GM INTERNATIONAL ,DELHI vs. AO WARD-36(1), DELHI

PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-

This appeal by the assessee is preferred against the order of the

Pr. CIT, Delhi - 12 dated 26.03.2022 framed u/s 263 of the Income-tax

Act, 1961 [the Act, for short] pertaining to Assessment Year 2017-18.

erred in holding that the assessment order dated 31.12.2019 is not only

erroneous but also prejudicial to the interest of the Revenue.

records carefully perused. Relevant documentary evidence brought on

record duly considered in light of Rule 18(6) of the ITAT Rules. Judicial

decisions relied upon by both the sides carefully perused.

in the business of fresh fruits. Return of Income was electronically filed

on 04.11.2017 declaring loss of Rs. 2,34,249/-. Return was selected for

scrutiny assessment and accordingly, statutory notices were issued and

served upon the assessee.

making addition on account of unexplained money u/s 68 of the Act Rs.

54,91,025/-, addition of Rs. 1,74,35,000/- on account of unsecured loan

and disallowance of interest expenses amounting to Rs. 12,38,800/-.

CIT(A), the PCIT assumed jurisdiction u/s 263 of the Act and issued a

show cause notice to the assessee which reads as under:

and detailed reply is placed at pages 4 to 10 of the Paper Book.

proceeded by partly setting aside the assessment order dated 31.12.2019

with the direction that the assessment be made after conducting

appropriate enquiry and verification.

are of the considered view that the quarrel relating to the source of cash

deposit during the demonization period is partly subjudiced before the ld.

CIT(A) as the additions were made by the Assessing Officer while framing

the assessment order u/s 143(3) of the Act.

exercisable under certain circumstances. In this regard, we refer to

section 263(1) Explanation 1(c) which reads as follows:

“(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."

the powers of the PCIT u/s 263 of the Act as the PCIT cannot assume

jurisdiction on the issues which are also subject matter of any appeal

before the ld. CIT(A).

transaction relating to the availability of cash during the demonetization

period and subsequent to that. Since the appeal is pending before the ld.

CIT(A), in our humble opinion, the ld. PCIT has wrongly assumed

jurisdiction u/s 263 of the Act, which action is not only an act usurping

the power of the ld. CIT(A) but also blatant misuse of power conferred

upon by provisions of section 263 of the Act.

on merits of the case, a close scrutiny of the evidences brought on record

show that during the assessment proceedings, the first notice was issued

by the Assessing Officer u/s 142(1) of the Act on 13.09.2019, raising

following queries:

“1. brief note on business/activities carried out by you during the period under consideration.

The above information is required u/s 142(1) of the Income Tax Act, 1961. Please note that in case of non-compliance, I shall be constrained to impose penalty u/s 272A(1 )(d) of the I. T. Act, 1961 and assessment will be completed on the basis of material available on record u/s 144 of I. T. Act, 1961”

notice dated 19.11.2019, which is placed at pages 40 to 42 of the Paper

Book wherein specific queries were raised asking the assessee to explain

the nature and source of large cash deposits in the bank accounts during

the year with details regarding source of cash deposited during the

denomination period to furnish copy of cash account with narration of

entries with details of persons from whom cash has been received.

26.11.2019 which is placed at pages 3 & 44 of the Paper Book.

and purchases for verification of cash deposit in the format given in the

questionnaire.

to 31.03.2017 in the format given by the assessee was submitted. In this

reply the assessee once again explained that the modus operandi of cash

deposits are sales proceeds of the fruits sold in auction in the morning

and also from business premises and thereafter realization from the

hawkers in respect of sales.

old currency and new currency in the bank from 09.11.2016 to 30.12.2016

alongwith copy of cash book for the whole year. This reply is placed at

pages 43 and 44 of the Paper Book. Details of cash deposit is as under:

208 to 213 of the Paper Book.

doubt remained in the mind of the Assessing Officer. Therefore, on

26.12.2019, the Assessing Officer issued final show cause notice which is

as under:

also furnished reply to the queries raised by the Assessing Officer the

same reads as under:

Officer, replies of the assessee alongwith documentary evidences, we

have no hesitation to hold that specific queries were raised by the

Assessing Officer to which specific replies were filed by the assessee and

wherever the Assessing Officer was not satisfied, he made the additions.

Therefore, by no stretch of imagination, it can be said that the Assessing

Officer has framed the assessment order:

a) without application of mind

b) without making proper enquiry

c) without making proper verification.

cannot be said to be erroneous and prejudicial to the interest of the

Revenue.

Malabar Industrial Co. Ltd., 243 ITR 83, has laid down the following ratio:

"A bare reading of section 263 of the Income-tax Act, 1961, makes it clear that the prerequisite for the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-tax Officer is erroneous in so far 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. 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 7 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 ".

ITR 108 has held as under:

“The power of suo motu revision under subsection (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub- section, viz., (i) the order is erroneous; (ii) by virtue of the order being

erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous assessment" and "erroneous judgment" have been defined in Black's Law Dictionary. 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 a 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 judgment" means "one rendered according to course and 8 practice of court, but contrary to law, upon mistaken view of law; or upon erroneous application of legal principles". 12. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was

on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income- tax Officer. That would not vest the Commissioner with power to re- examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi- judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not 9 feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. We, therefore, hold that in order to exercise power under sub-section (1) of section 263 of the Act there must be material before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax

Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the 10 record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Incometax Officer cannot be held to be "erroneous" simply because in his order he did not make an elaborate discussion in that regard. Moreover, in the instant case, the Commissioner himself, even after initiating proceedings for revision and hearing the assessee, could not say that the allowance of the claim of the assessee was erroneous and

that the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income- 11 tax Officer to re- examine the matter. That, in our opinion, is not permissible. Hence the provisions of section 263 of the Act were not applicable to the instant case and, therefore, the commissioner was not justified in setting aside the assessment order.”

exercised by the Commissioner on satisfaction of twin conditions, i.e.,

the assessment order should be erroneous and prejudicial to the interest

of the Revenue. By 'erroneous' is meant contrary to law. Thus, this power

cannot be exercised unless the Commissioner is able to establish that the

order of the Assessing Officer is erroneous and prejudicial to the interest

of the Revenue. Thus, where there are two possible views and the

Assessing Officer has taken one of the possible views, no action to

exercise powers of revision can arise, nor can revisional power be

exercised for directing a fuller enquiry to find out if the view taken is

erroneous. This power of revision can be exercised only where no

enquiry, as required under the law, is done. It is not open to enquire in

case of inadequate inquiry. Our view is fortified by the 12 decision of

Hon'ble High Court of Bombay in the case of CIT vs. Nirav Modi, [2016] 71

Taxmann.com 272 (Bombay)".

Chemical Works Ltd. 309 ITR 67 has observed as under:

“if assessment order were to incorporate the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment proceedings for both the Assessment Years, the Assessing . A.Y. 2009-10 Officer issued a query memo to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the creditworthiness/capacity of the donors, the source from where these funds have come and also the creditworthiness/ capacity of the donor. Once the Assessing Officer was satisfied with regard to the same, there was no further requirement on the part of the Assessing Officer to disclose his satisfaction in the Assessment Order passed thereon. Thus, this objection on the part of the Revenue cannot be accepted.”

Sunbeam Auto reported in 332 ITR 167 has held as held as under:

“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the CIT under s. 263 of the IT Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the AO did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the AO had not applied his mind on the issue. There are judgments galore laying down the principle that the AO in the assessing order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission 14 that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the CIT to pass orders under s. 263 of the Act, merely because he has different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open”.

we failed to persuade ourselves to accept the contention of the ld. DR

who had strongly supported the findings of the PCIT. We are of the

considered view that the order framed u/s 263 of the Act deserves to be

set aside and that of the Assessing Officer deserves to be restored. We

order accordingly.

allowed.

The order is pronounced in the open court on 16.08.2023.

Sd/- Sd/-

[YOGESH KUMAR U.S] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 16th August, 2023.

VL/

Asst. Registrar, ITAT, New Delhi

Date of dictation Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr.PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr.PS/PS Date on which the final order is uploaded on the website of ITAT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order