OM SAI HOUSING & DEVELOPMENT CO. P. LTD., MUMBAI V. PR. CIT - 8, , MUMBAI

ITA 635/MUM/2021

AI Insights

The case involves Om Sai Housing & Development Co. Private Limited appealing against the order of the Principal Commissioner of Income Tax (Pr.CIT) which set aside the assessment order made by the Assessing Officer under section 143(3) of the Income Tax Act. The Pr.CIT had invoked section 263, claiming the original assessment was erroneous and prejudicial to the interest of the revenue due to inadequate inquiry by the Assessing Officer regarding low income declared in comparison to high expenses and certain unsecured loans. The Tribunal, however, found that the Assessing Officer had conducted a thorough inquiry and accepted the assessee's explanations, thus reversing the Pr.CIT's order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123314 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 22-01-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 25-04-2021
• Other Referred Cases: CIT v. Gabriel India Ltd, Rajmandir Estates Private Limited vs. Pr. CIT, Daniel Merchants Private Limited vs. ITO, Malbar Industrial Ltd vs CIT, Laxmi Ventures (India) Pvt Ltd vs Principal Commissioner of Income Tax-7, Mumbai, PCIT v. Shreeji Prints (P) Ltd, CIT v. Shreeji Prints (P) Ltd, Amira Pure Foods Pvt. Ltd. v. PCIT, Torrent Pharmaceuticals Ltd. v. DCIT, CIT v. Vodafone Essar South Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Opportunity of being heard; Audit objection; Assessment record; TDS; Set aside; FORM 26AS
• Section: 263; 2; 143(3); 142(1); 14A; 143(1); 48; 2(A); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND MS KAVITHA RAJAGOPAL, HON'BLE JUDICIAL MEMBER ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited B/27, Suprabhat Society Dyanmandir Road, Dadar (W), Mumbai – 400028 PAN: AAACO8560E v. Pr.CIT – 8 Room No. 611, Aayakar Bhavan M.K. Road, Mumbai - 400020 (Appellant) (Respondent) Assessee Represented by : Shri Vishnu Agarwal Department Represented by : Shri K.C. Salvamani Date of Hearing : 23.01.2023 Date of Pronouncement : 15.02.2023 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of the Learned Principal Commissioner of Income Tax – 8, Mumbai [hereinafter in short “Ld. Pr.CIT”] dated 01.03.2021 for the A.Y.2015-16 passed u/s. 263 of the Act. 2. Brief facts of the case are, the assessee filed its return of income declaring total income at ₹.1,99,870/- on 29.09.2015, the same was 2 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited processed u/s 143(1) of the Income Tax Act, 1963 (in short, Act). Subsequently the case was selected for scrutiny u/s 143(3) of the Act and assessed the same by accepting the return of income declared by the assessee by merely disallowing expenses u/s 14A of the Act. However, while perusing the assessment record, Ld.PCIT-8, Mumbai observed that in 142(1) notice, Assessing Officer raised question No. 10, in order to enquire about low income declared by the assessee and in comparison declared high expenses. In reply, assessee submitted as under: - “ 5) Low Income & High Interest on Loan: Assessee company has taken loans from various parties & same is invested in various businesses. Assessee has paid Interest on loans to parties on yearly basis @12% except few loans. The details of loans taken are as follows: - Sr. No. Name of the Party Balance as on 31/03/2015 Amount (Rs.) Remarks 1. Ami T. Pakai 4,98,600/- Unsecured Loans - Interest Paid @ 12% 2. Indira Kishore Jain 11,08,000/- Unsecured Loans - Interest Paid @12% 3. C.S. Karmavat HUF 3,31,858/- Unsecured Loans - Interest Paid® 12% 4. Jayantilal S Jain (HUF) 31,660/- Unsecured Loans - Interest Paid @ 12% 5. Jinendra Gems 26,630/- Unsecured Loans - Interest Paid @12% 6. Chandrakant Doshi 5,54,000/- Unsecured Loans - Interest Paid @12% 7. Chandu Kedia HUF 5,54,000/- Unsecured Loans - Interest Paid @ 12% 8. Rishi Export 17,72,800/- Unsecured Loans - Interest Paid @ 12% 9. Varshaben Panchal 5,54,000/- Unsecured Loans - Interest Paid @ 12% 3 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited Sr. No. Name of the Party Balance as on 31/03/2015 Amount (Rs.) Remarks 10. Navped Investment 2,21,600/- Unsecured Loans - Interest Paid & 12% 11. Priyesh Trivedi 5,04,000/- Unsecured Loans - Interest Paid @ 12% 12. Sumer Corporation 23,26,800/- Unsecured Loans - Interest Paid @ 12% 13. Samir V. Shah 14,40,400/- Unsecured Loans - Interest Paid @ 12% 14. Yash V Jewels Ltd. 1,35,00,000/- Share consideration payable. Not Unsecured Loans. 15. Escalate Buildtech Pvt Ltd. 80,00,000/- Business Advance. Non interest bearing Assessee Company has taken various above loans for making investment in some real estate/ other projects. Assessee Company has given various advances to the following Company / persons: Sr. No. Name of the Party Amount (Rs.) Re marks 1. Aquila Medicare Pvt. Ltd. PAN: AADCA9886C 5,00,000/- Company is into Pharmaceutical Business 2. Franklin Fernandis PAN: AAKPF9237A 31,50,000/- Person is into Pharmaceuticals Business 3. Siddhesh Properties Pvt Ltd. PAN: AAPCS1903G 1,48,37,500 Company is into Real Estate Business 4. Siddhesh Developers Pvt. Ltd. PAN: AALCS4350F 14,05,000/- Company is into Real Estate Business 5. Vinayak Enterprises PAN: AAGFV0577K 41,00,000/- Amount paid for advance for acquisition of Land. 6. Multiventure Agro & Infrastructure Pvt. Ltd. PAN: AAECM9836B 25,00,000/- Company is into Real Estate Business. Assessee Company has not received Income from all above mentioned parties due to various reasons like non commencement of project, non completion of expected stage of the project, non receipt of Government permission etc. Still Interest on loans given (Income) is more than Interest Expense.” 4 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited 3. From the above submissions filed before Assessing Officer, Ld.Pr.CIT observed some discrepancies as discussed in his order as under: “(a) Paresh M. Bagadia, whose name is shown under the head "Long Term Borrowings - Unsecured Term Loans" [Note No.3 to Balance Sheet] to whom interest of Rs.60,000/- has been paid [as per confirmation available on record]. (b) Bharati Praful Sanghavi, whose name is shown under the head "Other Current Liabilities - Other Payables" [Note No. 5 to Balance Sheet] to whom interest of Rs.85,151/- has been paid on account of Interest on Unsecured Loan. In Note No. 7 to the Balance Sheet, the assessee has given the details of Long Term Loans and Advances. It is seen from the details furnished during the course of assessment proceedings that, out of 10 parties appearing therein, interest was received from only 3 parties i.e. from (i) Siddhesh Builders Pvt. Ltd; (ii) Siddhesh Developers Pvt. Ltd.; and (iii) Siddhesh Properties Pvt. Ltd. The relevant details are as under: 7. Long Term Loans and Advances (Rs.) As per Form 26AS Interest TDS Loans and advances to related parties Aquila Medicare Pvt. Ltd. Landmark Builders & Developers Lordlife Science Pvt. Ltd. Other loans and advances Multi Venture Agro & Infrastructure Pvt. Ltd. Franklin Fernandies Sachin Manve Siddhesh Builders Pvt. Ltd. Siddhesh Developers Pvt. Ltd. Siddhesh Properties Pvt. Ltd. Vinayak Enterprises 5,00,000 54,000 2,00,000 0 0 0 7,54,000 0 25,00,000 54,000 2,00,000 4,54,000 14,05,000 1,48,37,500 41,00,000 0 0 0 60,000 1,50,000 15,00,000 0 0 0 0 6,000 1,50,000 1,50,000 0 2,66,46,500 17,10,000 1,71,000 Total 2,74,00,500 17,10,000 1,71,000 5 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited In its reply (24 Table above) though the assessee is saying that, "Assessee Company has given various advances to the Following Company/ persons and the "Assessee Company has not received income from all above mentioned parties due to various reasons like non commencement of project, as shown in the Table at Sr. No. (iv) above, in all, the assessee has received interest from three parties [out of which two are included in assessee's reply (24 Table above, which is appearing in the Form 26AS also. Further, as per the "Confirmation of Accounts" of these parties, the amounts given to them are interest bearing loans. The assessee being a Company, is following mercantile system of accounting. Therefore, it should have offered the relevant income to tax during the year itself, on accrual basis. It cannot postpone offering income accrued to it during the year under consideration for tax. It was also seen from the 1 Table (Sr. No.14) of assessee's AR's reply dated 27.09.2017 that the liability of Rs.1,35,00,000/- payable to Yash V Jewels Ltd. was explained as "Share consideration payable. Hot Unsecured Loans". In Note No.5 to the Balance Sheet, the assessee has shown the same under the head "Other Current Liabilities Other Payables". However, there is no corresponding investment shown in the shares of the company "Yash V Jewels Ltd." The AO was required to examine the genuineness of this transaction of Rs. 1,35,00,000 with M/s. Yash V Jewels Ltd. It was also not clear whether the said liability was on account of Share consideration received' by the assessee, but refundable / returnable due to non-allotment of shares. It is seen from the Balance Sheet that the Share Capital amount remained same at Rs.4,25,900/- as has been declared during the immediate previous financial year (A.Y. 2014-15). If that is the case, it is not clear under which head the corresponding amount has been included. Out of the total amount of Rs.2,29,01,797/- shown under the head "Other Current liabilities - Other payables', the assessee has furnished confirmation in respect of Ms. Bharati Praful Sanghavi, having closing balance of Rs.10,76,636/-, from whom the assessee has taken unsecured loan of Rs.10,00,000/-, The AO has not made any further verification with regard to the fresh loan of Rs. 10,00,000/- taken from Shri. Bharati Praful Sanghavi to ascertain the genuineness of this transaction. In short, the AO did not verify the status of "Other Current Liabilities - Other Payables shown at Rs.2,29,01,797/-, and has 6 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited accepted the same in the light of partial details furnished by the assessee.” 4. By observing the discrepancies, Ld. Pr.CIT is of the opinion that as per explanation 2(a) to section 263(1) of the Act, Assessing Officer has not conducted necessary inquiry, hence it is erroneous and prejudicial to the interest of the revenue, accordingly, issued notice u/s 263 of the Act and granted fresh opportunity. 5. In response, AR of the assessee attended and submitted that in the assessment proceedings, AR attended and filed reply to various queries raised in 142(1) notices. The case selected for the reason that low income in comparison of high expenses. It was submitted that assessee earned interest income of ₹.17.10 lakhs and expenses are interest paid of ₹.12.73 lakhs and administrative expenses of ₹.2.52 lakhs, net income was declared and relevant taxes were paid. It was submitted that interest earned was tallied with form 26AS, party-wise details of interest paid with rate of interest on 13 parties alongwith confirmations including loan from Bharat Sangavi. The Assessing Officer was satisfied with the genuineness of the loans. 7 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited 6. With regard to Shares consideration outstanding as on 31.03.2015 to Yash V Jewels Pvt Ltd, the said shares were purchased during A.Y.2013-14 and consideration paid partly in AY 2013-14 and AY 2015-16 and balance consideration of ₹.1,35,00,000/- was outstanding as on 31.03.2015 as reflected in audited accounts. The said share purchase has been clearly reflected under the head investment in shares of Multiventure Agro and Infrastructure Put Ltd (Note 6 to audited balance sheet). Details of outstanding advances received from Escalate Buildtech Pvt Ltd of ₹.80,00,000/- which was received during A.Y. 2013-14, out of which ₹.50,00,000/- has been repaid during A.Y. 2016-17. Balance amount is still under payment. Details of various loans and details were submitted on 27-09-2017 and 30-11-2017 during assessment proceedings. Our client has duly accounted interest on loans wherever applicable on accrual basis. For rest of transactions they were given either by way of business advance where no interest was receivable or by way of loans but the said loans have turned bad even in respect of principal amount and hence question of providing interest income on such doubtful loans does not arise. Most of the transactions referred to in your notice are during the earlier years for which scrutiny assessment has taken place. Assessee 8 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited relied on the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Gabriel India Ltd 1993 [203 ITR 108 BOM]. 7. Ld. PCIT considered the above submissions and rejected the same by observing as under: - “5. The contention of the assessee, that the Order passed by the AO is not erroneous in so far as being prejudicial to the interest of the revenue, is not found to be acceptable given the facts of the case. Assessee has shown interest income of Rs.17,10,000/- from 3 parties, details of which are as follows: i) Sidhhesh Developers Pvt Ltd ii) Sidhhesh Properties Pvt Ltd iii) Sidhhesh Builders Pvt Ltd. However, assessee claimed interest expense to the tune of Rs.12,73,776/- being interest paid to different parties at 12%. Assessee has not charged interest on loans and advances given by it to the following parties:- i) Multyventure Agro and Infrastructure Pvt Ltd Rs.25,00,000 ii) Frankling Fernandes Rs.31,50,000 iii) Sachin Manve Rs.2,00,000 iv) Vinayak Enterprises Rs.41,00,000 Total Rs.99,50,000 Assessee has claimed that these amounts were not loans but advances given for various purposes. However, there was no documentary support placed on the record to suggest that these were advances given for business purpose. AO has not carried out any inquiry in this regard and merely accepted assessee's submission without verifying genuineness of these transactions. Further assesse has mentioned that most of these advances have turned bad and even the principal amount has not been returned by few parties hence there is no question of interest accrual. However, this fact was not verified by the AO by making independent third party inquiry 9 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited during the assessment proceedings. Assesse is following accrual basis of accounting. In view of the fact that "Low income in comparison to high loans / advances / investment in shares is one of the reasons of selection for Limited Scrutiny, the Assessing Officer should have examined the issue of not offering the interest income by the assessee on accrual basis. Further, liability of Rs.1,35,00,000/- payable to Yash V Jewels Ltd. was explained as "Share consideration payable. Not Unsecured Loans". In Note No.5 to the Balance Sheet. The assessee has shown the same under the head "Other Current Liabilities - Other Payables". However, there is no corresponding investment shown in the shares of the company "Yash V Jewels Ltd." It was also not clear whether the said liability was on account of Share consideration Teceived' by the assessee, but refundable/returnable due to non-allotment of shares. It is seen from the Balance Sheet that the Share Capital amount remained same at Rs.4,25,900/- as has been declared during the immediate previous financial year (A.Y. 2014-15). If that is the case, it is not clear under which head the corresponding amount has been included. The AO has failed to examine the genuineness of this transaction of Rs. 1,35,00,000 with M/s. Yash V Jewels Ltd. Out of the total amount of Rs.2,29,01,797/- shown under the head "Other Current liabilities - Other payables", the assessee has furnished confirmation in respect of Ms. Bharati Praful Sanghavi, having closing balance of Rs.10,76,636/-, from whom the assessee has taken unsecured loan of Rs. 10,00,000/-. The AO has not made any further verification with regard to the fresh loan of Rs. 10,00,000/- taken from Shri. Bharati Praful Sanghavi to ascertain the genuineness of this transaction. Thus, the AO did not verify the status of "Other Current Liabilities - Other Payables" shown at Rs.2,29,01,797/-, and has accepted the same in the light of partial details furnished by the assessee. AO passed the assessment order u/s 143(3) o 14-12-2017 of the Act without examining these issues at all. In absence of any inquiry made by the AO or recording his reasons for accepting assessee's submission without any appropriate evidence, it can not be said that documents were duly verified by the AO. Therefore the facts of the case of the assessee are distinguished from the Judicial pronouncement relied upon by the assessee in the case of Commissioner of Income Tax v/s Gabriel India Ltd 1993 203 ITR 108 BOM. 10 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited Reliance is placed on, Hon'ble Kolkata High Court's judgement in the case of Rajmandir Estates Private Limited vs. Pr. CIT 386 ITR 162 (Cal) which has been affirmed by the Hon'ble Supreme Court, as also in the case of Daniel Merchants Private Limited vs. ITO pronounced by the Hon'ble Supreme Court on 29.11.2017, that the CIT is entitled to revise the assessment order u/s 263 of the Act on the ground that the Assessing Officer did not make any proper inquiry while accepting the explanation of the assessee. Further reliance is placed on 'Malbar Industrial Ltd vs CIT (2000) 243 ITR 83(SC)'. As per this judgment the order of the AO can be held to be erroneous, i.c. i) If the AO's order is passed without application of mind or ii) If the AO has not investigated the issue before him. Reliance is also placed on Ld. Mumbai ITAT's judgement in the case of 'Laxmi Ventures (India) Pvt Ltd vs Principal Commissioner of Income Tax-7, Mumbai (ITA No.2199/MUM/2018), where it has upheld the order u/s 263 by observing that, the AO has not given any reason in the assessment order or even did not discuss the issue concerned which shows that AO failed to exercise due diligence to determine the income. In this case too the AO has not given any reason nor discussed issues for having accepted the assessee's submission. 6. In conclusion, the assessing officer has failed to make necessary enquiry and bring on record all facts necessary for determining the true character and nature of the income claimed by the assessee. Omission to do so has resulted in an order which is erroneous and prejudicial to the interest of revenue. In view of this I am of the view that the assessment order dt. 14/12/2017 is erroneous and prejudicial to the interest of revenue as per provisions, of Explanation 2(a) to section 263(1) of the Income Tax Act. 1961 and requires to be revised and set aside. Accordingly, the assessment is revised and set aside to the file of the Assessing Officer. The Assessing Officer is directed to frame the order de novo, as per observation made in this order above.” 8. In conclusion, he observed that the Assessing Officer failed to make necessary enquiry and omission to do so has resulted in an order which 11 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited is erroneous and prejudicial to the interest of revenue. Accordingly, he set aside the assessment order and directed the Assessing Officer to redo the assessment de novo based on his observations. 9. Aggrieved the assessee is in appeal before us raising following grounds of appeal. “1. The Hon. Pr. CIT erred in holding the order framed by the ld. AO u's 1433) of the IT Act, 1961 on 14.12.2017, to be erroneous and prejudicial to the interest of revenue and accordingly the assumption of jurisdiction by the Hon. Pr. CIT us 263 of the IT Act, 1961 was not valid and was unjustified. 2. The Hon. Pr. CIT erred in setting aside to the file of the assessing officer, the assessment framed u/s 143 (3) of the I.Tax Act, 1961 on 14.12.2017, holding that the original assessment was required to be revised, as the assessing officer had failed to carry out necessary verification of other liabilities of Rs. 2,29,01,797/- and therefore the order u/s 143 (3) passed on 14.12.2017 was erroneous in so far as it is prejudicial to be interest of revenue. 3. The Hon. Pr. CIT erred in directing the ld AO to revise the assessment, after setting it aside for de novo consideration, which direction of the Hon. Pr. CIT is not appropriate by law, as the ld AO has been robbed of independent decision in the matter and for this reason, the order u/s 263 is not valid in law and bears to be quashed. 4. The appellant craves leave to add, alter, amend and/or vary any of the grounds at any time before the decision of the appeal.” 10. At the time of hearing, Ld.AR of the assessee submitted that the assessee raised the Ground No. 1, a legal ground objecting to exercise of revisionary power when the Assessing Officer has made enquiries in detail and accepted genuineness of the income declared by the assessee, which was a plausible view and one of the possible view, same cannot be 12 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited considered as erroneous or prejudicial to the interest of the revenue. In this regard he relied on the Hon’ble Supreme Court decision in the case of PCIT v. Shreeji Prints (P) Ltd (2021) 130 taxmann.com- 294(SC). 11. On merits, he submitted that the assessee has given loan to parties interest free and brought to our notice Balance Sheet at Page No. 29 of the Paper Book. He submitted that it was accepted in the earlier AYs, in this regard, he filed the copy of the assessment order. Further, he brought to our notice reply of the assessee submitted before Assessing Officer with regard to reasons justifying the interest expenses and non chargeability of the interest to certain parties with the proper reasons particularly when one of the reasons for selection of the case for scrutiny is “low income in comparison to high investments”. 12. With regard to second issue of shares investment, he submitted that assessee purchased shares in A.Y. 2013-14 and made the settlements in the subsequent AYs. He brought to our notice, Page Nos. 29 and 12 of the Paper Book. Further, he submitted that the Assessing Officer verified the Investments ledger in detail and made the disallowance u/s 14A of the Act. He brought to our notice Ledger copies of Yash V Jewels Ltd, which is placed on record in Page Nos. 47 and 48 of the Paper book. 13 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited Further with regard to unsecured loans, he submitted that the assessee has submitted loan confirmations and other relevant documents before Assessing Officer. He prayed that the review proceedings initiated by the Ld.Pr.CIT is bad in law and needs to be quashed. 13. On the other hand, Ld.DR heavily relied on the findings of Ld. Pr.CIT in particular Para No.5 of the 263 order. 14. Considered the rival submissions and material placed on record. We observe that the Ld. Pr.CIT has reviewed the assessment records and observed from the point No. 10 of the notice issued u/s 142(1) of the Act that no doubt Assessing Officer has raised the above queries but failed to carry out necessary inquiry before completing the assessment u/s 143(3) of the Act. We observe that it is fact on record that the Assessing Officer raised the above queries and assessee also filed the relevant information at the time of assessment. It is also fact on record that Assessing Officer has not discussed the above aspect in his order however he proceeded to complete the assessment accepting the submissions of the assessee. It is also fact on record that the assessee has declared interest income more than the interest expenditure and other administrative expenses. On careful observation, we noticed that the assessee has utilised the 14 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited borrowed funds to the extent of interest bearing funds and interest free funds were utilised by them for various projects, in which it was allowed waiver to certain parties by explaining the reasons. It is not the case of the Ld. Pr.CIT that the assessee has not provided by information but it is only a presumption that Assessing Officer has not carried out necessary inquiries. From the record we observe that Assessing Officer has taken conscious decision to accept the submissions of the assessee without properly discussing the same in his assessment order. The Ld. Pr.CIT also expressed his dissatisfaction on the improper inquiry made by the Assessing Officer however he has not brought on record how it is prejudicial to the interest of the revenue. It is not enough to brought on record that the assessment completed u/s 143(3) is erroneous, it is also important to satisfy the twin conditions specified u/s 263 of the Act. 15. We observe from the 263 order that it is only two issues are discussed and with the observation that the Assessing Officer has not carried out necessary inquiry, it was remitted to the Assessing Officer to make necessary enquiry in the de novo proceedings. The issues raised in this appeal are similar to fact in the case of Shreeji Prints (P) Ltd (supra), the relevant findings are: - 15 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited “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 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 copies 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 16 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited 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 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." 17 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited 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 show- cause 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 Sai 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 Id. 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 18 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited 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 vi ew were also expressed by the Hon'ble Delhi High Court in the case of CIT v. Vodafone Essar South Ltd. [2013] 212 an 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 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.142114/2015T 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 prejudicial to the interests of the revenue" has 19 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited 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 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 20 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited 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 21 ITA.NO.635/MUM/2021 (A.Y: 2015-16) Om Sai Housing & Development Co. Private Limited 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. 7. In view of such finding of facts arrived by the Tribunal, no questions of law much less of any substantial questions of law arise out of the impugned order passed by the Tribunal.” 16. Respectfully following the same, we are inclined to set aside the order passed by Ld. Pr.CIT and allow the grounds raised by the assessee. 17. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 15 th February, 2023 Sd/- Sd/- (KAVITHA RAJAGOPAL) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 15/02/2023 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum