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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
Per Dr. M. L. Meena, AM:
This appeal has been filed by the assessee against the order dated 28.03.2022 passed u/s 263 of the Act by the Ld. Pr. Commissioner of Income Tax, Jalandhar-1, (hereinafter referred to as “the Pr.CIT”) in respect
2 ITA No. 93/Asr/2022 Narinder and Company v. ITO of Assessment Year 2017-18, arising out of assessment order dated
31.12.2019, passed U/s 143(3) of the Act.
The assessee has raised the following grounds of appeal:
“1. That the notice issued u/s 263 and the order passed u/s 263 by the Ld. PCIT is illegal, bad in law and without jurisdiction. The order passed by the Ld. AO u/s 143(3) is neither erroneous nor prejudicial to the interests of the revenue.
That the order u/s 263 by the Ld. PCIT is illegal, bad in law and without jurisdiction as the Ld. PCIT has failed to consider the replies, the explanations given, evidence produced, material placed on record by the assessee and the same do not justify the order passed u/s 263.
That the order passed u/s 263 is bad in law since the Ld. PCIT has erred in not appreciating that power of revision u/s 263 cannot be invoked merely because the Assessing Officer did not write specific reasons for accepting the explanation of the assessee.
That the Ld. PCIT has erred in facts and in law in assuming jurisdiction u/s 263particularly when the assessment u/s 143(3) was completed by the AO after rightfully accepting trading results based on documents/ evidences submitted by the assessee during the assessment proceedings. The assessment u/s 143(3) cannot be set aside merely on the ground that further enquiry should be made by the AO.
4.1 That the Ld. PCIT has failed to appreciate the facts as the assessee had duly furnished necessary documents in the form of cash book, bank statements, TDS returns, VAT returns, details of creditors, debtors, etc. As such, the issue of cash deposited during demonetization period and the source was duly explained by the assessee to the Assessing Officer and as such the 'financial results' along with the cash book of the assessee were properly examined and considered by the Assessing Officer, while framing the assessment.
That the Ld. PCIT has erred in alleging that the cash was deposited out of amount received from debtors. On the contrary, the said cash was
3 ITA No. 93/Asr/2022 Narinder and Company v. ITO deposited out of cash sale made to various customers during the year under consideration. This fact was duly clarified during the proceedings u/s 263 by submitting the copies of all the sale bills along with cash book.
However, the Ld. CIT has not applied his mind that by analyzing the fact all the parties for whom the show cause notice was issued are the same for which the cash sale was recorded by the assessee.
That the Ld. PCIT, Jalandhar-1 has failed in not appreciating the fact that the PAN no of all the parties from whom the unsecured loans were raised were duly mentioned in the audit report. Therefore, the assessment u/s 143(3) cannot be set aside merely on the ground that further enquiry should be made by the AO.
That without prejudice to the above, the Pr. CIT has wrongly and illegally held that the order passed by the AO is erroneous and prejudicial to the interests of the AO particularly when no independent enquiry was made by the Ld. PCIT. Therefore, the notice issued u/s 263 is illegal and bad in law as the PCIT has not even appreciated that the amount realized is out of cash sales and not collected from debtors. That the Ld. CIT has failed to appreciate that the same sale also stands recorded in the annual VAT return submitting during assessment proceedings.
That the order u/s 263 setting aside already completed assessment as made by the Assessing Officer u/s 143(3) of the Income Tax Act is based upon incorrect assumption of fact which cannot render the order erroneous. Furthermore, the contention of the PCIT that inadequate enquiry was made, is incorrect as the PCIT is misinterpreting credit sales with cash sales.
That the Ld. PCIT has erred in invoking clause (a) of explanation 2 of section 263(1) as the explanation does not authorize unfettered powers to the CIT to revise each and every order passed by the AO if in his opinion the same has been passed without making enquiries/ verification which should have been made.
That the appellant craves leave to add, amend, or alter any of the above grounds of appeal before or during the course of appellate proceedings.”
4 ITA No. 93/Asr/2022 Narinder and Company v. ITO 3. Briefly, the facts of the case are that the assessee is a partnership
firm engaged in the business of trading in aluminum, copper and other
allied non-ferrous items. The assessee had filed its income tax return on
27.09.2017 declaring income of Rs. 10,23,350/- under normal provision of
the Income Tax Act, 1961 (‘the Act’). The assessment was made under
section 143(3) of the Act in summary manner.
The learned Pr. CIT initiated proceedings under section 263 of the
Act vide show cause notice u/s 263 vide letter No. 2607 dated 22.02.2022;
pointing out certain discrepancies in the Assessment Order. The learned
Pr. CIT observed that the order of the Ld. Assessing Officer is erroneous
and prejudicial to the interest of revenue in as much as the assessing
officer had failed to carry out necessary inquiries and verification on issue
(a) Abnormal increase in cash deposit during demonization period
amounting to Rs 54,50,000/-; and (b) amount raised by unsecured loan at
Rs 13,73,500/- and accordingly, passed the order under section 263 of the
Act.
The aggrieved assessee filed an appeal before us. During the
hearing the Council of the assessee Mr. Rohit kapoor, Chartered
Accountant filed the written submission on dated 12th September 2022
5 ITA No. 93/Asr/2022 Narinder and Company v. ITO which is kept in the record. The counsel Mr. Rohit Kapoor, contended that
the order passed by the learned Pr. CIT is infirm and perverse to the facts
on record as the Assessment order passed by the learned Assessing
Officer (in short “the AO”) was not erroneous because the issue related to
increase in cash deposits and unsecured loans was considered in
assessment order dated 31.12.2019.
As regard the issue of cash deposits, it was submitted during the
assessment proceedings, that the cash was deposited out of collection
made against cash sales. In support of the contention, the details of cash
sales, cash received, cash deposit and month wise cash in hand were
submitted vide reply dated 04.12.2019 filed in response to notice u/s 142(1)
dated 23.11.2019. The copy of the same is placed at APB, Pgs. 133-135.
6.1 The Ld. AR submitted that, notice u/s 142(1) dated 19.12.2019 was
issued by the AO calling details of month wise purchase, sale, copy of VAT
return and copy of purchase account and the same was submitted by the
assessee vide reply dated 21.12.2019 (APB, Pgs.140-164). The assessee
produced copy of cash book, copy of sale bills vide reply dated 26.12.2019,
in support of its contention (APB, Pgs.165-262). The AR further referred to
page no 134 of the paper book to emphasize that out of total deposit of Rs.
6 ITA No. 93/Asr/2022 Narinder and Company v. ITO 5450000/-, a sum of Rs. 3182484/- was earlier withdrawn by the assessee
from the bank account and a part of it was out of opening cash of Rs.
670837/-. Thus, according to the AR, the source of cash stood explained by
the assesse and verified by the AO. It was further argued by the AR that
the assessment proceedings started on 22.09.2018 and were concluded on
31.12.2019 and various questionnaires and enquiries were raised and were
replied through order sheet.
6.2 The learned counsel, Mr. Rohit Kapoor further pointed out that
invoking section 263 was unwarranted as the assessment order was not
prejudicial to the interest of the revenue. That the AR emphasized on the
fact that the amount was realized out of cash sales and not from the
debtors. The AR also referred to sale bills in which the assessee has duly
paid VAT @ 6% and submitted that the Vat returns were duly produced
before the AO and were never revised by the assessee. It was also
submitted that the sales have duly been accepted by the VAT department.
The arguments of the counsel in respect of cash deposited during
demonetization on facts are re-produced hereunder: -
“7. Issue of cash deposit during demonetization
From the aforesaid notices, questionnaires and replies of the assessee, it is evident that the Ld. Assessing officer during the assessment proceedings wanted to know about the details of cash
7 ITA No. 93/Asr/2022 Narinder and Company v. ITO deposited during demonetization, pre and post demonetization period, along with necessary documents. In response to the same, the assessee duly submitted requisite documents in the form of the copy of cash book, sales bills along with the month wise details of cash sale/cash received from debtors.
7.1 That the issue of cash deposit has been thoroughly examined the AO and PCIT has mis interpreted the fact that the cash was deposited out of collection made from debtors.Infact the amount was not realized from debtors, but it was out of realization from cash sales entered with the name of customer.The same is evidenced from the submission submitted before the AO from time to time. It is pertinent to mention here that the same factswere also brought to the knowledge of PCIT in reply submitted in response to SCN Pls refer page 279. However, the PCIT has not taken cognizance in respect of submission submitted by the assessee while passing the order under section 263.The relevant portion of submissions as submitted before AO is reproduced for your ready reference: -
Information required by the AO vide notice dated 23.11.2019
Information required by the AO Page No of Reply submitted by the assessee Page No vide notice dated 23.11.2019 paper vide reply dated 04.12.2019 of paper book book
1) Cash deposit during F.Y 2015-16 128 1) Detail of cash deposit and cash 133 and F.Y. 2016-17 sales.
2) Cash sales during F.Y 2015-16 2) Detail of cash received and F.Y. 2016-17 128 133
3) Month wise cash in hand 3) Month wise cash in hand and 134-135 derived out of cash sales. cash sales/debtors
8 ITA No. 93/Asr/2022 Narinder and Company v. ITO 128-131
7.2 That the assessee was asked to provide month wise trading account, copy of quarterly Vat Return, copy of purchase register, and copy of cash book vide questionnaire dated 19.12.2019.(Page No 138-139) That the assessee vide reply dated 21.12.2019 has submitted the requisite reply. (Page No 140-164). That the AO has properly verified the reply of the assessee and therefore asked the assessee to produce cash book.
Information required by the AO vide notice dated 19.12.2019
Information required by the AO vide Page No of Reply submitted by the assessee Page No notice dated 19.12.2019 paper vide reply dated 21.12.2019 of paper book book
a) month wise trading account, 138-139 1) Detail of Month wise purchase 140 and sales
b) copy of quarterly Vat Return,
2) Copy of Vat Return 138-139 141-152 c) copy of purchase register,
d) copy of cash book 3) Copy of Purchase account 138-139 153-164 along with postal address.
138-139
9 ITA No. 93/Asr/2022 Narinder and Company v. ITO 7.3 That the assessee has furnished the cash book and produced sales bills to the AO physically in the income tax office on 26.12.2019.
a) The copy of cash book submitted by the assessee is enclosed in the paper book at page 165-221.
b) That the copy of sales bills produced before AO areseparately enclosed at page no 222- 262.
c) That the Ld. AO has verified the copy of cash book along with relevant documents. The same is evident from copy of office note enclosed at page no 268 of paper book.
d) The relevant portion of the office note is reproduced for your ready reference: -
“The assessee has explained the source of SBN in his accounts out of cash in hand as on 08.11.2016 and furnished copy of cash book in support of cash in hand as on 08.11.2016 which have been examined and placed on record. Submission filed by the assessee were examined along with supporting documents. Nothing adverse inferred.”
7.4 That the assessee has submitted the copy of cash book and furnished the all the sales bills. That the Ld. AO after examination of the same accepted the explanation of the assessee and passed the assessment order under section 143(3) on 31.12.2019.However, the PCIT without even considering the submissions of the assessee directed AO to revise the assessment order dated 31.12.2019 passed under section 143(3) of the Act on the alleged ground that the same was erroneous in so far as prejudicial to the interests of the Revenue, in view of provisions contained in clause (a) of explanation 2 to section 263(1) inasmuch as the assessing officer had passedthe order without carrying out the necessary inquiries and verification which should have been made.
7.5 That the summary of cash sales vis a vis cash book is reproduced for your ready reference from which your honor will find that the cash sales bills exactly tallies with the cash book: -
DETAILS OF SOURCE OF CASH DEPOSITED
Bill No Item Date Amount Page no bill Cash book Page no
10 ITA No. 93/Asr/2022 Narinder and Company v. ITO 1113 Aluminium wire 01.11.2016 170741.00 223 193
49 GI wire 01.11.2016 154874.00 228 193
50 GI wire 01.11.2016 197533.00 226 193
1114 Aluminium wire 02.11.2016 188557.00 230 193
52 GI wire 02.11.2016 198967.00 232 193
53 GI wire 02.11.2016 197055.00 234 193
51 GI wire 02.11.2016 195622.00 236 193
1115 Aluminium wire 03.11.2016 191526.00 238 193
56 GI wire 03.11.2016 195145.00 240 193
57 GI wire 03.11.2016 181139.00 242 193
58 GI wire 03.11.2016 178633.00 243 194
64 GI wire 04.11.2016 197678.00 246 194
60 GI wire 04.11.2016 195970.00 248 194
1116 Aluminium wire 04.11.2016 144016.00 250 194
63 GI wire 04.11.2016 199631.00 252 194
61 GI wire 04.11.2016 198655.00 254 194
1118 Aluminium wire 05.11.2016 192216.00 224 194
66 GI wire 05.11.2016 139595.00 256 194
1117 Aluminium wire 05.11.2016 166286.00 258 194
67 GI wire 07.11.2016 166327.00 260 194
69 GI wire 07.11.2016 56863.00 262 194
11 ITA No. 93/Asr/2022 Narinder and Company v. ITO 3707029.00
7.6 That the assessee has submitted reply before the assessing officer in which the same figure of cash sales has been reflected in the reply dated 04.12.2019(Please refer page no 134- 135 of paper book).However, the assessee while submitting the summary has inadvertently mentioned as cash collection from debtors. The said fact has been verified by the assessing officer that the said amount represents cash sales and not cash collected from debtors.
a) The said facts were also apprised to PCIT in reply to SCN and the copy of reply is enclosed at page 277-288(relevant page no 279). The relevant portion of the submission made before PCIT is as under: -
It is important to bring to your kind notice that the sale bills are for the same amount, same date and to the same parties which your goodself has mentioned in table at page no 2 and 3 of the notice u/s 263. Therefore, the amount was not collected from debtors but is realization of cash sales and the same has been verified by the AO with due application of mind.
7.7 That the assessment proceedings started from 22.09.2018 and concluded on 31.12.2019 which is borne out from the copies of notices along with questionnaires wherein numerous queries were raised. That the assessee has submitted various replies in response to the queries raised.
a) Thus, from the above, it is very much clear that the AO has made proper verification on the issue of cash deposited during demonetization period. That after proper verification the Ld. AO has accepted the salesand as such, the contention of the assessee that the cash was deposited out of cash sales stands proved.
4.5 LEGAL ARGUMENTS RELIED UPON BY THE AR ON THE ISSUE OF CASH DEPOSIT
That the AR emphasized on the legal position that the assessee is not required to maintain the details of customers in the case of cash sales. The submissions as relied upon by the AR are as under: -
12 ITA No. 93/Asr/2022 Narinder and Company v. ITO 8. Legal position vis-a-vis cash sales
Furthermore, since the sales were made in cash, as such, the assessee was not required to maintain the details of the customers to whom such cash sales were made. As such, since sales were accepted by the AO, as such, the source of cash deposited in bank stands duly explained. In this regard reliance is placed upon the case of R.B. Jessaram Fateh chand (Sugar Dept.) v. Commissioner of Income-tax75 ITR 133 (refer paged 375-378) “Section 145 of the Income-tax Act, 1961 [Corresponding to section 13 of the Indian Income-Tax Act, 1922] –
Method of accounting - Rejection of accounts - On assessee's inability to supply addresses of purchasers who purchased goods on cash, ITO rejected assessee's books of account showing result in respect of cash sale transactions, and made addition - AAC deleted additions but Tribunal restored ITO's orders - Whether there was no necessity whatsoever for assessee to maintain addresses of cash customers - Held, yes - Whether, therefore, rejection of book results of assessee was unjustified - Held, yes - Whether, consequently, additions made to assessee's income were liable to be deleted - Held, yes”.
8.1 Similarly in the ACIT v. Hirapanna Jewelers - [2021] 128 taxmann. com 291 (Visakhapatnam - Trib.) (refer pages 1-7) it has been held where no defects were pointed in stock records in that case sales can’t be disbelieved. On appeal, Visakhapatnam ITAT held that purchases, sales, and stock are interlinked and inseparable. Every purchase increases the stock, and every sale decreases the stock. To disbelieve the sales, either the assessee should not have sufficient stocks in their possession, or there must be defects in the stock registers/stocks. Once there was no defect in the purchases and sales, and the same matches inflow and the outflow of stock, there was no reason to disbelieve the sales.
8.2 In the present case, it is reiterated that the issue of cash deposited during demonetization was duly considered and/ allowed by the assessing officer after due application of mind. There is, therefore, it is submitted, no case for exercise of revisionary jurisdiction on the aforesaid issue raised in the order issued under section 263 of the Act and consequently, the order passed u/s 263needs to be set aside.”
13 ITA No. 93/Asr/2022 Narinder and Company v. ITO 6.3 Per contra, the Ld. CIT (DR), on the other hand submitted that the Pr.
CIT mentioned in the impugned order that the explanation of the assessee
was accepted by the AO without making any verification and independent
enquiry in this regard. So, the entire order related to this particular issue is
erroneous. The invoking of section 263 of the Act is proper. He reiterated
the observation of the Ld. Pr. CIT in the order U/s 263 of the Act which are
reproduced hereunder: -
(iv). The explanation furnished by the assessee of the cash deposited during demonetization was that it was out of cash received from various persons. However, no independent verification was made by the AO from these persons mentioned in the table above. As per month-wise details filed by the assesse, NIL cash sales were made from May 2016 to October 2016. Cash received from debtors or as advance payments was also NIL from May 2016 to October 2016. However, cash received from various persons was shown in the cash book as mentioned above immediately prior to declaration of demonetization. The pattern of cash deposits was at variance with the normal business pattern of the pre- demonetization. As a result, an in-depth verification was required to be made on the issue as cash deposited during demonetization was one of the reasons for which the case was selected for complete scrutiny. The explanation offered by the assessee was accepted by the AO without making any enquiry / verifications at all in this regard. So much so that even the addresses, PANs , nature of transactions with these parties from whom these amounts were received in cash were not called for by the AO . The source of cash deposited of Rs. 54,50,000/- during demonetization has been accepted by the AO without making any independent inquiries/verifications as were called for under the facts and circumstances of the case.
14 ITA No. 93/Asr/2022 Narinder and Company v. ITO (v). The case was selected for complete scrutiny under CASS, hence the AO was required to look into all other issues as well apart from the issues flagged under CASS. No enquiry/verification was made by the AO on the issue of unsecured loans received during the year which was apparent from assessment record. The issue could also be closely linked to the issue of cash deposited during demonetization.
6.4 We have heard the rival contentions, perused the material and
document on record and impugned orders. As per statute, the section 263
has two limbs, firstly the assessment order is erroneous and secondly, it is
prejudicial to the interest of revenue. The AR drew the attention of the
bench on the relevant para of the assessment order placed at page 270-
271 of the paper book, which is reproduced below: -
“The information filed, supporting documents produced and submissions made by the assessee have been examined. Copy of ledgers of expenses and Cash Book were produced and has been kept with the record”.
6.5 Again, the AR relied upon the office note enclosed at page no 268 of the paper book wherein the AO has clearly stated that the assessee has duly explained the source of SBNs deposited in the account out of cash in hand and also submitted sale bills. The relevant para of the office note is being re-produced as under: -
“The assessee has explained the source of SBN in his accounts out of cash in hand as on 08.11.2016 and furnished copy of cash book in support of cash in hand as on 08.11.2016 which have been examined and placed on record. Submission filed by the assessee were examined along with supporting documents. Nothing adverse inferred.”
15 ITA No. 93/Asr/2022 Narinder and Company v. ITO 6.6 From the above, it is evident that the source of cash deposit was
stands substantiated by the assesse and there was proper verification of
cash deposits in the bank account just before the demonetization period
with due application of mind by the AO.
Next issue is regarding verification of unsecured loans by the AO.
The AR submitted that the unsecured loans, has duly been enquired by the
AO and he drew the attention of the bench towards notice u/s 142(1) dated
21.10.2019. Further, the AR also relied upon annexure enclosed along with
this notice placed at page no 27 of the paper book. It was also brought to
the knowledge of the bench that during the assessment proceedings the
assessee has submitted the following documents before the AO:-
copies of account of unsecured loans
TDS returns where the assessee has duly deducted the
TDS on interest
Details that all the unsecured loans were raised from
family members
DOCUMENTS SUBMITTED BEFORE CIT:
Copy of ITR/s of all the family members from whom
unsecured loans were raised
Complete postal address of all the family members
16 ITA No. 93/Asr/2022 Narinder and Company v. ITO 3. It was also brought to the knowledge of the CIT that the
family members from whom the unsecured loans were
raised are assessed by the same AO with which the
assessee is being assessed.
7.1 During hearing, the AR relied upon notice issued u/s 143(2) issued by
AO Ward 3(5) and the returns of the family members who were also
assessed with the same AO ward 3(5). The copy of the notice and return
relied upon by the AR is placed at page no. 19-20 and 292 of the paper
book. That the AR also stated that the loan as raised by the assessee has
duly been returned on the same day in respect of Narinder Kumar HUF.
7.2 On the other hand the ld. DR mentioned that the explanation of the
assessee was accepted by the AO without making any verification and
independent enquiry in this regard. So, the entire order related to this
particular issue is erroneous. Therefore, the invoking of section 263 of the
Act by the PCIT was proper. He reiterated the observation of the Ld. Pr.
CIT in the order U/s 263 of the Act which are reproduced hereunder: -
The reply was evasive and factually incorrect. Col. No. 31(a) of Form No. 3CD of the audit report and the copies of ledger accounts of creditors showed that the assessee had received following loans during the year:-
Name of the creditor Amount taken during the year
17 ITA No. 93/Asr/2022 Narinder and Company v. ITO Narinder Kumar Aggarwal HUF 10,00,000/-
Jagdish Lal Aggarwal HUF 2,50,000
Pulkit Aggarwal, HUF 1,23,500/-
Total 13,73,500/-
Perusal of assessment records shows that the assessee did not furnish any confirmations from theabove creditors. Nor were any enquiries/verification made by the AO on this issue at his own level.Only the names and PAN of the creditors were available in Form 3CD which could at the most be saidto be a proof of their identity. The other two ingredients, i.e., creditworthiness of the creditors andgenuineness of transactions, were neither established by the assessee nor verified by the AO at hisown level. The ITRs filed by the creditors or their relevant bank statements have not come on record. The unsecured loans were not even got confirmed by the AO from the creditors , not to speak of anyin-depth examination of the same.
No enquiries were thus conducted by the Assessing Officer on this issue at all and the unsecuredloans of Rs. 13,73,500/- received during the year remained unverified.
7.3 The Ld. AR contended that as all the documents were submitted
before the AO and PCIT, as such, the jurisdictional provisions as laid down
in the act have duly been complied by the assessee. It is the duty of the
Pr.CIT to make minimal enquiry and to hold as to how the order passed by
the AO is erroneous or prejudicial to the interest of the revenue by
considering the submissions made by the assessee. The AR also referred
to the definition of record as mentioned in clause (b) of explanation 1 to
18 ITA No. 93/Asr/2022 Narinder and Company v. ITO section 263. It was explained that the record shall be deemed to have
included all records relating to any proceeding under this act available at
the time of examination by Pr.CIT. Therefore, it was the duty of the PCIT to
analyze every record available with him before passing the order u/s 263 of
the act. In the present case, the Pr.CIT has not given any adverse view in
the lieu of documents submitted by the assessee. Therefore, it cannot be
said that the assessment order of the AO is erroneous or prejudicial to the
interest of the revenue. The submissions made by the AR are as under: -
SECOND ISSUE OF PROPER VERIFICATION OF UNSECURED LOANS.
That the Ld. PCIT has pointed out that the case was selected for complete scrutiny under CASS, hence the AO was required to investigate all other issues as well apart from the issues flagged by CASS. That as per the CIT no enquiry/verification was made by the AO on the issue of unsecured loan received during the year under consideration. It has also been pointed out that as per col. No 31(a) of form No 3CD and copies of account submitted showed a loan of Rs 13,73,500/- had been received during the year.The findings of PCIT in the order passes under section 263 are place at page no 300 of paper book.
9.1 That the AO vide notice dated 21.10.2019 along with the annexure had asked the assessee to furnish copies of account of unsecured loans raised along with full narration and mode of receipt. That the AO also asked to furnish complete name and address of person from whom unsecured loan was raised. The copy of notice is enclosed at page no 27 of the paper book. That the assessee in response to the same submitted copy of account of all the unsecured loans raised during the year under consideration. That the copy of account as submitted before AO are part of paper book, please refer page no 68-75.
9.2 That the assessee also submitted PAN number along with details of amount paid and TDS deducted in respect of amount paid to unsecured loan. The copy of TDS returns as submitted before the AO is placed at page no 92 of paper book. That it is pertinent to mention here that all
19 ITA No. 93/Asr/2022 Narinder and Company v. ITO the loan raised were from family members and not from the outsiders and the same has been duly reported by the auditor at clause 28 of the audit report. (Please refer page no 7 of paper book). The said issue has been examined by the AO that the loan raised were from family members. It is pertinent to mention here that all the assessee are income tax assessee and are assesses with the same assessing officer. Therefore, the identity, genuineness and creditworthiness has duly been verified by the AO.
9.3 That in the response to the SCN the assessee has also submitted ITR of all the family members from whom the unsecured loanswere raised before the PCIT.
a) That in the present cases, no such inquiry has been carried out by the Ld. PCIT and he has simply directed the Assessing officer to carry out detailed inquires although all the returns were submitted before PCIT in reply to SCN. The copy of reply to SCN is placed at page no 277-288. The summary of unsecured loans raised is as under: -
Name Relation Address PAN ITR filed loan Page no raised
Jagdish Uncle of Shop no 18, AABHJ5101N 190957 250000 Page no Lal HUF Partner Sh 1st floor 289-291 Narinder Mandi and Page Kumar( Fenton Ganj, No 70 chacha Ji) Jalandhar
Narinder HUF of Shop no 18, AAAHN4457Q 1229378 1000000 Page no Kumar Partner 1st floor 292-295 HUF Mandi and Page Fenton Ganj, no 72 Jalandhar
Pulkit Son of 91, Asha AAOHP2130G 767193 123500 Page no Aggarwal partner Sh Royal 296-298 HUF Renu Enclave, and Page Aggarwal. Near Thakur no 73 Singh Colony
20 ITA No. 93/Asr/2022 Narinder and Company v. ITO Jalandhar
1373500
9.4 That the PCIT has failed to appreciate that unsecured loan of Rs 10 lakh was raised from Narinder Kumar HUF on 19.01.2017 and was returned on 19.01. 2017.Therefore, the assessing officer after due application of mind on basis of material on record, came to conclusion that amount in question had been repaid to 'Narinder kumar HUF ' through banking channel on the same date and said transaction was a bona fide transaction. Therefore, the AO was justified in accepting the unsecured loan of the assessee because lender was also assessed with same ward 3(5) in which assessee was assessed. The same is evident from the fact that notice under section 143(2) was issued by AO ward 3(5) and Narinder Kumar HUF was also assessed in same ward 3(5). (Please refer page no 19-20 and 292 of paper book. Therefore, plausible view has been taken by the AO and it can’t be said to be erroneous as per provisions of section 263.
7.4 The AR placed reliance upon the judgment of Hon’ble jurisdictional Punjab and Haryana High Court in the case of Pr. Commissioner of Income-tax (Central) v. Kanin (India)*TEJINDER SINGH DHINDSA AND PANKAJ JAIN, JJ.IT APPEAL NOS. 205 AND 213 OF 2019 (O&M) †APRIL 21, 2022 141 taxmann.com 83. The said judgment is applicable on the facts of the assessee’s case, as in the present case, the CIT has failed to undertake any enquiry to establish that the assessment order is erroneous and prejudicial to the interest of the revenue. Their Lordships observed that it was incumbent upon the Pr.CIT to undertake an enquiry as regard the issues. The matter can be restored to the AO only after the Pr.CIT undertakes the enquiry himself. The said basic exercise has not been done by the Pr.CIT.
21 ITA No. 93/Asr/2022 Narinder and Company v. ITO 7.5 The counsel of the assessee pressed further placed reliance upon the case of Meerut Roller Flour Mills (P.) Ltd v Commissioner of Income tax 110 taxmann.com 170 (Allahabad)/[2019] 267 Taxman 18, [2017] 77 taxmann.com 15 (SC) SUPREME COURT OF INDIA Commissioner of Income-tax v. Nirav Modi among others. The cases relied upon by the counsel of the assessee were perused and have been found appropriate in the present case on the issue of enquiries were being made by the AO.
7.6 It is pertinent to mention that the view of ld. Assessing Officer being a plausible view, the assessment order could not be considered erroneous or prejudicial to interest of revenue. The assessee has also placed reliance upon the case of CIT v/s Max India Ltd. (2007) 295 ITR 282 (SC) [placed at page no 294-295 of the judgment paper book] to support the contention that in order to invoke section 263, it is a judicial requirement to satisfy twin conditions as per statute as under:
Twin condition is a jurisdictional requirement as laid down by various courts.That the CIT must satisfy 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 any one of them is absent i.e. if the assessment order is not erroneous but it is prejudicial to the Revenue, Sec.263 cannot be invoked.
7.7 Thus, the provision u/s 263 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 as also prejudicial to revenue’s interest, that the provision will be attracted. An incorrect assumption of the fact or an incorrect application of law will satisfy the requirement of the order being
22 ITA No. 93/Asr/2022 Narinder and Company v. ITO erroneous. The phrase 'prejudicial to the interest of the Revenue' must be read in conjunction with an erroneous order passed by the AO. Every loss of Revenue because of the order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, if the AO has adopted one of the two or more courses permissible in law and it has resulted in loss of revenue, or where two views are possible and AO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the AO is totally unsustainable in law. This view gets supports from Malabar Industrial Co. Ltd. v/s CIT (2000) 243 ITR 83 (SC). (refer pages 289-293 of judgement set).
7.8 Having examined the facts of the case and after perusal of the submissions placed on record, we find no error in the assessment order passed by the AO. The revenue has not been able to prove as to as to how the order passed by the Assessing officer was erroneous and prejudicial to the interests of the revenue. Moreover, the revenue has not been able to prove non-application of mind by the AO. In our view, mere allegation that the AO has passed the order without application of mind would not be legally justified to set aside the assessment order by way of invoking section 263 of the act.
7.9. Considering the factual matrix and the judicial precedents, we do not concur with the Pr.CIT that the AO did not verify the source of cash deposits and the unsecured loans raised during the year under consideration and that the order was passed without application of mind. Accordingly, we hold that the Ld. Pr.CIT finding and observation are infirm and perverse to the facts on record. Therefore, we hold that this is not a fit
23 ITA No. 93/Asr/2022 Narinder and Company v. ITO case for invoking the provisions of section 263 of the Act. Accordingly, the order passed under section 263 is being bad in law, and it is quashed.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 10.10.2022
Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member *GP/Sr/PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T True Copy By Order