Shri Alpesh Manshukhlal Patel, Rajkot V. The Pr. CIT-1,Rajkot, Rajkot

ITA 72/RJT/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9394 (ITAT-RAJKOT)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Appeal Filed On: 03-04-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Revision of order; Business expenditure; Question of law; Set aside
• Section: 263; 2; 143(3); 142(1); 69A; 2(A)

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER, And SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER आयकर अपील सं./ITA No. 72/Rjt/2022 िनधाᭅरण वषᭅ/Asstt. Years: 2017-2018 Shri Alpesh Mansukhlal Patel, 230, Heera Panna Complex, Dr. Yagnik Road, Rajkot-360001. PAN: AGYPP4463C Vs. The Principal Commissioner of Income Tax, Rajkot-1, Rajkot. Assessee by : Shri Mehul Ranpura, A.R Revenue by : Shri Sanjeev Jain, CIT. D.R सुनवाई कᳱ तारीख/Date of Hearing : 30/06/2022 घोषणा कᳱ तारीख /Date of Pronouncement: 07/09/2022 आदेश/O R D E R PER BENCH: The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Principal Commissioner of Income Tax, Rajkot-1, dated 01/02/2022 arising in the matter of revision order passed under s. 263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2017-18. 2. The only interconnected issue raised by the assessee is that the learned Principal CIT erred in holding the assessment framed under section 143(3) of the ITA No. 72/Rjt/2022 A.Y. 2017-18 2 Act as erroneous insofar prejudicial to the interest of Revenue under the provisions of section 263 of the Act. 3. The brief facts are that the assessee is an individual and claim to be engaged in the business under the name & style of M/s Vijay Incorporation. The PCIT on examination of the case records of the assessee, found that there was cash deposit in the bank account of the assessee during the demonetization period amounting to ₹ 4,75,35,044.00 only. According to the learned PCIT, the amount of cash deposits was not verified during the assessment proceedings by the AO. Accordingly, the PCIT initiated the proceedings under section 263 of the Act vide show cause notice dated 27 January 2021. 3.1 The assessee in response to such show cause notice submitted that the AO has properly verified the cash deposit in bank by calling information through notice u/s 142(1) of the Act. The assesse further submitted that he has deposited cash only for 13,45,000/- in State Bank of Hyderabad bearing A/c No. 62095215630 and also stated that no other amount has been deposited by him as stated in the notice. 3.2 However, the ld. PCIT after considering the assessment records and submission of the assessee held that the assessment has been framed without necessary verification. Therefore, the same is erroneous insofar prejudicial to the interest of revenue by observing as under: 11. It may be mentioned that with effect from 01/06/2015, Explanation 2 to the section 263(1) has been inserted which reads as under- "Explanation 2.-For the purposes of this section, it is hereby declared 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, it, in the opinion of the Principal Commissioner or Commissioner-fa) 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 claim; (c) The order has not been made in accordance with any order, 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 Cout or Supreme Court in the case of the assessee or any other person. ITA No. 72/Rjt/2022 A.Y. 2017-18 3 12. As per the Explanation 2, the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue if the order 5 passed allowing any relief without inquiring into the claim. However, the AO did not coro.cc any such inquiries or verification as outlined above and simply accepted the assessee s submission. In this manner the assessee's case is also covered under para 'a' of Explanation 2, of section 263(1) of I. T. Act. Therefore the order passed by the AO is erroneous and prejudicial to the interest of revenue to that extent. 13. Keeping in view these facts, I am of the considered view that this is a fit case far invoking section 263 of I. T. Act as the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the revenue are satisfied. Accordingly the impugned assessment order is set aside for fresh assessment and the AO is directed to complete the assessment after due enquiry and verification only to the extent of the issues discussed supra 4. Being aggrieved by the order of the learned PCIT, the assessee is in appeal before us. 5. The learned AR before us filed two paper books running from pages 1 to 136 and pages 137 to 384 and contended that all the necessary details about the source of deposits in cash were filed during the assessment proceedings. The learned AR in support of his contention drew our attention on pages 38 to 136 of the paper book no. 1 where the cash book from 01-04-2016 to 31-03-2017 was placed. Further the ld. AR drew our attention on page no. 137 to 384 where the bank statement of state bank of Hyderabad bearing A/c no 500000062095215630, a/c no 62353572180 and a/c no 62364519929, HDFC bank account bearing account no 5020002246744, were placed. Further, the ld. AR drew our attention on page no 27 to 37 where the list of documents were attached which were filed while furnishing online reply during the assessment proceeding. Thus, the learned AR contended that the Ld. AO after verification of all these necessary documents in relation to cash deposit had framed the assessment order under section 143(3) of the Act. Therefore, it there cannot be said that the AO has not verified the documents and applied his mind at the time of assessment proceedings. 5.1 The learned AR further contended that the assessment was framed by the AO after considering the necessary details and verification and application of mind. ITA No. 72/Rjt/2022 A.Y. 2017-18 4 The learned AR in support of his contention drew our attention on pages 15 to 19 where copy of the notice issued under section 142(1) of the Act dated 17-09-2019 was placed wherein the assessee was asked about the source of cash deposited during the demonetization period. Likewise, the learned AR also drew our attention on pages 27 to 37 of the paper book where the reply of the assessee in response to the notice issued under section 142(1) of the Act as mentioned above was placed. Thus, the learned AR contended that there cannot be said that the assessment order is erroneous and causing prejudice to the interest of Revenue in the given facts and circumstances. 6. On the contrary, the learned DR vehemently supported the order of the authorities below. 7. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether the assessment order has been passed by Ld. AO without making inquiries or verification with respect to the cash deposited by the assessee in the bank as discussed above and hence the assessment is erroneous insofar prejudicial to the interest of the Revenue and thus requiring revision by Pr. CIT u/s 263 of the Act. 7.1 An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer’s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various Hon’ble High Courts in this regard. ITA No. 72/Rjt/2022 A.Y. 2017-18 5 7.2 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. The relevant observation of Hon’ble Delhi High Court reads as under: “12. ..... There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open. ——— From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re- examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.” 7.3 The Hon’ble Bombay High Court in case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the following manner: “The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record ITA No. 72/Rjt/2022 A.Y. 2017-18 6 of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. 7.4 The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words:- “20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provison shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis- à-vis its reasonableness in the facts and circumstances of the case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant.” 7.5 The Hon’ble Supreme Court in recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates*[2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revised order after making addition to assessee's income under section 69A in respect of on-money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner ITA No. 72/Rjt/2022 A.Y. 2017-18 7 passed a revised order under section 263 on ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed by Commissioner. The Hon’ble High Court upheld Tribunal's order. The Hon’ble Supreme Court while dismissing the SLP filed by the Department held as under:- “We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed” 7.6 The Supreme Court in the another recent case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd[2020] 114 taxmann.com 545 (SC), dismissed the Revenue’s SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations: “Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The Assessing Officer has taken a plausible view. More importantly, if the Commissioner was of the opinion that on the available facts from record it could be conclusively held that income arose from other sources, he could and ought to have so held in the order of revision. There was simply no necessity to remand the proceedings to the Assessing Officer when no further inquiries were called for or directed” 7.7 From an analysis of the above judicial precedents, the principle which emerges is that the phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Assessing Officer adopts one of the course permissible in law and it has resulted in loss of revenue; or where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax does not agree, it ITA No. 72/Rjt/2022 A.Y. 2017-18 8 cannot be treated as an erroneous order causing prejudice to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law, or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind. 7.8 Now in the facts before us, in the case of the assessee the AO during the course of assessment proceedings, made enquiries on this issue and after consideration of written submissions filed by the assessee and documents / evidence placed on record, framed the assessment under section 143(3) accepting the return of income. This fact can be verified from the notice issued under section 142(1) of the Act by the AO and reply of the assessee against such notice. i. Notice dated 17-09-2019: Please submit the copy of computation of Income and final Accounts/Audit report for A.Y. 2016-17 and A.Y. 2017-18 along with copies of Trading and P & L A/c. copy of Balance Sheet and copy of personal Capital A/c., if separately maintained. Please furnish the details of all bank accounts held by you and your proprietary concern from 01.04.2015 to 31.03.2017. (Also submit the account statements for FYs 2015-16 and 2016-17) Sr.No. Name & Address of the bank with branch Account no. Type of accounts (SB/Current/FD etc.) 1. 2 3 4 Please furnish cash book for F.Y. 2015-16 and 2016-17 and give details of cash in hand in the following format: 1 2 3 4 Justify this cash in hand with supporting documentary evidences. 1. Give details deposits by you in all your bank accounts from 09.11.2016 to 31.12.2016 in the following format. Sr.No Name & Address of the Bank with branch Account no. Total cash deposit form 9 th November 2016 to 31 st December 2016 in old 500 and 1000 Rupees notes Total cash deposit from 9 th November 2016 in other currency/notes Total cash deposit from 9 th November 2016 to 31 st December 2016 (4 + 5) 1 2 3 4 5 6 ITA No. 72/Rjt/2022 A.Y. 2017-18 9 1. Explain the source of cash deposits made in your bank accounts during FY 2016-17 with documentary evidences. And further in specific, explain the source of deposits made of old 500 and 1000 rupees notes (SBN) during the period of demonetization (i.e 08.11.2016 to 31.12.2016) in your bank accounts with documentary evidences. You are requested to take note that if you fail to explain the cash deposits made during the year under consideration, the same will be treated accordingly. 2. Please furnish Sales register and stock register for FY 2015-16 and 2016-17. 3. Please furnish Agriculture income and expenditure statement for FY 2015-16 and 2016-17 alongwith documentary evidence if any. 4. Please furnish details of your family member depend upon you during FY 2015-16 and 2016- 17. 5. Month wise cash sales and cash deposits in below mentioned format. Month Op. cash in hand Cash sales Cash deposited in Bank Cash withdrawal from the Bank Closing on hand April, 2015 May, 2015 June, 2015 July, 2015 August, 2015 September, 2015 October, 2015 June, 2015 November till 08.11.2015 April, 2016 May, 2016 June,2016 July, 2016 August, 2016 September, 2016 October, 2016 November 01 to 08 November 09 November till 31.12.2016 01.01.2017 to 31.03.2017 11. Please explain the reason and justification of large increase of cash deposits in bank compared to FY 2015-16 & 2016-17. ITA No. 72/Rjt/2022 A.Y. 2017-18 10 ii. Reply dated 28-11-2019 Sr.No. Name, PAN and Address of the depositor Date of deposit Amount deposited Nature/reason of deposit 1 Alpesh Patel 230, Heera Panna, Dr. Yagnik road, Rajkot PAN AGYPP4463C 11/11/2016 10,00,000/- Due to demonetization of currency notes 2 Alpesh Patel 230, Heera panna, Dr. Yagnik road, Rajkot PAN AGYPP4463C 25/11/2016 3,45,000/- Due to demoneditzation of currency notes Particulars From 01/04/2016 to From 09/11/2016 to From 31/12/2016 08/11/2016 30/12/2016 31/03/2017 Opening Balance of Cash on hand 658398 1310474 386178 Add Cash received from sales 0 0 0 Add Cash received from debtors 7080316 354810 1094020 Add Cash received from other activities 0 0 0 Add Cash withdrawn from banks 210493 25000 1000000 Add Loans received in cash 23000 0 7500 Less Cash paid for purchase 0 0 0 Less Cash paid to creditors 0 0 0 Cash paid for other activities 0 0 0 Less (Business Expenses) Less Cash deposited in banks 3236900 1345000 540000 Less Loans provided in cash 77000 11000 47000 Closing Balance of Cash on hand 1310474 386178 545531 Particulars From 01/04/2015 to From 09/11/2016 to From 31/12/2016 to 08/11/2015 to 30/12/2015 31/03/2016 Opening Balance of Cash on hand 597993 463891 947436 Add Cash received from sales 0 0 0 Add Cash received from debtors 4025055 996592 3281015 Add Cash received from other activities 0 0 0 Add Cash withdrawn from banks 0 0 0 Add Loans received in cash 28000 16000 25000 Less Cash paid for purchase 0 0 0 Less Cash paid to creditors 0 0 0 Cash paid for other activities Less (Business Expenses) 2351657 412762 1080273 Less Cash deposited in banks 1719500 90000 2470780 ITA No. 72/Rjt/2022 A.Y. 2017-18 11 Less Loans provided in cash 116000 26285 44000 Closing Balance of Cash on hand 463891 947436 658398 Sr.No. Name of Bank and Account number Date of deposit Amount deposited Description of notes deposited (e.g. Old Rs.500, Old Rs.1000 or New Currency Notes) Remarks A B C D E F 1 SBH 62095215630 11/11/2016 10,00,000/- Deposit in old Rs.500 and old Rs.1000 is made in bank account As per bank direction the bank authority will give the certificate for the same on or before 21/12/2019 2 SBH 62095215630 25/11/2016 3,45,000/- Deposit in old Rs.500 and old Rs.1000 is made in bank account As per bank direction the bank authority will give the certificate for the same on or before 21/12/2015 (copy enclose) 7.9 From the above it is revealed it is not the case that the AO has not made any enquiry. Indeed the Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of cash deposited during the demonization period. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the AO had made enquiries and after consideration of materials placed on record accepted the genuineness of the claim of the assessee. 7.10 At this juncture, it is also important to note that the learned PCIT in his order passed under section 263 of the Act has made reference to the explanation 2 of ITA No. 72/Rjt/2022 A.Y. 2017-18 12 section 263 of the Act. It was attempted by the learned PCIT to hold that there were certain necessary enquiries which should have been made by the AO during the assessment proceedings but not conducted by him. Therefore, on this reasoning the order of the AO is also erroneous insofar prejudicial to the interest of revenue. In this regard, we make our observation that the learned PCIT has not invoked the explanation 2 of section 263 of the Act in the show cause notice dated 17 January 2022 about the same. Therefore, the opportunity with respect to the explanation 2 of section 263 of the Act was not afforded to the assessee. Thus, on this count the learned PCIT erred in taking the re-course of such provisions while deciding the issue against the assessee. Secondly, the learned PCIT has also not specified the nature and the manner in which the enquiries which should have been conducted by the AO in the assessment proceedings. Thus, in the absence of any specific finding of the learned PCIT with respect to the enquiries which should have been made, we are not convinced by his order passed under section 263 of the Act. 7.11 In view of the above and after considering the facts in totality, we hold that there is no error in the assessment framed by the AO under section 143(3) causing prejudice to the interest of revenue. Thus, the revisional order passed by the learned PCIT is not sustainable and therefore we quash the same. Hence the ground of appeal of the assessee is allowed. 8. In the result, the appeal filed by the assessee is allowed. Order pronounced in the Court on 07/09/2022 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 07/09/2022 Manish