of inquiry or inadequate inquiry, will depend upon the facts obtaining in a particular case. What emerges as a broad principle from the various decisions is that where the AO has reached a rational conclusion, based on his inquiries and material on record, the Commissioner should not start the matter afresh in a way as to question the manner of his conducting inquiries. It is not the province of the Commissioner to enter into the merits of evidence; it has only to see whether the requirements of essential inquires and of law have been duly and properly complied with by AO or not. 28.2 It is well settled that before the Commissioner can invoke his powers u/s 263, he has to arrive at a conclusion that the assessment order is erroneous in so far as it was prejudicial to the interests of the revenue. Then only the powers u/s 263 can be invoked. Therefore, if AO accepts or rejects any claim of the assessee without due application of mind and if such failure causes prejudice to revenue, the Commissioner would be well within his powers u/s 263 to intervene in the matter. An inquiry which is just farce or mere pretence of inquiry, cannot be said to be an inquiry at all, much less an inquiry needed to reach the level of satisfaction of the AO on the given issue. The level of satisfaction would obviously mean that he has conducted the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this

15 ITA No.125/CTK/2022 component is missing, it will always be a case of lack of inquiry and not inadequate inquiry." Reliance is placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. Nagesh Knitwers P. Ltd & others (345 ITR 135) wherein it was held that when the A.O. has allowed claim of the assessee in a slipshod manner without conducting any inquiry, then in the case of no inquiry, the assessment order is not only erroneous but also prejudicial to the interest of revenue. The order of assessment has to be a speaking order and when the fact of others' view has not been mentioned and the claim pressed by the assessee has been allowed without making any inquiry, then the order must be held as erroneous and prejudicial to the interest of revenue. 6. In reply, ld. AR submitted that the Explanation 1(b) to the provisions of Section 263 of the Act defines records. It was the submission that the records included any proceedings not only for the impugned assessment year but also earlier and later assessment years. It was further submitted that a perusal of the total income declared by the assessee shows that the assessee has shown the income from house property of Rs.16,95,000/- as his income in the relevant assessment year. Now, it is this income which has been offered in the return of income which is received in the form of cash and deposited in the bank, the brokerage and commission of Rs.4,25,700/- has already been disclosed in the return as an income and it is this income which has been received in cash and deposited in the bank account. In respect of the agricultural income, the same has been shown in the return of income for rate purpose. The AO himself recognizes the fact that the total receipts during the year as Rs.40 lakhs and out of the Rs.40 lakhs, he accepted the agricultural income of Rs.16,95,000/- and substantial portion of the expenditure has also been disallowed by him, accordingly he made the addition of Rs.42,32,795/-.

16 ITA No.125/CTK/2022 The total of the agricultural income, advance from sale of land, income from house property and brokerage & commission is to an extent of Rs.66,77,205/-. To this, if an addition of Rs.42,32,795/- is shown, the total comes to Rs.1,09,10,000/-. It is total cash deposit in the bank account, which was examined by the AO in the course of original assessment u/s.143(3) of the Act. It was, thus, submitted that the order passed u/s.263 of the Act is liable to be quashed. 7. We have considered the rival submissions. A perusal of the order passed u/s.263 of the Act shows that in para 8 of the order, ld. Pr.CIT has extracted the submissions of the assessee. In para 10, he has discussed the issue of the agricultural income of Rs.16,95,000/-. In para 10 he states that the AO has not put any further question such as details/proof in respect of ownership from the Tehsildar, Kisam/type of land, cropping pattern, types of crops cultivated in that locality, etc. and then proceeded to direct the AO to make addition in respect of the agricultural income of Rs.16,76,505/- as also the advance from the sale of land of Rs.28,80,000/-, income from house property of Rs.16,95,000/- and brokerage & commission income of Rs.4,25,700/-. In short, the ld. Pr.CIT after recognizing that the AO, has himself made the addition of Rs.42,32,795/- in para 13 of his order is effect directing the AO to enhance the addition for the full amount of cash deposited in the bank account of Rs.1,09,10,000/-, which represents the income already offered by the assessee in the form of brokerage & commission and in respect of income from the house property. Coming to the issue of agricultural

17 ITA No.125/CTK/2022 income of Rs.16,76,505/-, a perusal of the assessment order in the assessment year 2014-2015 and the replies filed thereto, which were found in the paper book, shows that for the assessment year 2014-2015, i.e. immediately preceding assessment year the assessee has categorically submitted that the assessee owns nearly 110 acres of land in Orissa which is the same for the assessment year 2015-2016. The Tehsildar report for the assessment year 2014-2015 has been placed and other documents have also been produced. The assessee has disclosed agricultural income of Rs.20,79,045/- in the assessment year 2014-2015, which has been accepted and it was also not a matter of revision or reassessment. For the relevant impugned assessment year, the agricultural income is much lower and it has specifically been accepted by the AO in his scrutiny assessment order. Coming to the issue of the advance received for the sale of land, on perusal of the scrutiny assessment for the impugned assessment year, it has specifically been examined and allowed by the AO in his scrutiny assessment. Coming to the issue of brokerage & commission, this has already been offered to tax in his return of income and the addition represents a double addition. Coming to the issue of income from house property, this has also been offered to tax in the return of income and the addition would represent a double addition. This, admittedly, are not permissible under an order passed u/s.263 of the Act. Now, coming to the issue of creditors, on perusal of the scrutiny assessment order for the assessment year 2014- 2015, shows that the AO has examined at page 94 and at page 97 of the

18 ITA No.125/CTK/2022 paper book in computing the total income, the AO has made disallowance out of the land development expenses in para 5 of Rs.19,07,100/- and has allowed an expenses of Rs.1,71,63,900/-. Consequently the creditors in regard to the land development expenses is part of this land development expenses and tampering with that amount of Rs.70,87,500/- would in effect be putting into a question the scrutiny assessment for the assessment year 2014-2015. When the issues have already been considered in the earlier assessment years and they are clearly opening balance for the impugned assessment year, the same cannot be brought under the purview of revision u/s.263 of the Act. 8. This is a peculiar case as the issues which have been specifically found and accepted by the AO either in the immediately preceding assessment year or in the scrutiny assessment in the impugned assessment year, has been brought out for revision u/s.263 of the Act under the guise of lack of enquiry or no enquiry. Here a specific question had been put to the ld. CIT-DR as to whether there is any provision in the statute or any circular issued by the CBDT u/s.119 of the Act which specifies the method of query, type of query or the question in query, which should be raised in reference to any specific head of income or source of income or any specific income per se. The ld. CIT-DR was fair enough to submit that it is not open to any administrative authority to interfere or give direction in respect of procedure of assessment to be followed by an assessing authority. However, it was the submission that the ld. Pr.CIT in the revision proceedings did have the powers to examine

19 ITA No.125/CTK/2022 the quality of the enquiry. It was the submission that it was due to lack of enquiry that the revision has been done. A perusal of the order passed u/s.263 of the Act clearly shows that this is not a case of lack of enquiry. In fact, the facts clearly show that the AO has done in-depth enquiry. The fact that the assessment order in the immediately preceding assessment year 2014-2015 is a scrutiny assessment and even the agricultural income and the land development expenses, had been considered and for the relevant impugned assessment year in the scrutiny assessment, the AO has considered the details of the immediately preceding assessment year also when he has completed the scrutiny assessment in the impugned assessment year. This being so, we find no error in the order of the ld. AO passed u/s.143(3) of the Act, which calls for any interference by a revision u/s.263 of the Act. Consequently, the revisionary order passed by the ld. Pr.CIT, Cuttack in the case of the assessee for the assessment year 2015-2016 is found to be unsustainable and consequently the same is hereby quashed. 9. In the result, appeal of the assessee is allowed. Order dictated and pronounced in the open court on 26/12/2022. Sd/- Sd/- (अरुण खोड़पऩया) (जाजज माथन) (ARUN KHODPIA) (GEORGE MATHAN) ऱेखा सदस्य/ ACCOUNTANT MEMBER न्यानयक सदस्य / JUDICIAL MEMBER कटक Cuttack; ददनाांक Dated 26/12/2022 Prakash Kumar Mishra, Sr.P.S.

20 ITA No.125/CTK/2022 आदेश की प्रनतलऱपऩ अग्रेपषत/Copy of the Order forwarded to : 1. अऩीऱाथी / The Appellant- Bhavendra Hasmukhlal Patadia, Legal Heir of Hasmukhlal Patadia, Nayabazar, Chauliaganj, Cuttack-753004 2. प्रत्यथी / The Respondent- ITO, Ward-1(1), Cuttack आयकर आयुक्त(अऩीऱ) / The CIT(A), 3. आयकर आयुक्त / CIT 4. पवभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, कटक / DR, 5. ITAT, Cuttack गार्ज पाईऱ / Guard file. 6. सत्यापऩत प्रयत //True Copy// आदेशानुसार/ BY ORDER,

(Assistant Registrar) आयकर अऩीऱीय अधधकरण, कटक/ITAT, Cuttack