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Income Tax Appellate Tribunal, LUCKNOW BENCH “B”, LUCKNOW
This is an appeal preferred by the assessee against the order of the Ld. Principal Commissioner of Income Tax [hereinafter referred to as the “PCIT”], Bareilly dated 25.03.2022 for assessment year 2017-18 passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
The only issue involved in ground taken by the assessee is that the order passed by the Principal Commissioner of Income Tax cancelling the assessment order and directing the Assessing Officer to reframe the assessment as per the direction given in the impugned order passed u/s 263 is bad in law inasmuch as the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. The Principal Commissioner of Income Tax has not appreciated the facts and law correctly and hence arrived at incorrect conclusion.
Page 2 of 12 3. The facts of the case, in brief, are that the assessment u/s 143(3) of the Act was completed in this case vide order dated 13/12/2019 by ACIT-1, Bareilly at a total income of 82,09,210/-. The Principal Commissioner of Income Tax called for the record and was of the opinion that the order passed by the Assessing Officer is erroneous in so far it is prejudicial to the interest of the Revenue. Accordingly, he issued show cause notice dated 25/01/2011 to the assessee as to why proceedings u/s 263 should not be initiated against him and the assessment order passed be revised. The said show cause notice gives the following reasons: - “4. I have gone through the submissions of the assessee filed in response to show cause notice issued u/s 263 of the Act and perused the assessment record. Following observations are made with regard to the assessment order passed by the AO being considered erroneous as pointed out in the show cause notice also: (i) The case was selected for scrutiny through CASS under complete scrutiny category to examine the following reasons: (a) High value of refund to TDS. (b) Large value cash deposit during demonetization period. (ii) During the year, the assessee had deposited Rs. 67.32 lakhs in old SBNs during the demonetization period. The main issue of examination before the AO was to examine the genuineness of the source of the cash deposits in old SBNs. CBDT vide internal guidelines note for assistance of AOs for verification of cash deposits and framing of assessment in demonetization related cases dated 13.06.2019(F.No. 225/145/2019-/TA II) has issued approach note for verification of cash deposits in demonetization. The AO was mandatorily to follow these guidelines and issue specific queries to examine the nature and source of cash deposits as well as to make relevant enquiries before completion of assessment proceedings. However, the AO has not issued any further queries for examination of cash deposits during the demonetization period. Thus, the order of the AO is not in accordance with the SO issued by CBDT in this regard. Hence, it is erroneous in so far as prejudicial to the interest of revenue (clause(c) Explanation 2 to section 263 of the Act). This was particularly important keeping in view the huge cash deposits made in bank by the assessee during demonetization period during the year under consideration, but no examination or third party verification/enquiry was made by the AO. The AO has accepted all the submissions of the assessee as true and correct without any further verification/enquiry.
(iii) With regard to High value of refund to TDS, the AO was to examine the different heads shown in P&L Account and Balance Sheet, so as to look into about the genuineness of the financial results declared by the assessee for the year under consideration. Though the case was selected for complete scrutiny and detailed questionnaire was issued by the AO vide notice 23.01.2019 and 05.04.2019. However, the AO did not even ensure that all the queries raised in these questionnaires were submitted by the assessee. A few of these are as follows:
1. 1. Details of unsecured loans/deposits from members and others including squared off loans along with confirmation in given format.
2. Details of security deposits with confirmation from concerned persons.
3. Loans and advances given and purpose of the same and why the interest not charged.
4. Copies of accounts of all creditors whose transaction exceeds Rs. 10 lakhs.
5. Evidence for payment of Rs. 4,22,71,000/for rent, rates and taxes.
6. Details of payment of pending Statutory & other liabilities and details of payment.
7. Details of Misc. expenses and major expenses debited to P&L A/c. 8. Reconciliation of income as per P&L A/c as per 26AS. 9. To explain 30 transactions made in cash as given in ITS data.
10. Details and evidence of current liabilities. Further, no verification regarding submissions filed nor enquiry was done by the AO to find out true and correct affairs of assessee’s business. The Assessing officer has passed the assessment order on 13.12.2019 u/s 143(3) of the Act without enquiries on the above issues.
5. Following judicial pronouncements are relevant to the facts of the case discussed and hence relied upon while adjudicating this case: (i) Hon’ble Jurisdictional High Court of Allahabad in the case of Meerut Roller Flour Mills Ltd. vs CIT(2013) 35 Taxmann.com 13(Allahabad) held that,” Return filed by assessee was scrutinized and assessment was completed. Thereafter, Commissioner noticed that AO had not conducted proper enquiry to verify cash credit entries and trade creditors. He exercised his jurisdiction u/s 263 and remanded matter to AO Assessee filed writ petition against the order. Records showed that AO did not verify genuineness of trade creditors and assessment order was completely silent and bereft of any discussion on material points whether, therefore, assessment order was erroneous and prejudicial to interest of Revenue.” Held, yes. It was further held by the Hon'ble Court that: “The Commissioner may consider an order to be ‘erroneous’ for the purpose of section 263 even if error of law may not be apparent on the face of the order. The Commissioner may consider an order of the assessing authority to be erroneous not only if it contains some apparent error of reason or of law or of fact on the face of it but also because it is stereotype order which simply accepts what the assessee has stated in his report and fails to make inquiry which are called for in circumstances of the case.” (ii) Further in the case of Ram Pyari Deri Saraogi v/s CIT(1968) 67 ITR 184, the Hon’ble Apex Court while examining the question of revisional power of the CIT under the old Act held that,” where assessment was completed by the ITO with under haste, without holding necessary enquiry, it is sufficient to hold that the assessment order is erroneous.” (iii) In the case of Smt Tara Devi Agarwal vs CIT (1973) 88 ITR 323(SC), it was held by the Hon'ble Apex Court that, “even where income has not been earned and is not assessable merely because the assessee wants it Page 4 of 12 to be assessed in his or her end in order to assist someone else who would have been assessed to a larger amount, the assessment to made can certainly be erroneous and prejudicial to the interest of revenue.” (iv) Hon’ble Delhi High Court in the case of Gee Vee Enterprises v/s Addl.CIT(1975) 99 ITR 375(Delhi) following the aforesaid above two judgments of the Hon'ble Apex Court held that “the position and function of the Income Tax Officer is very different from that of a Civil Court. The statements made in a pleading proved by minimum amount of evidence may be accepted by Civil Court in absence of any rebuttal. The Civil Court is neutral. It simply gives decision on the basis of the pleading and evidences which comes before it.” Further, it was held by the Hon'ble Court that: “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 apparent in the order but call for further enquiry. 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 enquiry. The meaning to be given to the word “erroneous” in section 263 emerges out of its 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 an enquiry prudent that the word “erroneous” in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an enquiry has not been made and not because there is anything wrong with the order if all facts stated therein are assumed to be correct.”
In view of the facts of the case discussed and judicial pronouncements relied upon, I am of the opinion that the AO has not examined/enquired into the details of the facts of the case and the assessment order passed u/s 143(3) of the Act is erroneous in so far as prejudicial to the interest of revenue as 3 per explanation 2(a) to section 263 of the Income Tax Act, 1961. Therefore, the assessment framed by AO is hereby set aside to be framed denovo as per law by the AO, keeping in view the observations made after giving reasonable opportunity to the assessee of being heard.”
On both the aforesaid reasons, according to the Ld. PCIT, the AO has not conducted proper inquiry. Therefore, according to him, the order of the AO was erroneous as well as prejudicial to the revenue. Therefore, he set aside the assessment order dated 13/12/2019 and directed the AO to frame afresh order de nova. This impugned action of Ld. PCIT has been challenged before us by the assessee.
Assailing the action of the Ld. PCIT, the assessee submitted a detailed reply in respect of all the above allegation which are reproduced in brief as under:- Copy of reply dated 10/02/2021 filed before PCIT Copy of reply dated 04/01/2022 filed before PCIT Copy of reply dated 08/03/2022 filed before PCIT
6. The Principal Commissioner of Income Tax did not agree with the contention of the assessee and set aside the assessment order with the direction to frame denovo assessment order, observing as under:
6. In view of the facts of the case discussed and judicial pronouncement relied upon, I am of the opinion that the AO has not examined/enquired into the details of the facts of the case and the assessment order passed u/s 143(3) of the Act is erroneous in so far as prejudicial to the interest of revenue as per explanation 2(a) to section 263 of the Income Tax Act, 1961.
Learned counsel for the assessee vehemently contended before us that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. The Assessing Officer has duly examined all the issues. The assessee has given complete details in this regard during the course of hearing. Further, the Ld AR submitted that the Ld. PCIT has erroneously presumed that AO had not inquired into the issue. According to the Ld. AR, during the course of assessment proceedings, the assessee submitted the following papers before the AO in support of the claims are as under: -
1. Comparative chart of sales & Net profit 2. Details of Expenses debited to Profit & Loss account 3. Details of purchases 4. Details of SBN deposited in different banks 5. Copy of Cash Book Dt. 07/11/2016 & 08/11/2016 6. Justification of SBN Rs.60,32,500 7. Details of cash balance & Sale amount for the period 01/10/2016 to 08/11/2016 8. Details of sales from 09/11/2016 to 30/12/2016 in legal tender (Rs.6,82,86,680/-) 9. Details of Cash deposited Rs.5,57,57,500/- in legal tender in all bank accounts, during demonetization period i.e., 09/11/2016 to 30/11/2016 further out of which legal tender Rs.37,85,000/- is deposited simultaneously with SBN of Rs.60,32,500/-. 10. Comparative chart of sales & Bank deposits for F.Y. 2015-16 & 2016-17. 11. Month-wise sales & purchases.
All papers as above filed before AO 2. Copy of cash book for the period 01/10/2016 to 31/12/2016 3. Details of old & new notes deposited in bank during 08/11/2016 to 31/12/2016 4. Copy of form No.26AS 5. Details of stock (Quantity-wise) from 01/11/2016 to 15/11/2016 6. Details of cash balance from 01/10/2016 to 07/11/2016 7. Details of legal tender deposit Rs.37,85,000/- simultaneously along with SBN Rs.60,32,500/- 8. Reply Dt. 08/03/2022 9. So according to assessee, the Ld. PCIT could not have invoked the revisional jurisdiction on this issue which has been inquired into by the AO. So the impugned action of Ld. PCIT is without jurisdiction.
Learned D. R., on the other hand, relied on the order passed by learned Principal Commissioner of Income Tax u/s 263 of the I.T. Act.
We have heard the rival submissions and carefully considered the same along with the order of the tax authorities below before deciding the order passed by the CIT u/s 263 is valid or not, it is necessary to discuss the provisions of section 263 which are stipulated as under:-
“263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation-I.-For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, - (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include - (i) an order of assessment made by the Assistant Commissioner or Deputy Director or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the power or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
Explanation 2.— For the purposes 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 interests of the 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) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119 ; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.”
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.
Explanation.-In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any Page 10 of 12 period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
For invoking the provisions of section 263, both the conditions that the order passed by the A.O. is erroneous and also that it is prejudicial to the interest of Revenue must be satisfied. If one of them is absent, the provisions of section 263 cannot be invoked. The term ‘erroneous’ has not been defined under the Income-tax Act but it is well settled that each and every type of mistake or error committed by the A.O. cannot be said to be an error. The expressions ‘erroneous’, ‘erroneous assessment’ and ‘erroneous judgment have been defined in Black’s Law Dictionary, Sixth Edition, page 542. According to the definition, ‘erroneous’ means ‘involving error, deviating from the law’. ‘Erroneous assessment’ refers to an assessment that deviates from the law and is therefore invalid, and is defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. Similarly, ‘erroneous judgement’ means ‘one rendered according to course and practice of court, but contrary to law, upon mistaken view of law, or upon erroneous application of legal principles’. Thus, an order can be said to be erroneous if there is incorrect assumption of facts or incorrect application of law by the A.O. If the A.O. after making the enquiries and examining the records taken one of the possible view, it cannot be said that the order passed by the A.O. was erroneous until and unless the view taken by the assessing officer is unsustainable in law.
According to the Ld. PCIT, assessment order is erroneous for lack of enquiry because the AO did not conduct proper queries before completion of assessment proceedings. On this issue on which the Ld. PCIT found fault with by the AO for lack of proper inquiry, we find that the AO has made inquiries into Page 11 of 12 same, i.e, in respect of the claimed by assessee In this regard, we note that the assessee had filed the details along with supporting documents regarding (i) high value of refund to TDS and (ii) large value cash deposit during the demonetization period. Therefore, per-se the action of the AO cannot be called as a case of “no inquiry”. According to us, AO while passing the assessment order on an issue had conducted inquiry and has taken a plausible view, and the Ld PCIT can be said to have validly invoked the revisional jurisdiction. Since we find in the present case that the AO had carried out inquiry on the issue which the Ld. PCIT holds erroneous for lack of inquiry, the Ld PCIT ought not to have interdicted the assessment order. Therefore, we hold the impugned action of the Ld. PCIT to be without jurisdiction. Accordingly, the impugned order u/s 263 of the Act is set aside; and the assessment order dated 13/12/2019 is restored.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 25/10/2024.