Hotel Royal Garden, Daman and Diu (UT) V. The PCIT, Valsad, Valsad

ITA 103/SRT/2022

AI Insights

The case involves Hotel Royal Garden, which appealed against the order of the PCIT, Valsad, under section 263 of the Income Tax Act, 1961. The PCIT had set aside the original assessment order passed by the Assessing Officer (AO) under section 143(3), which accepted the returned income without further inquiry into the substantial undisclosed income declared during a survey. The Tribunal examined whether the PCIT was justified in invoking section 263, considering the lack of detailed inquiry by the AO into the nature and source of the declared income. The Tribunal found that the AO had not adequately investigated the circumstances surrounding the undisclosed income, thus supporting the PCIT's order for a de novo assessment.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 301760 (ITAT-SURAT)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-01-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 03-05-2022
• Other Referred Cases: CIT vs Bajargan Traders, Malabar Industris Pvt. Ltd. vs CIT, CIT vs Nirma Chemicals Works (P.) Ltd., Gandhi Ram vs PCIT, CIT vs. Mhaskar General Hospital, M/s. Nilkhanth Developers vs ITO, Ramesh Kumar vs ITO, Sunbeam Auto vs CIT, Gee Vee Enterprises vs Add.CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: DARSHIT J. NAIK; JAYRAJ M
• Keywords: Unexplained investment; Business income; Revision of order; Principle of natural justice; Deemed to accrue or arise in india; Difference of opinion
• Section: 263; 69C; 11; 143(3); 142(1); 143(2); 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.103/SRT/2022 Assessment Year: (2017-18) (Physical Court Hearing) Hotel Royal Garden, Main Road, Dabhel, Nani Daman – 396210, Daman and Diu (UT). Vs. The PCIT, Valsad. èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAEFH2587H (Appellant) (Respondent) Appellant by Shri Darshit J. Naik, CA with Jayraj M. Naik, CA Respondent by Shri Ashok B. Koli, CIT(DR) Date of Hearing 05/01/2023 Date of Pronouncement 21/03/2023 आदेश / O R D E R PER DR. A. L. SAINI, AM: By way of this appeal, the assessee has challenged the correctness of the order passed by the Learned Principal Commissioner of Income Tax, Valsad [in short ‘ld. PCIT’], under section 263 of the Income Tax Act, 1961, dated 27.03.2022. 2. Grounds of appeal raised by the assessee are as follows: “1. The learned Pr.CIT erred in passing an order u/s. 263, when the jurisdictional conditions were not satisfied. 2. The learned Pr.CIT erred in assuming jurisdiction u/s 263 even though a detailed inquiry was carried out by the Assessing Officer on the issue pertaining income declared during the Survey by the Appellant firm during the year under consideration. 3. The learned Pr.CIT erred in assuming jurisdiction u/s 263 merely on the basis of a difference of opinion with the Assessing Officer. 4. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr.CIT has erred in invoking his powers/ authority under section 263 of the Income Tax Act, 1961, and the order passed by him u/s.263 is without jurisdiction. Page | 2 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden 5. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr.CIT has failed to appreciate that the assessment order passed by the ACIT, Vapi Circle, Vapi (hereinafter referred to as the AO) was neither "erroneous" nor "prejudicial to the interest of the revenue" and thus the very invocation of power under section 263 is wholly illegal and beyond jurisdiction. 6. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr.CIT has erred in invoking powers under section 263 and passing order holding the assessment order to be "erroneous" and "prejudicial" without even justifying, which of the two phraseology used in section 263 is applicable and as to how the order of assessment is "erroneous" causing "loss to the revenue". 7. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr.CIT has erred in holding that the AO has failed to make proper enquiry into the facts of the case and on that ground in further holding that the assessment order dated 29/10/2019, passed by the AO u/s. 143(3), is erroneous as well as prejudicial to the interest of Revenue and in cancelling the assessment with the direction to the AO to reframe the assessment. 8. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr.CIT has failed to appreciate that assessment order dated 29/10/2019, as had been passed by the AO in accordance with the law and the learned CIT could not have held the said order to be "erroneous and prejudicial to the interest of Revenue" within the meaning of Section 263. 9. On the facts and in the circumstances of the case as well as law on the subject, in any event, in response to the notice under Section 263, the appellant had made detailed submissions on the issue that had been taken up in the notice u/s.263 and for the reason that the learned Pr.CIT has failed to carry out his statutory obligation to deal with and decide such issue, the order under Section 263 stands wholly vitiated and the same deserves to be quashed. 10. For various reasons and on different grounds, the order u/s.263 passed by the Pr.CIT is bad in fact and law of the case and requires to be cancelled. 11. The above Grounds of Appeal are without prejudice to and are independent of each other. 12. Your Appellant craves, leave to amend, alter, delete and/or add to foregoing Grounds of Appeal any time before the appeal is decided.” 3. In this appeal, assessee has raised multiple grounds of appeals. In fact, most of the grounds of appeal are kind of arguments only. However, at the time of hearing, we have noted that solitary grievance of the assessee is that jurisdiction exercised by Ld. PCIT under section 263 of the Act is bad in law and therefore as per assessee order of the Ld. PCIT may be quashed. We shall adjudicate above multiple grounds as one. Page | 3 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden 4. Succinctly, the factual panorama of the case is that assessee firm is running a hotel and restaurant in the name of "Hotel Royal and Garden" in Daman and has earned income from business and profession during the year under consideration. The assessee firm filed its return of income for AY.2017-18 on 30.10.2017 declaring total income of Rs.89,07,362/-. The return was selected for scrutiny through CASS. The assessment order u/s 143(3) was passed on 29/10/2019 accepting the returned income of Rs.89,07,362/-. 5. Later, Learned Principal Commissioner of Income Tax, Valsad [in short ‘ld. PCIT’], exercised his jurisdiction under section 263 of the Income Tax Act, 1961. The ld PCIT noted that there was a survey at the business premises of the assessee on 10.09.2016 in which assessee had declared more than one crore rupees as its undisclosed income for the financial year 2015-16 and 2016-17, however this important fact has neither been mentioned in the assessment order nor any further enquiry or verification was done by the assessing officer, as far as, disclosure of the income by the assessee is concerned. The assessing officer failed to verify the nature of disclosure and the particular head under which it should actually be taxed. In view of the above factual position, a show cause notice vide DIN No. ITBA/REV/F/REV1/2021-22/1040967706(1) 17,03,2022 was issued by Ld. PCIT to the assessee. The show cause notice dated 17.03.2022 is as reproduced below: “To, M/s Hotel Royal Garden Main Road, Dabhel, Nani Daman-396210 Sir, Sub: Action u/s. 263 of the Income Tax Act, 1961 in the case of M/s Hotel Royal Garden (PAN: AAEFH2587H) A.Y. 2017-18 - Show Cause notice - Regarding **************** Please refer to the above. 2. The assessee firm is running a hotel and restaurant in the name of "Hotel Royal and Garden" in Daman and has earned income from business & profession during the year under consideration. The assessee firm filed its e-return of income for A.Y. 2017-18 on 30.10.2017 declaring total income of Rs.89,07,362/-. The return was selected for complete scrutiny through CASS. The assessment order u/s 143(3) was passed on 29/10/2019 accepting the returned income of Rs.89,07,362/-. 3. On perusal of the case records, it is noticed that a survey action was conducted in the case of the assessee on 10-09-2016 and the assessee firm had made declaration of Rs.50,26,300/- related to the F.Y.2016-17. Further, it is seen that firm had debited the Page | 4 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden declared income of Rs.50,26,300/- to the Sundry Receivable account and credited the same to the "Income Declared during the Survey account". As the income declared during the course of survey action was unaccounted, therefore, it was required to be treated as per the provisions of Sections 68/69/69 A/69B/69C of the I.T. Act and rate of tax was to be applied as prescribed u/s.15BBE the IT Act without adjusting it with any losses as per CBDT circular No. 11/2019 Which is as under Government of India: Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes Circular No.1.1/2019 North Block, New Delhi, dated the 19 th of June, 2019 Subject: Clarification regarding non-allow ability of set-off of losses against the deemed income under section 115BBE of the Income-tax Act, 1961 prior to assessment-year 2017-18-reg. With effect from 01.04.2017, sub-section (2) of section 115BBE of the Income-tax Act, 1961 (Act) provides that where total income of an assessee includes any income referred to in section(s) 68/69/69A/69B/69C/69D of the Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provisions of the Act in computing the income referred to in section 115BBE(1) of the Act. In this regard, it has been brought to the notice of the Central Board of Direct Taxes (the Board) that in assessments prior to assessment year 2017-18, while some of the Assessing Officers have allowed set off of losses against the additions made by them under Section(s) 68/69/69A/69B/69C/69D, in some cases, set off of losses against the additions made under Section 115BBE(1) of the Act have not been allowed. As the amendment inserting the words 'or set off of any loss' is applicable, with, effect from month of April, 2017 and applies from assessment year 2017-18 onwards, conflicting views have been taken by the Assessing Officers in assessments for years prior to assessment year 2017-18. The matter has been referred to the Board so that a consistent approach is adopted by the Assessing Officers while applying provision of section 115BBE -assessments for period prior to the assessment year 2017-18. 3. The Board has examined the matter. The Circular No. 3/2017 of the Board dates 20 th January, 2017 which contains Explanatory notes to the provisions of the Finance Act, 2016, at para 46.2, regarding amendment made in section 115BBE(2) of the Act mentions that currently there is uncertainty on the issue of set-off of losses against income referred to in section 115BBE. It also further mentions that the pre-amended provision of section 1 1 5BBE of the Act did not convey the intention that losses shall not be allowed to be set-off against income referred to in section 115BBE of the Act and hence, the amendment was made vide the Finance Act, 2016. 5. As per norms of accountancy income declared during survey cannot be a revenue head. It has to be explained in terms of unaccounted purchases, unaccounted sales, unaccounted expenses, unaccounted investment in any kind of asset which are not recorded in the books of accounts or source of any credit entry made in the books of accounts. However, the Assessing Officer in spite of case selected for complete scrutiny failed to do so and no further enquiry investigation or clarification was sought from the assessee regarding the exact breakup or nature of income. Page | 5 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden 5.1 From the above, it is clear that the assessment made in the case of the assessee for A.Y. 2017-18 is not only erroneous but also determined to the interest of revenue and therefore need to be revised u/s. 263 of the I.T Act, 1961. Please note that your reply must explain the above issues i.e. whether the income declared during the Survey represented unaccounted purchases, unaccounted sales, unaccounted expenses, unaccounted investment in any kind of asset which are not recorded in the books of accounts or source of any credit entry made in the books of accounts and how they were finally accounted for and how the payment was made alongwith sources thereof, separately and give the breakup of survey income into above-mentioned heads and also clearly establish why this order dated 29.10.2019 is neither erroneous nor prejudicial to the interest of Revenue. You are accordingly informed that if nothing is heard on or before 24/3/2022, it will be presumed that you have nothing to explain in this matter and there is no objection for the proposed action u/s. 263 of the Income Tax Act 1 961 and an order under section 263 of the Income Tax Act 1961 will be passed on the basis of material available on records.” 6. The above show cause notice was duly delivered to the assessee. In reply to the show cause notice, the assessee filed its submission on ITBA portal on 24.03.2022 and 25.03.2022. However, Ld. PCIT after going through these assessee`s replies noted that declaration made during the course of survey proceedings on the premises of the assessee on 10/09/2016 was on account of under the head sundry receivable account. It was further stated that the assessee firm had duly credited the same to the income declared during the survey and debited the same to the cash account. It is further submitted that the copy of cash book for financial year 2016-17 was also submitted during the assessment vide letter dated 27/10/2019. In this connection it was observed by Ld. PCIT that a person who receives goods or services from a business in credit or does not make the payment immediately and is liable to pay the business in the future is called a Sundry Debtor and businesses use an account to track these transactions and they are called as Sundry Debtor account or Accounts Receivable. 7. The Ld. PCIT noted that if the assessee has disclosed income on account of sundry receivables it was the duty of the assessee to show the complete transaction of sale and how much amount has been received and how much amount is pending. As accepted by the assessee these sundry receivables were not accounted for in the books of accounts at the time of survey and therefore a declaration that they are not accounted for in the books of accounts was made and Page | 6 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden some income was disclosed/declared. However, the AO was required to examine these transactions /verified viz- a- viz the following: (1) The assessee is in the business of hotel and restaurant business and chances of having such sundry receivables is very low because it is a cash business. No client would be allowed to leave the hotel or restaurant without paying the bill until and unless it is a known client and where the assessee is having a system of receiving the due amount at a later date. Moreover, the assessee declared such sundry receivables for two consecutive financial years i.e. 2015-16 and 2016-17 without pointing out even the name, complete addresses and amount outstanding against each such persons. The fact that disclosure has been made in two consecutive financial years clearly shows that a portion of the sales turnover was never recorded in the books of accounts because if these sundry receivables were part of the books of accounts than they would have been part of sundry debtors for financial year 2015-16. It is also not clear how the books were finalised and accounts were audited when such a big chunk of sales turnover was kept outside the books of accounts. This clearly shows that even the audited books of accounts were not showing the correct income of the assessee. (2) How the sales were made and whether any sale Bill was issued and what was the sale bill number. (3) Corresponding purchase entry against such sales. (4) Whether the purchases were duly accounted for and taken to stock register and how payments were made against such purchases. (5) Whether the stock register shows movement of the stock supporting the sales made. (6) Whether it is a case of suppression of sales or suppression of part sales consideration. (7) If it is a question of suppression of sales then corresponding suppression of purchase would also be considered however if it is suppression of sales consideration than it would invite addition on account of gross profit ratio. Page | 7 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden (8) How the purchase, sales and stock registers where updated after the survey by the Income Tax Department. (9) Whether the money has been received from these sundry receivables by the assessee and how and when the same was accounted for. (10) Whether any disclosure has been made by the auditor in the audit report. 8. Thus, Ld. PCIT noted that no such details were produced by the assessee either before the AO or even before him till the date of passing the order by him (ld PCIT) under section 263 of the Act. During the course of assessment the assessing officer is required to assess the correct income of the assessee. The assessing officer is required to go through the documentary evidences and books of accounts of the assessee and come to a conclusion that the income shown by the assessee in the return of income is correct. In this case the assessing officer has not even mentioned the most important fact that during the year under consideration a survey was conducted on the premises of the assessee and substantial income was disclosed. It is pertinent to note that from 1/4/2019 till the date of survey (six months), the assessee has disclosed an income of Rupees 50,26,300 and for remaining (six months) it is only Rupees 38,81,062 even though this part of the year the sales of the assessee remains to be maximum. The AO has not examined the profit and loss account for the period 1/4/2016 to 10/9/2016 and from 11/9/2016 to 31/3/2017 and verify the gross profit and by the assessee commensurate with the earlier period. Clearly the assessing officer has accepted the disclosure on its face value without going through the nature of transactions which have been disclosed and whether such disclosure is proper or not. In paragraph (3a) of the letter dated 25.03.2022 the assessee seems to be confused whether there was a diary found at the time of survey conducted by the Income Tax Department, in which such sundry receivable were recorded or not because it is a stated that: "Nothings in the form of a diary in which these receivables were recorded was impounded during the course of survey action. The receivables listed in the diary aggregated to Rs. 50,04,100 relating to F.Y. 2015-16 and Rs.50,26,300 relating to F.Y.2016-17" Relevant paragraph (3 a) of letter dated 25/3/2022 is reproduced as under: Page | 8 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden 3. a. Income declared during the course of survey was not available in the hands of the assessee firm on the date of survey but it was in the form of "receivable" on the date of survey. Nothings in the form of a diary in which these receivables were recorded was impounded during the course of survey action. The receivables listed in the dairy aggregated to Rs.50,04,100/- relating to F.Y. 2015-16 and Rs.50,26,300/- relating to F.Y. 2016-17 hence the same additional income was admitted during the course of survey over and above regular income of the firm and was offered for taxation by adding the same in the computation while ROI was filed by the firm u/s139(1).” 9. The Ld. PCIT further noted that in paragraph (3 e) of the letter dated 25.03.2022, the assessee has misinterpreted the whole circular issued by the CBDT. The question involved in the circular was not whether the income disclosed during the course of survey should be treated as per the provisions of section 68, 69, 69A, 69B, 69C of the Income Tax Act. The question was whether the losses of earlier years can be set off from deemed income under section 15BBE of the Act. Any income which is disclosed during the course of survey (whether in cash or kind) has to be tested on the basis of books of accounts maintained by the assessee and if it has not been disclosed than on the basis of nature of that income i.e. whether it is unexplained investments, unexplained money or amount of investments which are not fully disclosed in the books of accounts or cash credits would be treated as deemed income which is to be taxed as per the provisions of section 115BBE. Thus, findings of survey proceedings are very important and are to be rigorously pursued in terms of enquiry or verification as to verify whether the income has to be taxed as per the provisions of section 115BBE or not. In the present case the AO has failed to do so. Further it has been submitted by the assessee that partners’ capital account has been credited with the amount of Rs.50,26,300/-. The assessee has failed to appreciate that it was income of the firm which needed to be considered in the hands of the firm and only after that it has to be apportioned among the partners after being taxed. It is not that simple that even if the income belongs to the partnership firm simply by crediting the partners account an asset can be created in the partnership firm without routing it through profit and loss accounts. 10. Therefore, the Ld. PCIT further noted that the question involved in these proceedings is not that the disclosed amount during the course of survey has been Page | 9 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden reflected in the computation of income. The question involved is whether AO considered the disclosure of income properly and determined the income of the assessee for the year under consideration on the basis of documentary evidences available at the time of records and if any further clarification or verification or enquiry was to be conducted whether such action has been taken or not? And finally in absence of any such action taken by the assessing officer whether the assessment framed is erroneous and therefore pre-judicial to the interest of Revenue. The assessee has also cited before Ld. PCIT the decision of hon’ble Rajasthan High Court in the case of CIT vs Bajargan Traders without even going through the facts of the case. In that case the excess stock was found for which bills were not readily available but assessee could established its bona fides that the stock available at the time of income tax proceedings was part of the business of the assessee and therefore not to be treated under sections 68,69,69A,69B,69C of the Income Tax Act. The assessee has also given a plethora of cases without verifying whether the facts of the case are similar to the facts of the case of the assessee. In the present case the assessee was duty-bound to come out with full particulars which it has not done. In fact, the AO was much benevolent that without any particulars, income has been accepted without conducting any enquiry or verification that too in case of a survey. The disclosure of income in return of income is neither based on the whims of the assessee nor is the assessment in a particular manner a prerogative of the assessing officer. The whole exercise is to be based on facts and it is the duty of the assessing officer to marshal all the facts and come to a logical conclusion about the income of the assessee for the year under consideration. 11. Therefore, considering these facts, an opportunity was given by Ld. PCIT to the assessee to furnish full particulars by way of notice dated 17/03/2022, however instead of furnishing complete particulars about the disclosure of income and how the income was determined on the basis of facts which were available at the time of survey, the assessee has preferred to give explanation which is not based on facts. In view of the above facts Ld. PCIT held that assessment order is not based on appreciation of facts which were very much available before the Page | 10 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden assessing officer nor law which demanded that the assessing officer to assess the income of the assessee under proper head and therefore the assessment order needs to be revised. Therefore, Ld. PCIT noted that the assessment order u/s. 143(3) of the I.T. Act, 1961 in the case of assessee( Hotel Royal Garden) for AY.2017-18 passed on 29.10.2019 by the Assessing Officer is erroneous in so far it is prejudicial to the interest of revenue. Therefore, the assessment order u/s. 143(3) of the Income tax Act, 1961 dated 29.10.2019 for A.Y. 2017-18 in the instant case was set-aside by Ld. PCIT with the direction to frame the assessment De novo after making proper enquiries on aforesaid issues. 12. Aggrieved by the order of the Ld. PCIT, the assessee is in appeal before us. 13. Learned Counsel for the assessee submitted before us that assessee made a declaration during the survey proceedings for two assessment years, namely AY.2016-17 and 2017-18 and at the time of survey proceedings, the statement recorded by the Income Tax Authority clearly shows that the amount was pertaining to financial year 2015-16 and financial year 2016-17 which were not recorded in the regular books of accounts. However, the assessee has disclosed the same during the survey and it was stated by assessee that such undisclosed income had not shown in books of accounts and it was also stated by the assessee that it pertains to his business. 14. The Ld. Counsel submitted that assessee does not have any source of income other than his business income and the amount disclosed during the survey pertains to business income, therefore it should be assessable under the head business income and not under the head income from other source under sections 68/69 of the Act. 15. The Ld. Counsel admitted that although the Assessing Officer has not raised the query regarding the issue raised by the Ld. PCIT in his order. However, the Assessing Officer might have examined the issue from survey documents available with him. That is, all the survey material was with the file of the Page | 11 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden Assessing Officer and the Assessing Officer might have examined the survey material while framing the assessment order. 16. The Ld. Counsel also admitted that in the order by the Assessing Officer under section 143(3) of the Act, no doubt, the Assessing Officer has not discussed the issue raised by ld PCIT in his order under section 263 of the Act, however the facts remain, that survey records were with him (AO) so he might have examined the issue, therefore ld PCIT should not have exercised his jurisdiction under section 263 of the Act. Thus, it may be deemed that assessing officer might have examined the issue and might have applied his mind. To bolster his arguments, the Ld. Counsel relied on the various judgements, such as Malabar Industris Pvt. Ltd. vs CIT, 243 ITR 83 (SC), CIT vs Nirma Chemicals Works (P.) Ltd., 309 ITR 67 (Guj.), Gandhi Ram vs PCIT (In ITA No. 121/Chd/2021), CIT vs. Mhaskar General Hospital, TA No.1474 of 2009)(Guj.HC), M/s. Nilkhanth Developers vs ITO (ITA No.2610/Ahd/2014)(Ahd.Trib.). The ld Counsel submitted before the Bench, the case law compilations, which we have gone through. Therefore, Ld. Counsel contended that Assessing Officer has made adequate inquiry and therefore order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue, hence order passed by Ld. PCIT may be quashed. 17. On the other hand, Learned Departmental Representative (Ld. DR) for the Revenue pointed out that Assessing Officer has not raised the issue in the notice under section 142(1) of the Act, therefore there is non-application of mind by the Assessing Officer. The Assessing Officer did not ask the question during the assessment proceedings from the assessee about the issue raised by the Ld. PCIT, therefore there is complete non-application of mind by the Assessing Officer. Apart from this, had the Assessing Officer applied his mind, based on survey records, he would have brought these issues in his assessment order. There is no whisper in the assessment order about the issue raised by the Ld. PCIT, therefore the issue raised by the Ld. PCIT remain unattended on the part of the Assessing Officer. Neither the Assessing Officer has referred survey material in his Page | 12 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden assessment order nor the Assessing Officer issued the notice to the assessee to ask question. The assessee should reply to the Assessing Officer and this process has not been completed, therefore it is completely a non-application of mind and it is a case of complete “no inquiry”. Therefore, Assessing Officer has not made any inquiry during the assessment proceedings, hence the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. 18. The Ld. DR for the Revenue took us through the question and answer vide page no.115 of the paper book and have gone through the question no.14 asked by the survey team during the survey. The Ld. DR submitted that in answer to question no.14, the assessee has himself admitted that whatever he is disclosing to the survey team was never recorded in the books of accounts. Therefore, it was unaccounted income in the hands of the assessee, therefore such unaccounted income should be assessable under section 68/69 of the Act. The Ld. DR also submitted that since the Assessing Officer has not raised any question during the assessment proceedings about the issue raised by the Ld. PCIT, however the assessee has demonstrated that he had filed reply before the Assessing Officer, which is incorrect and assessee has mislead and distorted the facts. Since, such question was never asked by the Assessing Officer nor he has brought this fact in his assessment order, therefore it is a complete case of “no inquiry” and non- application of mind. Therefore, ld DR prays the Bench that order of Ld. PCIT may be upheld. 19. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other material brought on record. We note that Assessing Officer has issued the notice under section 142(1) of the Act which is reproduced below: Page | 13 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden Page | 14 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden 20. From the above notice issued by the Assessing Officer under section 142(1) of the Act, it is vivid that Assessing Officer has not raised any question about verification of the amount undisclosed and its nature, during the survey proceedings. Therefore, it is quite clear that Assessing Officer has not applied his Page | 15 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden mind and has not scrutinized the issue raised by the Ld. PCIT under section 263 of the Act. The Ld. Counsel admitted that that AO has asked question by way of issue notice under section 142(1) of the Act, however, it does not pertain to undisclosed amount in survey, but it pertains to huge cash in hand in F.Y.2016-17 till 08.11.2016, which is altogether a different issue, and does not pertain to issue raised by ld PCIT. Therefore, it is clear that assessing officer never asked the assessee about the undisclosed amount in survey and he never applied his mind. 21. We note that Assessing Officer has also issued a further notice under section 142(1) dated 28.08.2019 which is placed at page no.57 of the paper book, which reads as follows: Page | 16 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden Page | 17 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden Page | 18 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden 22. From the above notice it is vivid that the Assessing Officer has not asked the question about the (undisclosed income in survey) issue raised by the Ld. PCIT, therefore it is quite clear that Assessing Officer has not applied his mind nor examined the issue raised by the Ld. PCIT. 23. Now, we have to examine whether Assessing Officer has brought the material on his assessment order about the issue raised by the Ld. PCIT. To understand this, we have to go through the assessment order of the Assessing Officer, passed by him under section 143 (3), dated 29.10.2019, which read as follows: “1. In this case the assessee filed its return of income for the AY.2017-18 on 30.10.2017, declaring total income of Rs.89,07,362/- vide e-filling acknowledgement no. 274021491301017. Thereafter, the case was selected for complete scrutiny through CASS. Notice U/s. 143(2) of the I. Tax Act was issued on 17.08.2018, which was duly served on the assessee through e-mail. Thereafter, a notice u/s. 142(1) of the I. Tax Act, along with a detailed questionnaire, calling for details and explanations was issued on 28.08.2019 & 01.01.2019 and served on the assessee through e-mail. 2. The assessee has e-filed its submission in response to various notices issued to them and furnished the required details on 04.10.2019, 19.10.2019 & 29.10.2019. 3. The assessee firm is running a hotel and restaurant in the name of “Hotel Royal Garden” in Daman and has earned income from business & profession, during the year. 4. Subject to the above remarks, the total income of the assessee as per returned income filed is accepted. Total income as per return : Rs.89,07,362/- Assessed Income : Rs.89,07,362/- 5. Assessed u/s 143(3) of the I.T. Act, 1961. Given credit to pre-paid taxes after due verification. Charged interest u/s. 234A, 234B, 234C & 234D as applicable. Issued DN/Challan accordingly.” 24. From the assessment order, it is abundantly clear that Assessing Officer has not discussed the issue raised by the Ld. PCIT, therefore we note that it is a case of complete non-enquiry ( no enquiry) on the part of the Assessing Officer. The assessing officer blindly accepted only the income shown by the assessee in his return of income. We note that purpose of scrutiny assessment under section 143(3) of the Act is to examine relevant income and expenses to determine the Page | 19 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden true income of the assessee under relevant head of income. The assessing officer accepted the return of income shown by assessee without any discussion in the assessment order about the issue raised by ld PCIT hence order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. 25. The argument of ld Counsel to the effect that survey material was there before the Assessing Officer and he might have examined the same, is not acceptable. The income tax liability is not determined based on presumption and assumption, that assessing officer might have examined the issue raised by ld PCIT. We note that the fact that “Assessing Officer might have examined the material or not”, is a doubtful situation. The Tribunal, being a final fact finding authority, would come to know this fact provided the statutory notice issued by AO under section 142(1) of the Act speaks such fact that AO has raised the relevant query and assessee has replied the same. Therefore, the argument made by ld Counsel that “AO might have examined the issue” is not acceptable, because it is not ascertainable whether survey material was with the AO and he has examined the issue raised ld PCIT. The Assessing Officer has neither put the relevant question before the assessee during the assessment proceedings, by way of issue of notice under section 142(1) of the Act nor AO has discussed this issue raised by the Ld. PCIT in his assessment order passed by him. Therefore, we note that Assessing Officer has blindly allowed the claim of the assessee without making enquiry, which is not acceptable. Whether the Assessing Officer made sufficient enquiry or not, the said fact would come to know from his notice under section 142(1) of the Act and reply submitted by the assessee in response to such notice of AO, or at least, the AO should mention this fact, (that he has examined the survey material) in his assessment order passed by him. Therefore, it is a case of complete non-inquiry (no enquiry). Hence, we note that order passed by the assessing officer is erroneous and prejudicial to the interest of Revenue. 26. It is important to mention here that the AO 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 Page | 20 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden 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 emerges out of this context. It is because it is incumbent on the AO to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word 'erroneous' in the section 263 includes the failure to make such an inquiry 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. 27. We note that object of section 263 of the Act is to ensure that leakage of Revenue is plugged and tax due to the state not reaching the coffers of the state is prevented by exercise of revisional jurisdiction by the Principal Commissioner/Commissioner. Besides just obtaining the information by Assessing Officer/and just having documents in assessment file, in respect of the issue raised by the Ld. PCIT cannot be taken as akin to enquiring about the information in respect of the issue raised by the Ld. PCIT. In appropriate cases, the assessing officer should conduct further enquiry also. In the assessee’s case under consideration, what the talk about further enquiry, the Assessing Officer has not made any enquiry and accepted the return of income filed by the assessee, as it is, without enquiring about the issue raised by the Ld. PCIT. The Assessing Officer did not issue any notice under section 142(1) of the Act to conduct enquiry. Besides, no any reply was given by assessee. Whatever return of income filed by the assessee has been accepted by Assessing Officer, blindly and without conducting any enquiry, hence order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of Revenue. 28. On the similar and identical facts our view is fortified by the Judgment of Coordinate Bench of ITAT Delhi vide its order dated 25.01.2019 in the case of Ramesh Kumar in ITA No. 1982/Del/2018 for A.Y. 2014-15, wherein it was held as follows: Page | 21 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden "In the instant case there has been an information with the department which has been passed on to the Assessing Officer for verification and failure of the Assessing Officer to verify the transactions in the light of the information available makes the order erroneous and also prejudicial to the interest of the Revenue. The Assessing Officer has mentioned about inputs from investigation wing in assessment order but has not examined absolutely anything regarding the genuinity of the transactions. The Ld. PCIT had enough material in his custody to prima facie to show that the tax which was lawfully exigible has not been imposed. Similarly in the case of Sunbeam Auto the courts have held that in the case of lack of enquiry course of action under section 263 is valid. In this case on the facts of the record it can be observed that the Assessing Officer has not applied his mind regarding the allowability of the exemption of the Long Term Capital Gain. This is not the case of inadequate enquiry but is a clear case of lack of enquiry which makes it different from the case of Nirav Modi (supra). Obtaining of the information about the transaction cannot be taken as akin to enquiring about the information. This is a clear case of no enquiry for which the Ld. PCIT has rightly invoked the provisions of Section 263. We also find that the Ld. PCIT has clearly brought about the error in the assessment order and has also directed the Assessing Officer to take remedial action to take action as per the law after providing due opportunity to the assessee. Thus, it can be said that the Ld. PCIT has not exceeded his jurisdiction nor directed the Assessing Officer to pass the assessment order in any particular way thus not interfering in the judicial function of the Assessing Officer.” 29. Hence, going by the facts narrated above, the language of the Provisions of Section 263 and the interpretation placed on these provisions by the various Courts, the order of the AO falls within the category of being an order which is erroneous as well as prejudicial to the interest of the revenue. In this interpretation of the provisions of the section 263, we rely on the decision of the Hon'ble Delhi High Court delivered in the case of Gee Vee Enterprises vs Add.CIT(1975) 99 ITR 375 (Delhi). The same view has also been held by the Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd vs. CIT 243 ITR 83 (SC). The relevant portion of this judgment, is reproduced as under: "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." 30. Based on the above discussion on assessee`s facts as well as on various precedents applicable to assessee’s facts, we are of the view that revisionary jurisdiction exercised by the Ld. Pr. C.I.T. u/s. 263 of the Act was in tune with the facts and evidences on record, as narrated above, therefore we uphold the order of ld PCIT and dismiss the appeal of the assessee. Page | 22 ITA No.103/SRT/2022/AY.2017-18 Hotel Royal Garden 31. In the result, appeal filed by assessee is dismissed. Order pronounced on 21/03/2023 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 21/03/2023 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat