Hariyappa Kotian, Udupi V. Principal Commissioner Of Income Tax, Central, Bengaluru

ITA 430/BANG/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 5766 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Appeal Filed On: 23-05-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V. SRINIVASAN
• Keywords: Business income; Revision of order; Transfer pricing; Search and seizure; Opportunity of being heard; Audit objection; Deemed to accrue or arise in india; Difference of opinion; Assessment record; Change of opinion; Set aside
• Section: 131; 68; 69; 263; 132; 139; 143(3); 133A; 2(A); 13; 22; 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI N.V VASUDEVAN, HON’BLE VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER IT(TP)A No.430 & 431/Bang/2022 Assessment year : 2017-18 & 2018 - 19 M/s Hariyappa Kotian, Karthik Complex, Malpe Main Road, Udupi-576 108. PAN – AECPK 7269 M Vs. The Pr. Commissioner of Income Tax [Central], Bengaluru. APPELLANT RESPONDENT Assessee by : Shri V Srinivasan, Advocate Revenue by : Shri Manjunath Karkihalli, CIT (DR) Date of hearing : 08.08.2022 Date of Pronouncement : 19.09.2022 O R D E R Per Laxmi Prasad Sahu, Accountant Member These two identical appeals have been filed by the assessee against the order passed by the Pr.CIT dated 24/03/2012 for the assessment year 2017-18 and 2018-19 respectively challenging the revisionary power exercised by the Pr.CIT u/s 263 of the Act. Since the issue involved in both the appeals are identical and for the sake of convince, we first take up the appeal in assessment ITA Nos.430 & 431/Bang/2022 Page 2 of 28 year 2017-18 and findings given shall mutatis mutandis apply to ITA No.431/Bang/2022 for the assessment year 2018-19. Sole and substantive issue challenged in this appeal is the revisionary power exercised by the ld.Pr.CIT u/s 263 of the IT Act. The grounds of appal in ITA No.430/Bang/2022 is reproduced hereunder:- “1. The order of revision passed by the learned Principal Commissioner of Income tax [Central], Bengaturu, under Section 263 of the Act dated 24/03/2022, in so far as it is against the Appellant is opposed to law, weight of evidence, probabilities, facts and circumstances of the Appellant's case. 2. The learned Principal Commissioner of Income tax is not justified in law and on facts to set aside the assessment order passed under section 143[3] r.w.s. 153C of the Act dated 24/12/2019 and direct the assessing officer to modify the original assessment passed by the learned assessing officer, on the facts and circumstance of the case 3. The learned Principal Commissioner of Income tax is not justified in passing an order under section 263 of the Act, as the order passed under section 143[3] r.w.s. 153C of the Act, was pursuant to proper enquiry by the learned assessing officer on the facts and circumstances of the case. 4. The learned Principal Commissioner of Income tax has passed an unsustainable order which is based purely on assumptions and presumptions. The order is arbitrary and full of surmises, without considering the relevant material and considering irrelevant materials. Consequently, the order passed is a perverse order on the facts and circumstance of the case. 5. The learned Principal Commissioner of Income tax has grossly erred in revising the order passed by the Learned Assessing officer without appreciating that there is no error, much less prejudicial to the interests of the Revenue to warrant a revision and therefore the order passed by the ITA Nos.430 & 431/Bang/2022 Page 3 of 28 warned PCIT is ultra vires to the scope of Section 263 and requires to be cancelled on on the facts and circumstances of the Appellant's case. The direction to make thorough and detailed enquiry amounts to ordering fishing and roving enquires without any material in support thereof and consequently the impugned order passed is bad in law and is liable to be cancelled. 6. The learned Principal Commissioner of Income tax failed to appreciate that the additional income declared and the nature and source of such additional income declared by the appellant of Rs. 1,00,00,000/- is on account of sate of fish being the income from business of the appellant and the learned assessing officer after considering the submission of the appellant accepted the income returned by the appellant, on the facts and circumstances of the case. 7. The Learned Principal Commissioner of Income tax failed to appreciate that the Assessing Officer before completing the assessment order under section 143[3] r.w.s. 153C of the Act on 11/12/2019 had made detailed enquiries calling for relevant records and documents and explanation pertaining to the matter at hand, the same being produced by the appellant during various instances during the assessment proceedings and further as per the provisions of section 153D of the Act an approval has been sought for passing the order of assessment and having applied their mind and considering the facts the order of assessment has been passed. Hence on the very same issue no action can be taken under Section 263 of the Act as the actions of the Assessing Officer is pursuant to applying his mind to the matter and in accordance with law. 8. The Appellant craves Leave to add, alter, substitute and delete any or all the grounds of appeal urged above.” 2. The brief facts of the case are that the assessee is originally filed its return of income u/s 139 of the Act on 01/11/2017 ITA Nos.430 & 431/Bang/2022 Page 4 of 28 declaring total income of Rs.76,89,630/-. Consequent upon search and seizure action on 08/02/2018, the case was completed u/s 143(3) r.w.s 153C of the Act. In pursuance of notice u/s 153C(1)(b), the assessee filed return of income declaring a total income of Rs.1,76,89,630/-. The additional income of 1 crore was declared in the statement recorded u/s 132(4) of the Act as unaccounted income from fish sales. During the course of search/seizure, two diaries were found and seized in one folder marked as A/JFM/02. Diary No.1 contains 24 pages and diary No.2 contains 35 pages and it was the personal diary of the assessee and in the diary his business transactions were recorded. 3. During the course of search statements were recorded, which is as under:- “ 13. I am shoing you one folder containing loose sheets serially numbered from 01 to 158 marked as A/JFMIOI found and seized from your residence during the course of search proceedings. Please confirm the same, Ans. Yes sir, 1 confirm that the folder containing loose sheets serially numbered from 01 to 158 found and seized during the course of search proceedings from my residence at No 5107F, Karthik, Kidiyur, Udupi, 14. 1 am showing you page no. 87 & 88 of seized folder A/JFM/01. Please go through the contents of the sheet and offer your comments. Ans, Sir, the excel sheet contains names of the boats to whom we supply ice from our ice factories. These are our regular customers but some time we are unable to supply ice from our factories. In that situation, we purchase ice from market and supply to them as they are our regular customers. The amount written against the name are receipts out of sale through cash and cheque. 15. I am showing you two diaries found and seized in one folder marked as A/JFM/02 during the course of search proceedings. Diary ITA Nos.430 & 431/Bang/2022 Page 5 of 28 no-1 contains 24 written pages and Diary no-2 contains 35 written pages found which are found from your possession during the course of search proceedings. Please confirm the same and state who has written in the diary, Ans. Yes sir, I confirm that both diaries are found from my possession during the course of search proceedings. This is my personal diary and 1 have written my daily business transactions in the diaries. 6. I am showing the transactions written in the diaries, which are herby reproduced:- DIARY-1 10. Please state whether you or any of your family members are associated with any foreign entities, (holding shares, having business transactions etc). Please name them. Ans. No sir. 11. Please state whether books of accounts are being maintained by you for all the related business entities, Ans. Yes sir, the books of accounts for all the business entities and for my proprietary concern are I.being maintained in tally software. My accountant Mr. Paduranga Kanchan is maintaining the books in tally software. 12. Please provide the sale proceeds of fish caught by your boats, Ans. Sir, the fish caught by my boats are partly sold through my partnership firm M/s Costal Agency and partly in the local market. My firm pays me through cheque after purchasing the fish from me. However, I receive cash when it is sold in the local market. 13. I am shov/ing you one folder containing loose sheets serially numbered from 01 to 158 marked as AIJFM/01 found and seized from your residence during the course of search proceedings. Please confirm the same. Ans. Yes sir, I confirm that the folder containing loose sheets serially numbered from Dl to 158 found and seized during the course of search proceedings from my residence at No 5-107F, Karthik, Kidiyur, Udupi. 14. 1 am showing you page no. 87 & 88 of seized folder A/JFM/01, Please go through the contents of the sheet and offer your comments. Ans. Sir, the excel sheet contains names of the boats to whom we supply ice from our ice Ifactories, These are our regular customers but some time we are unable to supply ice from our factories. In that situation, we purchase ice from market and supply to them as they are our regular customers. The amount written against the name are receipts out of sale through cash and cheque. 15. I am showing you two diaries found and seized in one folder marked as A!JFM/02 during the course of search proceedings. Diary no-1 contains 24 written pages and Diary no-2 contains 35 written ITA Nos.430 & 431/Bang/2022 Page 6 of 28 pages found which are found from your possession during the course of search proceedings. Please confirm the same and state who has written in the diary. Ans. Yes sir, I confirm that both diaries are found from my possession during the course of search proceedings. This is my personal diary and I have written my daily business transactions in the diaries. 6. (am showing the transactions written in the diaries, which are herby reproduced-.RY-1 ITA Nos.430 & 431/Bang/2022 Page 7 of 28 ITA Nos.430 & 431/Bang/2022 Page 8 of 28 Sree Ganga takshmi is one of our customer who purchases ice from our factory for fishing boats. Amount against his name is cash paid by him for purchase of ice. Harish Kotian is my brother and amount written against his name represents hand loan taken by way of cash, C A K Kay means cash receipt out of sales for MIs Costal Agency. T N Jaggan Prashant, Prashant T R and R B, Janardhan (RB Jan) are my friends from whom I have taken interest free hand loan by way of cash. KF means Karthik Fisheries and amount represent cash receipt out of sales. KEC/A means Karthik Estate current account amount received through cheque. The other entries of the diaries are advances receipts in cash from the real estate business, 17. Please state whether you have booked/shown the amount that you have noted in the diaries in your books of account? Ans' Sir, the cash receipts in the diaries are against the advances for sales for which I have already supplied fishes. These cash transactions are not accounted in the books of accounts. Further, the diaries also contains entries which constitute the advances received in cash from the customers which are partly accounted in the books of accounts. 18, 1 am showing you one scribbling pad containing 15 written pages marked as A/JFMI03 found and seized from your residence during the course of search proceedings Please confirm the same. Ans, Yes sir, I confirm that scribbling pad containing 15 written pages is found and seized during the course of search proceedings from my residence. 19, Do you have anything else to say? Ans. Sir, as I have stated in earlier answers to the questions that I have received sales proceeds and advances from customers in cash which are not accounted in the books of account. The cash received from those transactions are paid for the expenses which arises for the business exigencies. In order to rectify the omission and commission that occurred in my books of accounts, I hereby offering an additional income of Rs, 7g00,00000I (Rs. Seven Crore) over and above to the regular income in the hands of my business entities. The details are as follow:- ITA Nos.430 & 431/Bang/2022 Page 9 of 28 4. On 12/12/2018 statement was recorded u/s 131 of the Act by the ACIT (Inv), Unit-2, Bangalore, the relevant part is as under:- 5. Please describe in detail the events that had taken place in your residential and business premises. Ans. An Income Tax action u/s 132 of the Income Tax Act, 1961 was conducted at my residence at No. 5/107F, Karthik, Udupi and actions u/s 133A of the IT Act was conducted at my business premises at M/s Karthik Bar & Restaurant and M/s Karthik Complex at Malpe, Udupi. During the course of this action, information on various issues were called for and the same was submitted. I was present at the office and residence at various times during the action. During the course of the action, certain discrepancies were noticed and I have admitted undisclosed income to overcome these issues as follows: ITA Nos.430 & 431/Bang/2022 Page 10 of 28 6. Do you confirm the statement given by you on 09.02.2018 as has been .mentioned in the answer above? Ans. I confirm the same. I undertake to declare and offer an amount of Rs.1,00,00,000/- for the F.Y. 2016-17 and Rs. 3,00,00,000/- for the F.'Y. 2017-18 in my hands and Rs.3,00,00,000/- in the hands of MIs Karthik Estate for F.Y. 2017-18 as mentioned above as undisclosed income over and above the income that has been offered for taxation for the F.Y.s 2016-17 and 2017-18. I shall pay the tax on the total disclosure. I also undertake to state that I shall not claim any expenditure on the undisclosed income that has been offered by me in this statement.” 5. The AO observed that the assessee explained entries in these two small diaries as receipts in cash from his fish business, cash and cheque advance from his real estate business and cash loans given to and taken from his close associates and the assessee had declared additional income of Rs.1 crore under the head ‘business income’ and completed the assessment. Later on, the ld.Pr.CIT called the assessment record and observed as under:- ITA Nos.430 & 431/Bang/2022 Page 11 of 28 ” 4. Examination of case records revealed that the entries made in the diaries were not duly substantiated with sources of earning and no further details were submitted with regard to the transactions entered. As such, the sources of receipts declared as income remains unexplained and should have been brought to tax as per the provisions of sec 68 r.w.s 1 15BBE of IT Act, 1961, which was not done by the assessing officer.” 6. Accordingly the ld.Pr.CIT issued show cause notice on 15/03/2022 giving the assessee an opportunity of being heard to show cause as to why the impugned order should not be enhanced/modified or set aside for passing a fresh assessment order aftr making through enquiry regarding the nature and source of entries found during search proceedings. 6. In pursuance of the show cause notice, the assessee filed letter dated 21/3/2022, the gist of assessee’s submission has been incorporated in his order. The ld.Pr.CIT after considering the order passed by the AO, documents found during the course of search and seizure and after going through the submission of the assessee, he passed order as under;_ “7. 1 have considered the assessee's submissions and have gone through the assessment records. 7.1 The asses see stated that Assessing Officer has passed the order wit the approval of Addl. Commissioner. Hence, there is application of mind b3 two assessing authorities. The assessee's submission has been perused and it is found that the entries found during search proceedings were declared by ITA Nos.430 & 431/Bang/2022 Page 12 of 28 the assessee as income from fish business and was accepted as same b the authorities during assessment proceedings without doing an verification or enquiry about the source of the same and other details hence there was no application of mind by the AO or range head on the source of additional income declared. The assessee's contention therefore does not have any merit. 7.2 The assessee has claimed that enquiry regarding the income quantified on the basis of diary was made during search proceedings and facts have been disclosed in the statement recorded u/s 132(4). However, on examination of the records it is observed that during assessment proceedings the AO did not conduct any enquiry about the additional income declared as business income, which should have been done specially when the income was detected during search proceedings conducted u/s 132 of IT Act. 7.3 The assessee claims that the case does not fall under any of the limbs of explanation 2 to section 263. The submission of the assessee is found to be not acceptable as the case clearly falls under explanation 2(a) to section 263, as the order is passed without making enquiries or verification which should have been made. 7.4 The assessee has further claimed that the proposal u/s 263 has been issued by mere change of opinion. The assessee has relied on the Hon’ble Supreme Court decision in the case of Malabar Industries Co Ltd (243 ITR 83) in this regard. There is nothing on record to show that the Assessing officer has called for any explanation of the assessee regarding the nature and source of such income during the course of assessment proceedings and any formation of opinion and recording of satisfaction by the Assessing officer. Hence this cannot be said that there is a change of opinion on the issue. 7.5 The assessee has further claimed that the provisions of section 68 is applicable when the nature and source of receipt is not explained. As nature and source of the cash receipt being sale of fish has been clearly explained in the statement ITA Nos.430 & 431/Bang/2022 Page 13 of 28 recorded u/s 132(4), the income is rightly offered and assessed under the head business. In this ease, the entries of cash transactions were found from diaries seized during search proceedings, which were later explained as business income from sale of fish by the assessee. However, the details of source of the same, reasons for receipt in cash and authenticity of the assessee's claim were not verified and no enquiry was made during assessment proceedings. Hence it can not be said that the nature and source of receipt is explained.” 8. I have considered the assessee's submissions and have gone through the assessment records. It is evident from the assessment records that the Assessing Officer did not make any enquiries or verification with regard to source of cash receipt of Rs. 1 crore as found during search proceedings. The Assessing officer allowed the claim of assessee regarding additional income as income from business without making any verification which he ought to have done during the assessment proceedings. 9. In view of the above facts, it is held that the Assessment Order passed by the Assessing Officer is erroneous so far as it is pre-judicial to the interest of the Revenue as per the provisions of Clause (a) of Explanation (2) to the Section 263 of the Income Tax Act, 1961. The claims of the assessee made during current proceedings require in depth enquiry and examination by the Assessing Officer. Hence, the assessment order dated 11. 12.2019 is hereby set-aside to the file of the Assessing Officer for passing a fresh assessment Order after making thorough enquiry regarding the nature and source of entries found during search proceedings. 10. It is further directed that the Assessing Officer will provide sufficient opportunity of being heard to the assessee during the course of the set-aside proceedings.” 7. The ld.AR reiterated the submissions made before the lower authorities and he drew our attention on the statement recorded ITA Nos.430 & 431/Bang/2022 Page 14 of 28 during the course of search proceedings as well as post search proceedings. He submitted that the AO had applied his mind while passing the assessment order and he was satisfied that declaration made by the assessee during the course of search and post search enquiry is a business income as stated in the statements recorded and he was fully satisfied that it is a business income and the nature and sources have been explained by the assessee, therefore, section 68 will not apply. The AO has already formed one possible view, therefore, the same cannot be changed by the ld.Pr.CIT. 8. The AO had passed order after obtaining approval as per sec. 153D of the Act, where the two officers had applied their minds and after satisfying it was treated as business income. Therefore, it cannot be said that the AO had not applied his mind. He further submitted that during the course of assessment proceedings, the AO enquired about the additional income declared and it does not fall under any limb of the sec. 263 r.w.s Explanations of the Act, it is merely a change of opinion by the ld.Pr.CIT that the allegations made by the ld.Pr.CIT is totally baseless because the AO had made depth enquiry. He further submitted that the diaries found and entries relating to the fishing business was confronted by the department to the assessee. The entries was advance receipt from sale of fish, therefore, the assessee declared an additional amount of 1.00/- crore as business income and it was also declared in the return of income. He further submitted that the assessee had no ITA Nos.430 & 431/Bang/2022 Page 15 of 28 other income except business income, which has been declared as additional income only to buy peace with the department. It cannot be said that there was lack of enquiry or inadequate enquiry by the AO. The AO passed order after accepting the explanation and submissions made by the assessee during the course of assessment proceedings. He further submitted that for invoking the provision u/s 263 of the Act, twin conditions should be satisfied, firstly, the order passed by the AO sought to be revised is erroneous and secondly and it is prejudicial to the interest of the revenue. He submitted that the order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue and he relied on the judgment of Hon’ble Supreme Court in the case of Mallabar Industrial Company Ltd., Vs. CIT reported in 243 ITR 83 and he also relied on judgments which has been quoted in his statement of facts. He also relied on the judgment of coordinate bench of the Tribunal in the case of Sadhu Salian in ITA No.457/Bang/2022 vide order dated 27/07/2022 which was a group search on the similar issue. 9. The ld.DR relied on the order of the lr.Pr.CIT and he submitted that the order passed by the AO is erroneous and prejudicial to the interest of the revenue. The AO while passing the assessment order has not conducted proper enquiry as required by him for substantiating the income declared by the assessee under the different heads as per the statements recorded. As per ITA Nos.430 & 431/Bang/2022 Page 16 of 28 the question/answer No.16, the assessee is engaged in different activities which is clear from the order of the lower authorities. It is clear from the order of the AO and compared with the statements recorded during the course of search and post search proceedings, the AO has not conducted any enquiry in regard to the loan given and taken by way of cash as well as cheques and advances received from the real estate business. The AO has simply accepted it as a business income as declared as per question answer No.19 that 1 croers is a additional income in connection with unaccounted fish sales. He further submitted that it was an undisclosed income. Once it is proved that it is undisclosed income the sec. 68 or 69 shall apply accordingly and the tax rate shall be charged as per sec. 115BBE of the Act. He further submitted that AO ignored the post search statements recorded on 12/02/2018, which is placed at paper book 33, 34, 35 in question/answer Nos.5 and 6. The ld.AR was also unable to produce any details in regard to the enquiry or questionnaire issued by the AO and reply submitted by the assessee in regard to the income declared by the assessee, therefore, the ld.Pr.CIT has rightly invoked revisionary power as per 263 of the Act and he submitted that the case law relied on by the ld.AR is on different footings, therefore, they are distinguishable. 10. After considering the rival submissions, perusing the entire materials on record and examining the orders of the lower ITA Nos.430 & 431/Bang/2022 Page 17 of 28 authorities, we observe that the assessee was engaged in different business activities i.e in the business of bar, restaurant/lodging. Fisheries, real estate sectors and loan taken and given. A search and seizure action which was conducted in the assessee’s premises on 08/02/2018 under a warrant of authorisation u/s 132 and notice u/s 153C was issued to the assessee. During the course of search proceedings, two diaries were found and declared Rs.1.00/- crore for the year 2016-17and Rs.3.00/- crores to cover up the unaccounted fish sales and Rs.3.00/- crores as additional income towards unaccounted receipts out of real estate business for the year 2017-18 respectively. The AO completed the assessment and accepted the income declared by the assessee of Rs.1 crore as business income and taxed as per the normal rate for the year under consideration and the rest amount was declared in the subsequent year. The ld.Pr.CIT has invoked revisionary power and has directed to treat it as income u/s 68 of the Act and applied tax rate as per sec. 155BBE of the Act. On perusal of the assessment order, the AO has accepted that it is a business income. 11. The co-orditne bench of the Triubnal has decided similar issue in group search case in the case o f M/s Karthik Estate in ITA No.432/Bang/2022 vide order dated 24.08.2022. However, the case was heard on 17.08.22 which is subsequent hearing date of the impugned case but the issues were same and declaration made are also same. The relevant part of the order is as under:- ITA Nos.430 & 431/Bang/2022 Page 18 of 28 9. We have considered the rival submissions and perused the material on record. The main source of income as per the return of income filed by the assessee is the income from business and that the adhoc amount of Rs.3,00,00,000 is declared under the head income from business. This supports the claim of the assessee that there is no other source of income other than the income from business. The PCIT has stated that the source of additional income declared of Rs.3,00,00,000 is not substantiated with evidence and should have been taxed as per the provisions of section 115BBE of the Act and based on this premise, he concluded that the order of the AO is erroneous and prejudicial to the interests of the revenue. Before proceeding further, it is apposite to take note of the relevant extract of section 263 and the Explanation (2) to section 263 of the Act, which read as under :- “Revision of orders prejudicial to revenue. 263. (1) The [Principal Chief Commissioner or Chief Commissioner or Principal Commissioner] or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer 89[or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, 90[including,— **** Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 94[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal 95[Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in ITA Nos.430 & 431/Bang/2022 Page 19 of 28 the case of the assessee or any other person.” 10. Thus, from close scrutiny of the provisions of section 263, it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under section 263 of the Act i.e., firstly, the order of the Assessing Officer is erroneous; and secondly, it is prejudicial to the interests of the revenue on account of error in the order of assessment. The Bombay High Court in the case of Gabriel India Ltd. (1993) 203 ITR 108 has explained as to when an order can be termed as erroneous as follows:- “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 the 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 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 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 a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion .............. There must be some prima facie material on record to show that the 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.” 11. There is no dispute that u/s. 263 of ITA Nos.430 & 431/Bang/2022 Page 20 of 28 the Act, the PCIT does have the power to set aside the assessment order and send the matter for a fresh assessment if he is satisfied that further enquiry is necessary and the assessment order is prejudicial to the interests of the Revenue. However, in doing so, the PCIT must have some material which would enable to form a prima facie opinion that the order passed by the AO is erroneous, insofar as it is prejudicial to the interests of the Revenue. In the present case, the PCIT has not brought out any material on record to substantiate that the source of the amount declared during the search proceedings is anything other than the income from business of the assessee. The AO has given a clear finding with respect to additional income offered by the assessee as business income. The PCIT in his order has stated that further enquiry would have revealed that the additional income is from an undisclosed source and would have resulted in unexplained income to be taxed u/s.115BBE of the Act. This view of the ld. PCIT, in our opinion, is not the right reason for exercising revisionary powers u/s. 263 of Act, as the error envisaged by Section 263 of the Act is not one that depends on possibility as a guess work, but it should be actually an error either of fact or of law. 12. With regard to the argument that the assessee’s case requires to be considered in the light of the explanation (2) to Section 263 of the Act, we notice that the Hon’ble Gujarat High Court in the case of Shreeji Prints (P) Ltd. (130 taxmann.com 293 – Guj) while considering the explanation of Section 263 of the Act, has held that : - “4 Being aggrieved by the order passed by the PCIT under section 263 of the Act, 1961, the assessee went before the Tribunal. The Tribunal, after considering the submissions made by the assessee and after considering the scope of power to be exercised by the PCIT under section 263 of the Act, 1961 came to be conclusion that the Assessing Officer has made inquiries in detail about two unsecured loans taken by the respondent assessee and observed as under: "13 In the light of the aforesaid judicial precedents in the present case what has to be seen is whether the AO has made enquiries about two loans taken from GTPL and PAFPL. If the answer is affirmative, then second question arises whether the acceptance of ITA Nos.430 & 431/Bang/2022 Page 21 of 28 the claim by the AO was a plausible view or on the facts of the finding on the facts that the said funding of the AO can be termed as sustainable in law. We find that vide notice issued u/s.142(1) dated 13-10-2015 placed at Page No. 1 of Paper Book shows the AO vide item no.(iii) has asked the information regarding details of unsecured loan outstanding as on 31-3-2013 and the loans were squared up amounts in the format prescribed therein. In compliance to thereof, the assessee has furnished complete details of the unsecured loans outstanding/ squared up vide para 3 of his letter dated 2-11- 2015 placed as Annexure-2 at page 4 of paper book. The assessee has also furnished details consisting of copy of ledger account, copy of acknowledgment of income filed for A.Y. 2012-13 and 2013-14 and copy of bank statement reflecting the payment received was paid during the financial year 2012-13 relevant to assessment year 2013-14 which are placed at paper book, page 9 to 49 in respect of GTPL as well as PAFPL. This indicate that the assessee has furnished account confirmation of the depositor, acknowledgment of income of the parties, audited balanced sheet and profit and loss account of the parties and bank pass book and bank statement of the parties. During the course of assessee proceedings, form these facts it is clear that the assessee has not only proved the from these facts it is clear that the assessee has not only proved the identity of the lenders but also the genuineness of the transactions and credit worthiness of the lenders. Accordingly, the Ld. AO after verifying the details of unsecured loans being satisfied, accepted the submissions of the assessee which leads to infer that the Assessing Officer had made full enquiries of unsecured loans by raising the queries and calling for the all information in respect of the loan taken along with details evidences in support thereof and the same were also duly replied by the assessee and on receipt of all the details of evidences, the unsecured loans received by the assessee were accepted by the Assessing Officer and the assessment was finalised u/s.143(3) of the Act on 15-3-2016. We also note that there was audit objection in the case of the assessee. The language of audit objection and show-cause notice under section 263 is same meaning thereby that the show cause notice u/s.263 has been issued by the PCIT Without going through assessment records and without exercising his own application of his mind. The assessee has not only filed complete details of Income-tax Return, audited balance sheet, profit and loss account and bank statement. The assessee further explained that both the these unsecured loans stands fully repaid as on the date and there is no capital creation by the assessee on this count. In view of these facts and circumstances, we are of the considered opinion that the order of the Assessing Officer is not erroneous nor it is prejudicial to the interest of revenue. It was also brought to the notice of the PCIT that entire share capital of GTPL being already tax, all the investment made by the said company recorded in its balance sheet stands explained tax in its hands itself and hence, "there is no question of adding the same amount in the hands of the assessee. As regards loans from ITA Nos.430 & 431/Bang/2022 Page 22 of 28 PAFPL, it was submitted that assessee company has made voluntary disclosure of income of Rs. 1.5 crore under IDS 2016 in September 2016 and the said loan was repaid before making declaration. In view of these facts and circumstances, we find that the AO has made due enquiries. Since we find that the AO had made enquiries regarding unsecured loans and accepted the claim of the assessee after detailed enquiries." 15 The Pr.CIT had observed that Explanation 2 of section 263 of the Act is clearly applicable and it is clear that the Assessing Officer has passed the assessment order after making enquiries for verification which ought to have been made in this case. However, we find that the Pr. CIT has not mentioned in the showcause notice issued under section 263 that he is going to invoke the Explanation 2 to 263 hence, invocation of Explanation in the order without confronting the assessee is not appropriate and sustainable in law in support of this contention, the ld. Counsel has placed reliance on the following decision: CIT v. Amir Corporation 81 CCH 0069 (Guj.), CIT Mehrotra Brothem -270 ITR 0157 (MP,CIT v. Ganpet Ram Bishnoi - 296 ITR 0292 (Raj.), Cadila healthcare Ltd. v. Cl 7, Ahmedabadh-1 [ITA no. 1096/Ahd/2013 & 910/Ahd/2014], Sri Saí Contractors v. ITO [ITO no. 109Nizag/2002] and Pyare lal Jaiswal v. CIT, Vamnesi [(2014) 41 taxmann.com 27 & (AII Trib.)]. It was contended by the Learned Counsel that clause -(a) & (b) of Explanation 2 of Section 263 are not applicable as the Assessing Officer has made enquiry and verification which should have been made. Further, in the show cause notice, the Explanation-2 of section 263 was not invoked by the PCIT and it was referred in the order u/s.263 of the Act. Therefore, in the light of decision of the Co-ordinate Bench of Mumbai ga in the case of Narayan Tatu Rane - 70 taxmann.com 227 (Mum. Trt.) [PB 153-1561 wherein held that explanation cannot laid to have over ridden the law as interpreted/the various High Courts where the High Courts have held that before reaching the conclusion that the order of the Assessing Officer is erroneous prejudicial to the interest of Revenue. The CIT himself has to undertake some enquiry to establish that the assessment order is erroneous and prejudicial to the interest of Revenue. The ld. Counsel relied on the decision of M/s. Amira Pure Foods Pvt. Ltd., v. PCIT in ITA No.3205/Del/2017 and Ahmedabad Tribunal in the case of Torrent Pharmaceuticals Ltd. v. DCIT [2018] 97 taxmann.com 671 (Ahd. - Trib.). it is clear from the enquiries made by the Assessing Officer and submissions made by the assessee that the Assessing Officer has taken the plausible view which is valid in the eyes of law. The Assessing Officer was satisfied consequent to making enquiry and after examining the evidences produced by the assessee, he accepted the assessee's claim of loan similar view were also expressed by the Hon'ble Delhi High Court in the case of CIT v. Vodafone Essar South Ltd. [2013] 212 taxman 0184. We observe the Pr.CIT has drawn support from newly inserted Explanation 2 below section 263(1) of the Act introduced by Finance Act, 2015 w.e.f. 1-6-2015 ITA Nos.430 & 431/Bang/2022 Page 23 of 28 for his action. The Explanation 2 inter alia provides that the order passed without making inquiries or verification 'which should have been made' will be deemed to be erroneous insofar as it is prejudicial to the interest of the Revenue. It is on this basis, the assessment order passed by the AO under section 143(3) of the Act has been set aside with a direction to the AO to pass a fresh assessment order. It will be therefore imperative to dwell upon the impact of Explanation 2 for the purposes of section 263 of the Act. The aim and object of introduction of aforesaid Explanation by Finance Act, 2015 was explained in CBDT Circular No. 19/2015 [F.NO.142I14/2015T PL], Dated 27-11-2015 which is reproduced hereunder: "53. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue. 53.1 The provisions contained in sub-section (1) of section 263 of the Income-tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it/s prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment. 53.2 The interpretation of expression "erroneous in so far as it/3 prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue, section 263 of the Income-tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 53.3 Applicability: This amendment has taken effect from 1st day of June, 2015." "17 We thus find merit in the plea of the assessee that the Revisional Commissioner is expected show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry. If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus ITA Nos.430 & 431/Bang/2022 Page 24 of 28 become susceptible to section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation. Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the AO and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of AO. The AO in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications. The AO has passed after making due enquiries issues involved impliedly after due application of mind. Therefore, the Explanation 2 to section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case. 18 In the light of above facts and legal position, we are of the considered view that the AO had made detailed enquiries and after applying his mind and accepted the genuineness of loans received from GTPL and PAFPL, which is also plausible view. Therefore, we find that twin conditions were not satisfied for invoking the jurisdiction under section 263 of the Act. The case laws relied by the ld. CIT(D.R.) are distinguishable on facts and in law hence, by the ld. Counsel as well and we concur the same hence not applicable to present facts of the case. Therefore, in absence of the same, the ld. CIT ought to have not exercised his jurisdiction under section 263 of the Act. Therefore, we cancel the impugned order under section 263 of the Act, allowing all grounds of appeal of the Assessee." 5. The Tribunal has found that in the order passed by the PCIT, Explanation 2 of section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by invocation of Explanation in the order without confronting the assessee and giving an opportunity of being heard to the assessee is not appropriate and sustainable in law. 6. Thus, the Tribunal has considered in detail the aspect of revisional power to be exercised by the PCIT in the facts of the case and has given a finding of facts that the Assessing Officer has made inquiries in detail and after applying mind, accepted the genuineness of loans received by the respondent assessee from the aforesaid two companies and such view of the Assessing Officer is a plausible view, and therefore, the same cannot be said to be erroneous or prejudicial to the interest of the Revenue.” 13. The SLP against the above order of the Hon’ble High Court was dismissed by the Hon’ble Supreme Court, thereby the issue, that the explanation (2) to Section 263 of the Act could be invoked only in a very gross case of inadequacy in enquiring or where the mandatory enquiries are ITA Nos.430 & 431/Bang/2022 Page 25 of 28 not conducted, has reached finality. 14. Further it is noticed that in the statement recorded u/s.132(4) the assessee has made a clear declaration that the source for the additional income offered is from the business. The relevant extract is reproduced below:- “19. Do you have anything else to say? Ans. Sir, as I have stated in earlier answers to the questions that I have received sales proceeds and advances from customers in cash which are not accounted in the books of account. The cash received from those transactions are paid for the expenses which arises for the business exigencies. In order to rectify the omission and commission that occurred in my accounts, I hereby offering an additional income of Rs. 7,00,00,000/- (Rs. Seven Crore) above to the regular income in the hands of my business entities. The details are as follow:- Further, I would like submit that my estimated regular income for the F.Y. 2017-18 as an individual capacity and from other firms is Rs.2,50,00,000/-. The same will be offered after the finalization of the books of account.” 15. We also notice that in the letter filed before the AO during the course of assessment proceedings the assessee has made a detailed submission with regard to his business income as under :- 1. Assessee firm was constituted on 04.12.2015 for the purpose developing a project by name Karthik Estate which consisted of saleable commercial area and premises of boarding and lodging. Copy of partnership deed is enclosed herewith. A detail of saleable and retained area of the premises is enclosed herewith. The project was commenced in the year 2015-16 and the project was completed on 23.11.2017 as per occupancy certificate issued by Muncipal Commissioner, City Corporation, Udupi. Copy of the occupancy certificate is enclosed herewith. Accordingly the revenue from sale of shops sold is recognised in the financial years 2016-17 and 2017-18. 2. As could be seen from the chart the total area of the premises is 4,369.20 sq mts (47,012.65) sq ft out of which 2,749.87 sq mts (29,588.65 sq ft) is retained by the assessee for its own purpose of carrying on business of lodging and boarding. Balance area of 1,619.33 Sq mts (17,424 sq ft) is sold by the assessee. 3. Detailed chart showing sale of shops is enclosed herewith. The income from sale of shops is offered as under: ITA Nos.430 & 431/Bang/2022 Page 26 of 28 3.1 It is submitted that the gross profit and net profit declared is 31.45% and 11.95% respectively. Your goodself may also appreciate that the gross profit declared is much higher in any comparable cases. In addition to the substantial income offered by the assessee an additional income of Rs. 3,00,00,000 is also offered to tax to cover up omissions/commissions if any. 16. On perusal of the above facts, it is evident that the assessee has no other source of income other than business income which fact has been repeatedly submitted by the assessee before the lower authorities. The AO has conducted enquiry and perused the details submitted and has taken a decision to accept the explanation provided by the assessee after proper application of mind. It is also to be noted that impugned sum is already offered to tax as business income and when the only source of income is business income, then the provisions of section 115BBE cannot be invoked to tax the income as ‘deemed income’. The PCIT has stated that the AO ought to have treated the income as “unexplained cash credit” that should have been added u/s.68. This contention is not tenable since for the purpose of invoking section 68, the cash credit should have been recorded in the books of accounts of the assessee for which he offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory. In assessee’s case Rs.3 crores is not recorded in the books of accounts and directly offered to tax in the statement of computation (page 12 of paper book) as additional income under the head profits and gains of business or profession. 17. In view of the above discussion, we are of the considered view that the PCIT is not justified in setting aside the order of the AO for examining the source of income of Rs.3,00,00,000 already offered to tax as business income. Accordingly the impugned order of the PCIT is quashed. ITA Nos.430 & 431/Bang/2022 Page 27 of 28 12. Since the issue is squrely covered by teh above cited jdugent, hence respectfully following the above judemtns, we allow the apepal of the assessee. ITA No.431/Bang/2022 – Assessment Year 2018-19 13. Since the issue involved in the present assessment year is on similar matrix to that of assessment year 2017-18, the decision in assessment year 2017-18 shall apply mutatis mutandis for assessment year 2018-19 also. 14. In the result, the appeals of the assessee are allowed. A copy of common order be placed on the respective case files. Order pronounced in court on 19 th day of September, 2022 Sd/- Sd/- (N.V VASUDEVAN) (LAXMI PRASAD SAHU) Vice President Accountant Member Bangalore, Dated, 19 th September, 2022 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore. ITA Nos.430 & 431/Bang/2022 Page 28 of 28 1. Date of Dictation .......................................... 2. Date on which the typed draft is placed before the dictating Member ......................... 3. Date on which the approved draft comes to Sr.P.S ................................... 4. Date on which the fair order is placed before the dictating Member .................... 5. Date on which the fair order comes back to the Sr. P.S. ....................... 6. Date of uploading the order on website................................... 7. If not uploaded, furnish the reason for doing so ................................ 8. Date on which the file goes to the Bench Clerk ....................... 9. Date on which order goes for Xerox & endorsement.......................................... 10. Date on which the file goes to the Head Clerk ......................... 11. The date on which the file goes to the Assistant Registrar for signature on the order ..................................... 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order ............................... 13. Date of Despatch of Order. .....................................................