SHISHPAL SINGH JADAUN, KARAULI V. PCIT, UDAIPUR

ITA 177/JPR/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 7312 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2017-2018
• Appeal Filed On: 08-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: WAY OF SHARE FROM PARTNERSHIP FIRMS
• Keywords: Business income; Revision of order; Opportunity of being heard; Earning of tax free income; Prejudicial to interest; Rule 8D; Set aside
• Section: 263; 2; 143(3); 142(1); 80HHC; 14A; 143(2); 119

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A’’ JAIPUR Jh laanhi xkslkbZ] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 177/JP/2022 fu/kZkj.k o"kZ@Assessment Year : 2017-18 Shri Shishpal Singh Jadaun Wardhman Nagar Hindaun City 322 230 cuke Vs. The Pr.CIT Udaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AWMPS 2734 B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal, CA jktLo dh vksj ls@ Revenue by: Shri Avadhesh Kumar, CIT lquokbZ dh rkjh[k@ Date of Hearing : 16/06/2022 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 14/09/2022 vkns'k@ ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. Pr. CIT, Udaipur dated 27-03-2022, for the assessment year 2017-18 wherein the assessee has raised the following ground of appeal. ‘’1 On the facts and in the circumstances of the case and in law the ld. Pr. CIT, Udaipur has grossly erred in invoking provision of Section 263 of the Income Tax Act, 1961. Without prejudice to above and in the alternate: 2 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR 2. On the facts and in the circumstances of the case and in law the ld. PCIT has grossly erred in holding the order passed by the AO u/s 143(3) of the Act as erroneous and prejudicial to the interest of the Revenue on the observation that provision of Section 14A are applicable to assessee in respect of investment in partnership firm whereas assessee is an individual and no expenses is claimed whatsoever thus question of application of Section 14A does not arise. 3. On the facts and in the circumstances of the case and in law the ld. PCIT has grossly erred in holding the order passed u/s 143(3) as erroneous and prejudicial to the interest of the Revenue on the issue of lack of enquiry in respect of cash deposit of Rs.10,00,000/- made by assessee during demonetization. Appellant prays that due enquiries were made by the AO before passing the assessment and all the necessary evidences are available on record, therefore, Revision order passed u/s 263 is not in accordance with law and deserves to be quashed.’’ 2.1 Brief facts of the case are that the assessee filed the return of income online on 15-03-2018 declaring total income of Rs.10,37,950/-. The case of the assessee was selected under CASS. The AO issued notice u/s 143(2) of the Act to the assessee 13-08-2018 and questionnaire was issued with notice u/s 142(1) on 20-02- 2019. In compliance of notices issued u/s 143(2) and 142(1), the AR of the assesse produced online required details before the AO . From the records, the AO observed that the assesse is having income only from share from partnership firms. The assessee has shown Rs.10,36,775/- as his business income and Rs,7,712/- as income from other sources. The AO thus after considering the submission as well 3 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR as required documents produced by the assessee before him, accepted the return of income of the assessee at Rs.10,37,950/- 2.2 In first appeal, the ld. Pr. CIT(A) has observed that the order of the AO is erroneous and prejudicial to the interest of the Revenue and thus set aside the assessment order of AO by restoring it back with directions as mentioned at para 6 of his order. The relevant observation of the ld. Pr. CIT(A) at para 5 and 6 of his order is as under:- ‘’5. In so far as the issue of investment as partner in the firm is concerned, a firm and its partners are assessable separately on their total income in their names, notwithstanding the position of law under the Partnership Act that a firm is a compendium or the collective name of the partners. In the case of firm and partners the double taxation is avoided as the firm does not have to pay tax on salary and interest income paid to partners & the partners do not have to pay tax on share of income allocated to them. In such a scenario and both being separate taxable entities for the purpose of taxation the share income from the firm is excluded from the income of the partner and thus provisions of section 14A will come into operation and any expenditure incurred for earning the same will have to be disallowed. Thus the provisions of section of 14A applies to share-of-profit earned from partnership firm. The contention of the assessee that the provisions of section 14A of the Act are not applicable to share of profit from partnership firm since the same is subject to tax in the hands of partnership firm is decided by the Special Bench of Ahmadabad Tribunal in the case of Shri Vishnu Anant Mahajan v. ACIT in ITA.No. 3002/AHD/2009 dated 25.05.2012 in favour of the Revenue holding that provisions of section 14A applies to the share of profit earned from partnership firm. The Special Bench of Ahmadabad Tribunal:- "Further it has been held that whenever the field is occupied by the tax law, the provision contained therein will become applicable, but where the field is left vacant, we will have to take assistance from the provisions contained in the Partnership Act for filling the vacuum under the tax law. [K. Kulakutty]. In so far as the issue before us is concerned, a firm and its partners are assessable separately on their total income in their names, notwithstanding the position of law under the Partnership Act that a firm is compendium or the collective name of the partners. Thus, in so far as the taxation is concerned, the firm is not a pass through vehicle. It is a translucent vehicle, as only the salary and interest paid to the partners are taxable under Section 28(v) as business income. It has been so provided because there cannot be really be a relationship of employer and employee or debtor or creditor between the firm on one hand and the partners on the other hand. Even earlier, the salary and interest allocated to the partners were taxable as business income. The www.taxguru.in ITA No. 3002/Ahd/2009 A.Y.: 06-07 Page 4 real change 4 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR in the scheme of taxation is that the firm is taxed at a flat rate of income after deduction of interest and salary paid to the partners, and interest and salary are taxed in the hands of the partners as business income. Thus, it is clear that the amount taxed in the hands of the firm is not taxed again in the hands of the partners. This change has led to avoidance of double taxation because the firm does not have to pay tax on salary and interest income paid to the partners and the partners do not have to pay tax on share income allocated to them. This is achieved by insertion of section 10(2A) and 28(v) in the Act. In so far as share income is concerned, the field is occupied by the tax law, as it is enacted that the share income shall not form part of total income of the partners. Therefore, in view of this specific provision and the fact that the firm and partners are separately assessable entities, it will be difficult to hold that the share income is not excluded from the total income of the partner because the firm has already been taxed thereon. When section 10(2A) speaks of its exclusion from the total income, it means, the total income of the person whose case is under consideration. The instant case is that of the partner and therefore what is to be examined is whether the share income is excluded from his total income.. The answer is obviously in the affirmative. In such a situation, provision contained in section 14A will come into operation and any expenditure incurred in earning the share income will have to be disallowed. Thus, we agree with the leamed CIT(A) that the provision contained in section 14A is applicable to the facts of the case. Further, the CBDT has issued Circular No. 5/2014, dated 11/02/2014, clarifying that Rule 8D r.w.s. 14A of the IT Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income. The second issue regarding cash deposit of Rs. 10,00,000/- on 24.11.2011 (during demonetization) remains unverified as: 1. Proof of availability of cash in the cash book(submitted by the assessee in the form of a copy of cash book in the A/c of DS & company) needs verification. 2. Assessee had argued in his submission that the case was selected for limited scrutiny in CASS for examination of "large exempt income" and enquiry beyond this issue is exceeding its jurisdiction. The assessee's claim is incorrect as the case was selected for complete scrutiny as evident from the record. 3. The circumstances for this withdrawal and depositions of cash in such a short time span during demonetization has not been explained by the assessee and need further enquiry/verification. 4. It also need to be verified that whether the aforesaid amount of 10,00,000 as claimed to be withdrawn from his capital account with DS & company was in old currency or in new currency. Therefore, in view of the above facts the issue of cash deposits of Rs. 10 Lakhs remains unverified and the same requires further enquiry and verification. M 6. The assessment order u/s 143(3) of the I.T. Act for the A.Y. 2017-18 dated 31.05.2019was passed by the Assessing Officer in this case, without making necessary 5 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR enquiries and proper verification of the issue of cash deposit during demonetization by the assessee during the year as discussed in preceding paras. Hence, assessment order u/s 143(3) of the I.T. Act for the A.Y. 2017-18 dated 31.05.2019 has thus been rendered erroneous and prejudicial to interest of revenue on the above issues. The order of the assessing officer is, therefore, liable to revision under the explanation (2) clause (b) and clause (a) of section 263 of the Income-tax Act. The same is therefore set-aside and restored back to the file of AO on these issues with the direction to conduct proper verification and enquiries by calling for relevant details and documents and based on such verification and enquiries make necessary addition as required in accordance with the provisions of Income Tax Act by passing the fresh assessment order. However, the AO is directed to ensure that opportunity of being heard is given to the assessee before passing the order.’’ 2.3 During the course of hearing, the ld. AR of the supported the order of the AO with following submissions ‘’In this ground of appeal, assessee has challenged the action of Id. PCIT in passing order u/s 263 arbitrarily. In this regard, at the outset, it is submitted that in show cause notice u/s 263 (APB 1 2). Id. PCIT stated that "2..... there is nothing on record to show that the above firms have filed their Income Tax returns for AY 2017-18 and have paid due taxes on the income out of which share of profits of Rs 91,16,554/- are claimed to be received and claimed to be exempted by you. Even the copy of partnership deed, ITRs, Computation of Income and Audit Report of the above referred three firms have not been called for by the AO, so as to verify the genuineness of exempted income claimed by you as share of profit from these firms. Because of lack of these enquiries the assessment order of the AO for AY 2017-18 is found to be erroneous in so far as it is prejudicial to the interest of revenue.......’’ Secondly, Id. PCIT has mentioned that: "3. As your case for AV 2017-18 has been selected for complete scrutiny and on examination of assessment record for this AY 2017- 6 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR 18, it is noticed that there is cash deposits of Rs. 10 lakhs in your bank account on 28.11.2016 which has been claimed to be out of withdrawal of cash on 24.11.2016 from your capital account with D.S. & Company However, during the course of assessment proceedings, the Assessing Officer has failed to verify the availability of cash in the cash book of M/s DS Company This specific point has not been examined by the AO and he has merely accepted your submission/claim. Further, as per your claim this cash amount of Rs 10 lakhs was withdrawn from your partnership firm My D.S.& Company on 24.11 2016 and deposited back in the bank account on 28.11.2016. The AO has failed to examine this issue and also has failed to verify the circumstances for this withdrawal and deposition of cash in such a short time span during demonetization. Also, the AO has failed to verify the denomination of the currency withdrawn and deposited in bank, which was crucial for completion of assessment in your case as the assessment has been completed on returned income only. It has also not been verified by the AO as to whether the above amount of Rs. 10,00,000/- as claimed to be withdrawn from your capital account with D.S. & Company was in old currency or in new currency. This aspect is crucial in view of the fact that after 08.11.2016 it was not legally permitted to make financial transactions in old currency. This issue has not been examined by the AO." In this regard, it is submitted that assessee claimed exempt income received in the shape of share in the profits from partnership firms wherein he is one of the partner and the firm has already suffered tax for which the assessee has provided the PAN of the firms to the ld. AO alongwith the certified copies of the capital account of the assessee as appearing in the books of accounts of those firms. Even if the ld. AO has not asked for the financial statements, this has not changed the character of income which remained exempt in view of section 10(2A) of the Income Tax Act, 1961 as it is the liability of the partnership firm to the taxes on such income and not of the assessee who is the partner. Further during the course of assessment proceedings, the immediate source of cash deposit during the demonization was explained as withdrawal out of the capital balance with partnership in which was duly verifiable from the copy of capital 7 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR account of assessee in partnership firm DS. & Co. and confirmation received from partnership firm regarding withdrawal made his assessee were furnished before AO (APB 19 & 27). In view of above, in no way it could be concluded that no enquiries were made by AO on the issues on which assessment is sought to be revised by ld PCIT rather the AO has made all the necessary enquiries with regard to the source of the cash deposited by the assessee during the demonetization period. Thus the order of the AO is neither erroneous nor prejudicial to the interest of the revenue, It is settled law that basic ingredients are to be fulfilled, before invoking section 263 which has been explained by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. Vs. CIT reported in 243 ITR 83 (SC) (Case law APB 2-3)in the following words: "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 suomotu under it, is that the order of the Income Tax Officer is erroneous is 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." From the facts as submitted above, and also on perusal of the order of CIT and in view of the order of the hon'ble apex court in case of Malabar Industrial Estate, it is the duty of the ld. PCIT to establish that the order of the AO is erroneous as well as prejudicial to interest of revenue which burden is not discharged by the PCIT. At this juncture, kind attention of Hon'ble bench is invited to Explanation 2 inserted in section 263 by Finance Act, 2015, w.e.f. 8 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR 01.06.2015, which has widened the powers of CIT to revise the already completed assessment which reads as under: Explanation 2 For the purposes of this section, it hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far for as it is prejudicial to the interests of the revenue, it in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim: (c) the order has not been passed in accordance with any order, direction instruction issued by the Board under section 119 or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other persn] A perusal of above clarifies that order passed by assessing officer shall be "deemed to be erroneous and prejudicial to the interest of the revenue if AO has passed such order without making inquiries or verification which should have been made; It is worthwhile to note here that the phrase "which should have been made here in no way means that enquiries should have been made in manner as desired by CTI rather it means that before holding an order to be erroneous, CIT should have conducted necessary enquiries or verification which brings on record certain material in order to show that the finding given by the assessing officer is erroneous. In this regard reliance is placed on the following decisions: 9 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR (1) Shri Narayan Tatu Rane vs ITO ITA No.2690 & 2691/Mum/16 dated 06.05.2016 (Case law APB 4-14, relevant page is backside of page 12) 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the case Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the 40 has passed the order after carrying out enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In view it is the responsibility of the L P CIT to alune that the enquiries or verification conducted by the 40 was not in accordance with the enquries or verification that would have been carried out by a prudent officer Hence, in our view the question as to whether the amendment brought in by way of Explanation Na) shall have retropective or prospective application shall not be relevent’’ (2) Sanjeev Kr. Khemka vs Pr. CIT (Kollatta ITAT) (Case laws APB 15-20)relevant page is page 20) 5.1 In view of the above we find that Ld CIT has passed impunged order u/s 263 of the Act by holding the order of AO as erroneous in so far as prejudicial to the interest of revenue on account of inadequate enquiry made by AO while passing order us 143(3) of the Act However, we find that proper and sufficient enquiries were conducted by the AO at the time of assessment an evident from the order of 40 Therefore it cannot be concluded that no proper enquiry has been conducted by the 10 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR AO at the time of assessment proceedings The 40 has taken conscious view after considering the facts and circumstances of the case and giving proper opportunity to the assessee. Thus, the view expressed by AO in the form in his assessment order cannot be replaced with the view of Ld. CIT w's 263 of the Act in holding so we find support and guidance from the judgment of Hon'ble jurisdictional High Court In the case of CIT vs. Ms. JL Morrison (India) Ltd (ITA No 168 of 2011) in GA No 1541 of 2012 dated 15.05.2014, wherein it was held as under "By Sections 3 and 4. the Indian Income-tax Act, 1922. imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision.’’ We also rely on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Max India Limited reported in 295 ITR 282 wherein it was held as under "When the CIT passed the impugned order under 1. 263. two views were inherently possible on the word "profits" occurring in the proviso to s 80HHC(3) and therefore, subsequent amendment of s. 80HHC made in the year 2005, though retrospective, did not render the order of the AO erroneous and prejudicial to the interest of the Revenue, and CIT could not exercise powers under x 263" In view of the above proposition, and respectfully following principle laid down by the Hon'ble courts and keeping in view all these discussion, as also bearing in mind entirety of the case, we deem it fit and proper to uphold the grievance of the assessee and quash the impugned revision order as devoid of jurisdiction. The assessee gets the relief, accordingly. It is therefore submitted that the Ld. AO has taken a legal, correct and only possible view on the entire material available before him and after making due application of mind as a duly instructed person on law and facts 11 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR and any comchim having been reached to a reasonable satisfaction of accepting the returned income, thus the order of Ld. AO is neither erroneous nor prejudicial to the interest of the revenue on any count. Indeed, in the instant case the Ld. AO has passest this onder after considering entire material available an record, called for and submitted by assessee during the course of assessment proceedings. It is not the case that the Ld. AO had passed the order without making any inquiry or insufficient inquiry into the issue under consideration. As a matter of fact, Ld. AO had raised specific query in this regard as to how the income is exempt and specifically asked about the source of the cash deposit during the demonetization. To this, reply was filed and after considering the entire material submitted by assessee, the Ld. AO has framed his opinion. Hon'ble Supreme Court in the case of CIT v. Gabriel India Ltd. reported in 203 ITR 109 (Bom) wherein it has been held as under:- -Revision-Exercise of power of CIT to make revision suomotu— Conditions precedent--CIT cannot revise order merely because he disagrees with conclusion arrived at by ITO-Expenditure allowed by ITO as being revenue in nature—CIT, reopening matter under section 263 and hearing assessee-CIT directing ITO to re-hear matter-Order not valid-Income-tax Act, 1961, s 263. It has also been held by the Court that section 263 does not arm the CIT to trespass into this peculiar jurisdiction of the Assessing Officer so as to direct him to exercise this discretion with a bent of mind conforming to the CIT's opinion or in other words, towards generation of some extra revenue. It is a well established law by now that section 263 does not contemplate mere substitution of the opinion of AO with that of CIT. It has been held in the case of CIT v. Max India Ltd. reported in 295 ITR 282 (SC) (Case law compilation page 1) that 'every loss of revenue cannot be said to be prejudicial to the interests of revenue', however in the present case interestingly, there has been no loss at all to the revenue nor has been pointed out by the Id. PCIT accordingly , it cannot be said that the action of Ed AO was prejudicial to the interest of revenue. Thus no action as 263 is called for. This submission of assessee is fortified from the observations of Hon'ble Supreme Court in the case of CIT Vs. Max India (supra) wherein it was field as under :- 12 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR The phrase ‘’prejudicial to the interests of the Reverse in section 263 of the Income-tax Act 1961 be real in conjunction with the expression "erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Arising Office logs one of two courses permissible in law and it has resulted in to loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken be the Assessing Officer is sustainable in law. In light of the facts/circumstances of the case, submissions made above, and the case laws relied upon, it is very humbly prayed that order passed by Ld. AO does not come in the purview of holding it to be either erroneous or prejudicial to the interest of the revenue entailing the consequence of order to be cittier modified set aside in any manner and therefore Revision order passed us 263 deserves to be quashed. Further, reliance is placed on the following case laws 1. CIT Vs M/s Chambal Fertilizers & Chemicals Ltd. (Raj HC) 51 TW (HD) 157 Therefore, it is clear the CIT does not have unfettered and un- checked discretion. power to reverse the order. He can do so within the hounds of the law and has to satisfy the need of faimess in action and fair play with due respect to the principle of Audi Alterem Partem as envisaged in the Constitution. The law is well settled that the CIT cannot invoke the powers to correct each and every mistake or error committed by the AO. Every loss to the Revenue, cannot be treated as prejudicial to the interest of the Revenue and if the Assessing Officer has adopted one of the course permissible under the law or where two views are possible and the AO has taken one view which the CIT does not agree with, it cannot be treated as an order erroneous and prejudicial to the interest of the revenue. The AO exercises quasi judicial power vested in him and if he exercises such powers in accordance with law, arrives at a just conclusion such conclusion cannot be termed as erroneous only because the CIT does not feel satisfied with the conclusion.. 13 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR 2. CIT Vs. M/s Deepak Real Estate Developers P. Ltd. (Raj HC) 51 TW (IV) 186 It is no longer res-integra that the revisional jurisdiction available to a Commissioner u/s 263 of the Act, is essentially circumscribed by the determinant that the order of the Assessing Officer is erroneous so much so that it is prejudicial to the interest of the revenue. This statutory enjoinment carves out an extremely constricted ambit of such discretionary jurisdiction. The word 'considers' applied in the statutory provision involved, signifies a genuine satisfaction of that authority that the order of the Assessing Officer is erroneous and that the interest of revenue is prejudicing thereby. Any exercise of the revisional jurisdiction, bereft of such satisfaction and/or finding that the order of the Assessing Officer is erroneous and that it is prejudicial to the interest of the revenue and that too, basal on tangible materials on record, is impermissible rendering the resultant order void A CIT Vs. Green World Corporation 314 ITR 81 (SC) The Income-tax Officer, while passing an order of assessment perform a judicial function. A revision application lies before the Commissioner. It is trite that the jurisdiction exercised by the revisional authority pertains to his appellate jurisdiction. The jurisdiction under section 263 can be exercised only when both the following conditions are satisfied (i) the order of the Assessing Officer should be erroneous, and (ii) it should be prejudicial to the interests of the Revenue These conditions are conjunctive. An order of assessment passed by the Assessing Officershould not be interfered with only because another view is possible 4. M/s Emger Cables & Communication Ltd. Vs, CIT (2014) 51 TW (IV) 197 Section 263-power of revision by commissioner AO completed assessment at NIL assessee involved in manufacture/trading of cable/copper wire- declared income from interest & commission as business income accepted by AO-CIT invoked see 263 and set-aside the order of AO directing him to consider the said income as income from other sources and not from business-whether CIT justified in invoking sec 263? Held: No-CIT only wanted AO to make re-verification cannot be said that that order of AO was without making proper enquiry - AO having taken one of the possible view cannot be said that assessment order was erroneous and prejudicial to the interest of revenue. Ground of Appeal No. 2: This ground of appeal has been raised without prejudice to ground of appeal no.1. In this ground of appeal, assessee has challenged the action of 14 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR Id. PCIT in holding the order passed by Id. AO as erroneous and prejudicial to the interest of revenue on the observation that provisions of section 14A are applicable to asssessee in respect of investment in partnership firm In this regard, it is submitted that during the year under consideration, assessee has claimed exempt income of Rs 91,16,554/- being share in profits from three partnership firms in which he is one of the partner. The details of amount so received is as under:- Name of firm PAN Amount of Profit Assessee’s share in Profit/Loss M/s. Kuber Associates AAMFK 4214 G 20,74,475/- 25% M/s. D.S & Co. AALFD 3670L 66,92,167/- 25% M/s. Thekedar Laxman Singh Rajput AAKFT9641A 3,49,912/- 10% 91,16,554/- In show cause notice us 263, id. PCTT stated that There is nothing on record to low that the above firms have filed their Income Tax returns for AY 2017-18 a lave paid due taxes on the income out of which share of profit of Rs. 91,16,5341- are claimed to be received and claimed to be exemptted by Even the copy of partnership deed, ITR Computation of Income and Audit Report of the above referred three firm have not been called for by the 40, so as to verify the genuineness of exempted income claimed by you as share of profit from these firms. Because of lack of these enquiries , the assessment order of the 10 for AT 2017-18 is found to be rose in so far as it is prejudicial to the interest of revenue In response to such queries, it was submitted that all the tree firms from whom assessee had received exempt income, have filed their Income tax returns for AY 2017-18 and has paid die taxes on the total income. Copies of such ITRs acknowledgement, computation of total income and Balance Sheet set of these throe firms were furnished before ld. PCIT Also, it was submitted that during the course of assessment proceedings their PANs were provided to the id AO (APR 3- 11). In view of this, it is submitted that exempt income has been rightly claimed by 15 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR the assessee and assessed by the ld. AO and the order of Ld. AO is neither erroneous nor in any manner prejudicial to the interest of revenue on this issue In fact, Id. PCIT, though issued show cause to verify genuineness of exempt income received from partnership firms, however eventually in the impugned order has changed his stand and instead of verification of exempt income has asked the AO to inquire whether the provisions of section 14A are applicable on such exempt income earned by assessee. In this regard, it is submitted that such finding by Id. PCIT itself shows that he was satisfied so far as existence and taxability of income in the hands of partnership firm is concerned and the claim of the exempt income by the assessee. It is further submitted that the assessee does not maintain regular books of accounts and in fact does not have any other source of income. Your honours would appreciate that disallowance u/s 14A can be made only in the event assessee claims any expenses incurred to earn exempt income. In fact assessee has not claimed any expenses at all, than there is no question of invoking provisions of section 14A and this fact is duly verifiable from the return of income of the assessee thus such observations of Id. PCIT are possibly made to support the order passed us 263 and has no merits. Moreover, Id. PCIT has relied upon the decision of Special bench of Ahmedabad ITAT, which discusses the applicability of provisions of section 14A in respect of income claimed exempt u/s 10(2A). In this regard, it is submitted that undoubtedly, provisions of section 14A will be applicable in respect of any sort of exempt income BUT only if assessee has claimed expenses related to such source of income towards any taxable source of income. Therefore reliance placed by ld. PCIT is misplaced and no revisions could be possible on this scote Ground of Appeal No. 3: In this ground of appeal, assessee has challenged the action of ld, CTT in holding order passed u/s 143(3) as erroneous and prejudicial to the interest of the revenue on the issue of lack of enquiry in respect of cash deposit of Rs. 10,00,000/- made by assessee during demonetization. In this regard, at the outset, it is submitted that during the course of assessment proceedings, IAO made adequate enquiry regarding source of cash of Rs 10,00,000 deposited by assessee in his bank account in SBN. In response to which, it was submitted that deposits were made out of capital cash withdrawn from partnership form in cash few days back which was found acceptable and no addition was 16 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR made. Subsequently, during the course of Revision proceedings initiated by ld. CIT, again assessee furnished complete details in the shape of Capital account of assessee with partnership firm and the confirmation of the firm (APB 19 & 27). It is submitted that assessee withdrew his own capital from the partnership firm which he owned legally and immediately after withdrawal the same has been deposited in his bank account and as such the flow of the cash is also visible. However, in the order passed w's 263, id.CIT has raised concerns that Id. AO failed to verify as to whether cash withdrawn by assessee from firm, D.S. & Company was in old currency or new currency. In this regard, it is submitted that whether sum withdrawn from capital account was in old or new currency, would not make any concerns so far as Income Tax law is concerned in view of the fact that Specified Bank notes were permitted to be deposited in banks till 31.12.2016.Kind attention of hon ble bench is invited to Section 3 of The Specified Bank Notes (Cessation of Liabilities) Act, 2017. which states that the Specified bank notes shall cease to be liabilities of the Reserve Bank of India under section 14 and shall scarc have the guarantee of the Central Government under suh section (1) of section 34.of the said Act from the appointed date. The appointed date was defined in section 2. i.e.31 December, 2016. In section 5 it is provided that on and from the appointed day, my person shall, knowingly or voluntarily hold, transfer or receive any specified hank note: (APB 21 26).Further Since, RBI was bound to exchange the Specified Bank Notes (SBNs) when they were tendered for exchange until 31 December 2016, therefore such notes could not be treated as having no value. Since RII was obliged to exchange the SBNs and the liability could be measured with certainty amounting to the values imprinted on these bank notes, these notes possess value and could be recorded in the books of accounts. Accordingly, it was never the intention of law to prohibit the use SHINs for transaction upto 31st December 2016. It is therefore submitted that withdrawal made by assessee from partnership firm in SBNs does not attract any liability under Income tax Act. Moreover, the partner and firm cannot be treated as two entities who are stranger to each other and at no stage of the proceedings it is established by the PCIT that the assesse being partner had denied or legally not entitled to received SBN at the time of capital withdrawal from the firm. Apart from this, the case of the assessee for AY 2016-17 was selected for limited scrutiny for the reason of cash deposit during the demonization period and the explanation to cash deposit was called for by the Ld. AO during the course of assessment proceedings and M/s D.S. And Company has confirmed the fact of capital withdrawn by assessee through supporting documents to the Ld. AO during the course of assessment proceedings also (copy of confirmation letter is at APB 27) as well as Cash book of the firm showing availability of cash balance at the 17 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR time of withdrawal by assessee and after verification of which the assessment order was passed by Ld. AO. accepting the returned income. Under the circumstances, it is humbly submitted that order passed by the AO was neither erroneous nor prejudicial to the interest of the Revenue and thus the order passed by the ld. PCIT u/s 263 deserves to be quashed.’’ 2.4 On the contrary, the ld. DR strongly supported the order of the ld. Pr.CIT. 2.5 We have heard both the parties and perused the materials available on record. Brief facts of the case are that the assessee, individual filed the return of income declaring total income of Rs.10,37,950/- and also declared share of profit from partnership firm totaling to Rs.91,16,554/- being exempt u/s 10(2A) of I.T. Act, 1961. After verification of facts, the scrutiny assessment was completed u/s 143(3) vide order dated 31-05-2019 accepting the income declared by the assessee. Subsequently, the ld. Pr. CIT, Udipur issued show cause notice u/s 263 of the I.T. Act, 1961, in response to which, details and information was provided by the ld. AR of the assessee. However, the ld. Pr.CIT passed order u/s 263 directing to make enquiry in respect of applicability of Section 14A on share of profit received from partnership firm and also to verify source of cash deposit of Rs.10 lacs made by the assessee during demonetization period. The ld. AR of the assessee has taken three grounds of appeal against the order u/s 263 ground of appeal No. 1broadly is on legality of action u/s 263 and next two grounds taken by the assessee are on merits submitting that neither on legal ground nor on facts the order u/s 263 is valid and 18 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR therefore, same deserves to be quashed. Coming to the first issue regarding exemption income, it was submitted that exempt income is basically the profit from partnership firms wherein assessee is one of the partner and the firm has already suffered tax and moreover assessee has provided PAN details of the firms to the AO alongwith certified copies of capital account of the assessee as appearing in the books of accounts of those firms. It was submitted by the ld. Pr.CIT in its show cause notice mentioned about the AO not making the enquiry as to whether the returns have been filed by those firms in which assessee is partner and whether taxes have been paid by those firms. When these details about the return filed of those firms alongwith tax payments by them were submitted before the ld. Pr. CIT in response to show cause notice then in the final order u/s 263, the ld. Pr. CIT has not mentioned anything about non-payment etc. of taxes by the firms as she was satisfied on this issue. However, the ld. Pr. CIT raised a new issue for which opportunity was not provided to the assessee to explain its case namely that the AO has not examined about the disallowances to be made u/s 10(14A) in view of earning of exempt income by the assessee by way of share from partnership firms. It was submitted by the ld. AR of the assesee before us that firstly this matter was taken up without giving proper opportunity to the assessee and secondly on merits also the issue does not survive in view of the fact that assessee has not claimed any expenditure in its return of income. Accordingly, there is no scope of allegedly 19 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR applying Section 10(14A) and disallowing any expenditure and, therefore, the assessment order cannot in any way said to be erroneous or prejudicial to the interest of revenue on this issue. We took into consideration the assessment order, order u/s 263 of the Act as well written submission of the assessee and the arguments made by the ld. AR of the assessee. It is a fact that in the show cause notice ld. Pr. CIT mentioned as to whether those firms have filed their returns and paid due taxes from whom exempt income is received by the assessee by way of partner in those firms. However, on being satisfied by the explanation and details furnished by the ld. AR before the ld. Pr. CIT, she changed the issue and observed that the AO has not examined the disallowance to be made u/s 10(14A) of the Act without appreciating the fact that the issue is an individual and moreover in its computation of income, the assessee has not at all claimed any expenditure against any taxable income. Therefore, there is no any scope of making any disallowance u/s 10(14A) out of the expenditure as no expenditure was claimed as deduction. Thus on this issue, we full concur on the arguments of the ld. AR of the assessee and observe that this issue lacks merit for the purpose of invoking provisions of Section and passing order u/s 263 of the Act. 2.6 Now coming to the another issue raised by the ld. Pr. CIT in its order u/s 263 of the Act regarding no enquiry being made in respect of cash deposit of Rs.10 lacs made by the assessee in its bank account during demonetization period. Firstly, it 20 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR was argued by the ld. AR that as mentioned in the assessment order the case was selected for limited scrutiny for examining the large exempt income shown' and thereafter the Id. AO travelled beyond his jurisdiction and examined the issue of cash deposit in the bank, without apparently taking any permission from the appropriate authority for conversion of the case from limited scrutiny to full scrutiny. It was further submitted that even without prejudice to the aforesaid legal argument, even on facts the issue raised by ld. Pr. CIT lacks merit. It was submitted that AO made adequate enquiry regarding source of cash deposit of Rs. 10,00,000/-, in response to which it was submitted before him that these deposits were made out of capital cash withdrawn from the partnership firm DS & Company few days back only and same was found acceptable by the AO and thereby no addition was made. Ld. Pr. CIT in its order has raised the issue about availability of cash in the books of accounts of firm DS & Company being not examined by AO and circumstances for withdrawal from the firm and deposit of the cash in bank has also not been examined. It was submitted by Ld AR of the assessee that partnership firm DS & Company has confirmed by furnishing letter before the AO that assessee has made cash withdrawal out of his capital account maintained with the firm and books of the firms have been separately audited. It was also submitted by the ld. AR that withdrawal from the capital of the firm has been made on 24.11.2016 and same has been deposited in the bank account on 21 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR 28.11.2016. There is not much gap in these dates which may warrant any suspicion on the issue of source of cash deposit in the bank account. Regarding cash withdrawn from the partnership firm being in the old currency or in new currency, the ld. AR submitted that it is not relevant, as the withdrawal from the capital account was shown from his own partnership firm. We have considered the arguments taken by the ld. AR and also perused the orders as well as written submission. It is seen that details regarding source of deposit of Rs. 10 lacs was enquired by the ld. AO for which submissions and explanations were given by the assessee that the source of deposit is out of cash withdrawal from the capital account of the firm in which assessee is one of the partner and this withdrawal was made just four days back only. A confirmation from the firm was also filed during assessment proceedings. Accordingly, it cannot be said that no enquiries were made by the AO on this issue. Even after considering the amendment made by Finance Act, 2015 in the provisions of Section 263 widening the scope of its applicability and including non-proper enquiry within its fold, on perusal of facts and details submitted and in the circumstances of the case, the present issue is also not covered even considering the amended provisions. In brief, considering the facts on both the issues and also the legal position on the issue under consideration, the findings of the ld Pr. CIT about the assessment order being erroneous and 22 ITA NO.177/JP/2022 SHISHPAL SINGH JADAUN VS PR. CIT, UDAIPUR prejudicial to the interest of Revenue lacks merit and is, therefore, set aside and the order of the AO is restored. Thus the appeal of the assessee is allowed. 3.0 In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 14/ 09/2022 Sd/- Sd/- ¼ jkBksM deys'k t;UrHkkbZ ½ ¼lanhi xkslkbZ½ (Rathod Kamlesh Jayantbhai) (Sandeep Gosain) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 14/09/2022 *Mishra vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- Shri Shishpal Singh Jadaun, Hindaun City 2. izR;FkhZ@ The Respondent- Pr.CIT, Udaipur 3. vk;dj vk;qDr@ The ld CIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 6. xkMZ QkbZy@ Guard File (ITA No. 177/JP/2022) vkns'kkuqlkj@ By order, Asstt. Registrar