O.P. ASSOCIATES,BAREILLY V. PCIT, BAREILLY

ITA 64/LKW/2022

AI Insights

The case revolves around an appeal by O.P Associates against the order of the Principal Commissioner of Income Tax, Bareilly, which set aside the original assessment order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961. The PCIT's order was based on the grounds that the original assessment was erroneous and prejudicial to the interest of the revenue, primarily due to inadequate enquiry into the source of large cash deposits during the demonetization period and other financial transactions. The Tribunal examined whether the PCIT was justified in invoking section 263, considering the enquiries made by the Assessing Officer during the original assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471434 (ITAT-LUCKNOW)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2017-2018
• Other Referred Cases: CIT Vs. Rangila Ram and others 254 ITR 230 (SC), PCIT Vs. Chamundi Winery and Distillery 408 ITR 402 (Kar), DIT Vs. Jyoti Foundation (2013) ITR 388 (Del), M/s. Uma Glass Works Vs. PCIT-1, Agra, CIT Vs. SB Pannalkar and Co 344 ITR 232 (Kar), CIT Vs. Ram Singh and others 363 ITR 417, Trilok Chand Girdharilal and party 369 ITR 751, Shahabuddin & Sons 38 STC 47, Ramjilal & Sons 50 STC 344, Additional CIT Sagar VS. Basant Kesherwani & Co. Sagar & others, Malabar Industrial Co. Ltd (2000) 243 ITR 83 (SC), CIT vs Gabriel India Ltd., 203 ITR 108 Bombay (1993), CIT vs Land Infrastructure Development Projects Ltd (2013) 357 ITR 763 (Mad), CIT vs Max India Limited (2007) 295 ITR 282 (SC), CIT vs Sunbeam Auto Ltd (2011) 332 ITR 167 (Del), Income Tax Officer vs Dg. Housing Projects Ltd ITA. No.179/2011- HC of Delhi \\u2013 Dt of order 1.3.2012 343 ITR 329 (Delhi), CIT vs Vikas Ploymers (2010) 194 Taxman 57 (Delhi), Haryana Coach Body Builders (2006) 10 SOT 736 (Delhi), CIT vs Mohd Ishaq Mod. Gulam 276 ITR 13 (MP), CIT vs Ganpat Ram Bishnoi 152 Taxman 242 (Raj) 296 ITR 292, CIT vs Mangilal Didwania 28C ITR 126 (Raj), Balram Manmani vs ACIT 7 SOT 368 (Lucknow) ITAT, Salora International vs ACIT (2005) 02 SOT 705 (Delhi), CIT vs Arvind Jewellers, 259 ITR 502 (Guj), ACIT vs Technip Italy Spa (2006) 150 Taxman 13 (Delhi), Antala Sanjaykumar Ravjibhai vs CIT (2012) 135 ITD 506 (Rajkot), Vijay Kumar Megotia vs CIT (2010) 3 ITR (T) 760 (Pat.), Roshan Lal Vegetable Products (P) Ltd., vs Income Tax Officer Appeal No. 6 (ASR) of 2010 A.Y. 2006-07, Fine Jewellery (India) Ltd vs ACIT (2012) 19 ITR 746 (Mum), Amrit Singh vs ITO (2003) 127 Taxman 87 (Mag) (Chd.), Baljees vs ACIT (2003) 127 Taxman 150 (Mag.), Ratlam Coal Ash Co. vs CIT 171 ITR 141 (MP), Bagaria Vegetable Products Ltd vs JCIT (2008) 303 ITR (AT 278) (Pune), Saw Pipes Ltd vs CIT (2005) 3 SOT 327 (Delhi), Brij Bhushan Agarwal vs CIT (Agra) 2 SOT 811 (2005), CIT vs Associated Food Products P. Ltd 280 ITR 377 (MP), Goyal Family Trust vs CIT 171 ITR 698 (Alld), Hari Iron Trading Co. vs CIT \\u2013 263 ITR 437
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAMITA S. PANDEY
• Assessee Lawyers: RAKESH GARG
• Keywords: Set aside; Difference of opinion; Change of opinion; Opportunity of being heard; Corroborative evidences; TDS; Revision of order; FORM 26AS
• Section: 143(3); 142(1); 263; 22; 13; 2(A); 44AB; 20

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “B”, LUCKNOW BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI NIKHIL CHOUDHARY, ACCOUNTANT MEMBER ITA No. 64/LKW/2022 Assessment Year: 2017-18 O.P Associates 5, Green Park, Bareilly, Uttar Pradesh-243001. v. PCIT, Bareilly Income Tax Department, Civil Lines, Bareilly- 243001. PAN:AAAAO0899C (Appellant) (Respondent) Appellant by: Shri Rakesh Garg, Adv. Respondent by: Smt Namita S. Pandey, CIT(DR) & Sh S.K.Rajwansi Sr DR Date of hearing: 10.02.2025 Date of pronouncement: 26.03.2025 O R D E R PER NIKHIL CHOUDHARY, A.M.: This is an appeal filed by the assessee, against the order of the Ld. Principal Commissioner of Income Tax , Bareilly, under section 263 of the Income Tax Act, 1961 (“Act”, for short) passed on 21.02.2022, setting aside the order of the Ld. Assessing Officer passed u/s 143(3) of the Act on 24.12.2019, for the assessment year 2017-18. The grounds of appeal preferred by the assessee are as under:- “1. Grounds No.1 The Learned PCIT, Bareilly has erred in initiating and completing the revisionary proceedings u/s 263 of the Act in the hands of the assessee, and setting aside them case to the Assessing officer, with total disregard to the facts and circumstances of the case and is untenable under the law. Grounds No. 2 The Learned PCIT, Bareilly erred in setting aside the assessment made vide order under section 143(3) dated 15/12/2019 and passing an order under section 263 of the Act on the grounds that the original assessment order passed under section 143(3) was erroneous and prejudicial to the interest of the revenue and directing AO to frame fresh ITA No. 64/LKW/2022 Page 2 of 25 assessment order (de novo) after giving reasonable opportunity of hearing to the appellants. Grounds No. 3 The Learned PCIT, Bareilly has further failed to appreciate that the original assessment order was passed by the Assessing officer after considering all the issues mentioned in his show cause notice and after making due enquiries, and thus the case was not the one of lack of enquiry by the Assessing officer. Grounds No. 4 The Learned PCIT, Bareilly erred in law as well as on the facts of the case in wrongly setting aside the assessment order dated 15/12/2019 despite there being complete application of mind by the AO on the subjected issues and it was nothing but a case of change of opinion, based on which, assumption of jurisdiction u/s 263 is not permissible, The impugned order dated 21/02/2022 therefore, lacks valid jurisdiction u/s 263 of the Act and hence, the same kindly be quashed. Grounds No. 5 The Learned PCIT, Bareilly further failed to appreciate that where there were two possible views and a logical view had been taken by the Assessing officer in the original assessment proceedings, the revisionary proceedings could not be initiated to substitute his own view. Grounds No. 6 That the finding of Learned PCIT, Bareilly that order of the learned Assessing Officer is erroneous and prejudicial to the interest of revenue is factually incorrect, legally misconceived, contrary to evidence on record; and in any case is vague, based on surmiseful considerations; and therefore unsustainable Grounds No. 7 That the Learned PCIT, Bareilly has erred in holding that it is a case of \"lack of enquiry\" and, further failing to appreciate that alleged inadequate enquiry in the manner suggested without any independent evidence and, without any further enquiries by him cannot be a basis for assumption of jurisdiction u/s 263 of the Act. Grounds No. 8 The Learned PCIT, Bareilly has without conducting any independent enquiries has held the order to be erroneous and prejudicial to the interest of the revenue, has set aside the assessment back to the file of the Assessing officer with total disregard to the facts and circumstances of the case. The CIT has failed to appreciate that powers of revision u/s 263 cannot be exercised for redoing the investigation, rather the CIT ought to have done the investigation himself before restoring the matter to the AO. Grounds No. 9 The Learned PCIT, Bareilly has further ignored that in view of the provisions of explanation 2 of section 263, it is incumbent to point out what more enquiries would the AO ought to have conducted. Grounds No. 10 That the Learned PCIT, Bareilly has also failed to appreciate that, u/s 263 of the Act, an order of assessment cannot be set- aside to simply to make further enquiries and thereafter pass fresh order of assessment and as such, impugned order is contrary to law and hence, unsustainable . The learned Principal Commissioner of Income Tax has failed to appreciate that surmises, conjecture and suspicion could not be a basis much less a valid basis to invoke section 263 of the Act. Grounds No. 11 That the Learned PCIT, Bareilly has framed the impugned order without granting sufficient opportunity to the appellant and therefore ITA No. 64/LKW/2022 Page 3 of 25 the order made is illegal, invalid and, vitiated order Prayer - It is therefore prayed that, impugned order dated 21.02.2022 under section 263 of the Act be held to be without jurisdiction and, therefore be quashed and appeal of the appellant be allowed. Grounds No. 12 The assessee’s case does not fall within the mischief of section 263 and as such the order is bad in law and the same is liable to be cancelled. Grounds No. 13 That the Appellant craves leave to amend alters, add or forego any of the above grounds.” 2. The facts of the case are that the assessee filed its return of income for the A.Y. 2017-18, declaring total income of Rs.1,78,19,610/-. The Assessing Officer records the fact that the case of the assessee, though selected for complete scrutiny, was selected to mainly examine the large cash deposits in the bank accounts during the year. Therefore, the Assessing Officer asked the assessee to furnish the source of money which was deposited in different banks during the year. He also called for various other information such as the month-wise details of purchases and sales figure, Comparative chart of G.P/N.P, details of unsecured loans and unsecured loans squared up during the period, details of cash deposits in different banks during the pre- demonetization and demonetization period, comparative details of cash sales in pre-demonetization and demonetization period and corresponding cash deposits in the banks for the year under consideration and for the previous year. After conducting this analysis, the Assessing Officer concluded that overall turnover of the assessee had increased by about 30% as compared to its turnover in the previous year and the net profit had also increased accordingly. The Assessing Officer also observed from comparison of month-wise details of cash sales for the year under consideration with the month-wise figures of cash sales of ITA No. 64/LKW/2022 Page 4 of 25 F.Y. 2015-16 and month-wise details of cash deposit of F.Y. 2016-17 compared with month-wise details of cash deposit of F.Y. 2015-16, that there was a corresponding increase in the cash sales in this assessment year and therefore he did not draw adverse inference with regard to the total cash deposited during the demonetization period. He, however, observed that most of the expenses had been made in cash and because the expenses were not verifiable, he made an addition of Rs.1 lakh on this account. He further pointed out that he had written to the bank to obtain detail of SBNs deposited by the assessee during the demonetization period, but had not received a reply. Therefore, he had taken the figure of SBNs deposited from the assessee. However, subsequently, if any reply was received from the bank which was at variance with what had been submitted by the assessee, then the case could be re-opened on that account. With these comments, the Assessing Officer concluded the assessment of the assessee for the year 2017-18 u/s 143(3) of the Act. 3. Subsequently, the matter was reviewed by the Ld. PCIT, Bareilly. The Ld. PCIT, Bareilly noted that the assessee had deposited of Rs.12.76 crore during the demonetization period of which Rs.11.98 crore were deposited in old SBNs. The Ld. PCIT observed that since this was the demonetization assessment year, the AO was expected to examine the cash deposits in old SBNs fully. He was to examine the genuineness of the source of the cash deposits in old SBNs. He referred to the fact that the CBDT had issued an internal guidance note for assistance of AOs for demonetization cases. However, the AO had not taken the complete details of old SBNs deposited by the assessee in its various bank accounts. From the documents available on file, the ITA No. 64/LKW/2022 Page 5 of 25 Ld. PCIT observed it was not possible to correctly verify as to how much of old SBNs the assessee had deposited during the demonetization period. He held that the AO should have obtained the details and it was expected of him to make detailed examination thereof. But the AO had not issued relevant queries for examination of cash deposit from the demonetization period. The Ld. PCIT also cited the case of CIT Vs. Rangila Ram and others 254 ITR 230 (SC) and PCIT Vs. Chamundi Winery and Distillery 408 ITR 402 (Kar) and pointed out that the entire income from the liquor business should be taxed in the hands of the licensee and expenses incurred by other persons should be disallowed, and noted that in the said case, the AO had not asked the assessee to submit the details of licenses issued to him for the trading of liquor. He also held that the AO had failed to examine the sales of liquor with supporting documents such as sales and bills/vouchers referring to the decision of the Hon'ble Rajasthan High Court in the case of CIT Vs. Ram Singh and others 363 ITR 417 and Trilok Chand Girdharilal and party 369 ITR 751, which had held that non-maintenance of sales vouchers and stock register entails the rejection of accounts and estimation of income. He further pointed out that the matter pertained to liquor business but the AO had not made any inquiry from the Excise Department regarding the purchases made or excise duty paid. He had not enquired about the source of bidding amounts paid by the assessee AOP for obtaining the liquor license. He had not obtained ledgers or confirmations from the parties through which the assessee had made purchase of Rs.74,05,11,413/-. Furthermore, the assessee had shown unsecured loan of Rs.7.91 crore during the year. The AO had not ITA No. 64/LKW/2022 Page 6 of 25 made any in-depth enquiry on this issue and failed to verify the genuineness and creditworthiness of the persons extending unsecured loans to the assessee AOP. He also observed that the assessee AOP had shown substantial’s sundry creditors amounting to Rs.9.13 crore but the AO had not made any verification of these sundry creditors to ascertain the genuineness and correctness. He, further, held that the AO had not examined various expenses claimed in the P & L account and documentary evidences had not been obtained. Third party verification had not been done by the AO. Further, he cited specific expenses such as, “assessment fees”, “breach expenses” and “license fee canteen” which had neither been examined nor any documentary evidences obtained with regard to them. Finally, he pointed out that the assessee had debited a sum of Rs.34,82,500/- under the head “rent expenses” and observed that a substantial amount of rent had been paid in cash and the AO had not verified the issue. Ultimately, the Ld. PCIT held that the case has been picked up for complete scrutiny. However, besides routine queries made, no concerted effort seems to have been made to examine the books of accounts. No third party enquiries have been undertaken and the AO has accepted all balances in the balance-sheet and P & L account as submitted by the assessee as true and correct without any verification. He, therefore, recorded his satisfaction that the assessment u/s 143(3) of the Act, was erroneous in so far as prejudicial to the interest of revenue as per Explanation – 2 to Section 263 of the Act. Accordingly, a show cause notice was issued to the assessee. 4. In response, the assessee submitted that it was AOP engaged in the trading of liquor. It operated various liquor vends ITA No. 64/LKW/2022 Page 7 of 25 which was allotted in the name of its members. All the investments in the business towards payment of license fees purchases etc were done by the AOP and the sales pertained to the assessee AOP. Accordingly, TCS was also collected in the name of the assessee by various parties and deposited to the credit of Central Government account. But books of accounts were regularly maintained and audited as per the Section 44AB of the Act. Each and every item of income and expenditure was duly vouched and verifiable. Further, the assessment u/s 143(3) of the Act had been done after make due enquiries and examination by the Assessing Officer. The main reason for the selection of the case under scrutiny were “large cash deposited during the demonetization period” and “Abnormal increase in sales with lower profitability”, and each and every reason had been dealt with by the Assessing Officer during the proceedings. The assessee submitted that it was within the province and jurisdiction of the Assessing Officer to decide on which points he wants to take up for enquiry and to what extent and Ld. PCIT could not interfere with the same and therefore the assessee held that the Ld. PCIT lacked revisional jurisdiction because the case was not of lack of enquiry as envisaged under Explanation-2 of Section 263 of the Act but could at best be said to be case of inadequate enquiry. It was further stated that when two views were possible and the AO adopted one view with which the Ld. CIT does not agree, an order could not be deemed as erroneous or prejudicial to the interest of revenue. Further, the powers u/s 263 of the Act could not be invoked only because the Ld. PCIT had a different opinion on the matter. With regard to Explanation-2 of Section 263 of the Act, it was pointed out that ITA No. 64/LKW/2022 Page 8 of 25 the said section was applicable only when the Assessing Officer had passed the order without making enquiries but in the given case the Assessing Officer had not only made enquiries but also examined the case at length, therefore, it could not be said that no enquiry had been conducted by the Assessing Officer. It was pointed out that the extent of examination of the matter in the assessment order is not relevant because it is not necessary that the extent of examination on the issue should outlined in the assessment order. However, the Ld. PCIT did not accept these submissions of the assessee. Reiterating his observations, he relied upon various case laws to hold that the AO had not examined/enquired into the details of the fact of the case and therefore the assessment order passed u/s 143(3) of the Act was erroneous, in so far as it was prejudicial to the interest of revenue as per Explanation – 2(a) of Section 263 of the Act. He, therefore, set aside the order of the AO for denovo assessment after consideration of his observations and giving due to opportunity of being heard to the assessee. 5. The assessee is aggrieved by this order of the Ld. PCIT and has accordingly come up appeal before us. Shri Rakesh Garg, Adv, (hereinafter referred as “AR”), appearing on behalf of the assessee submitted that the decision of the Ld. PCIT was not justified because the Ld. PCIT had not mentioned how and what enquiries had not been done by the Assessing Officer. He pointed out that the Ld. PCIT could not sit in judgment over what enquiries ought to have been done by the Assessing Officer and thereafter direct the Assessing Officer to conduct those enquiries. The Hon'ble High Court of Delhi in the case of DIT Vs. Jyoti Foundation (2013) ITR 388 (Del) had held that any revising ITA No. 64/LKW/2022 Page 9 of 25 authority that felt that enquiry was inadequate must make enquiry itself and show that the assessment order was erroneous. The revising authority had no power to remand the matter and direct the Assessing Officer to conduct enquiry. The Ld. AR further referred to the decision of ITAT Delhi in the case of M/s. Uma Glass Works Vs. PCIT-1, Agra in which the ITAT has followed this order of the Hon'ble Delhi High Court and held that the assumption of jurisdiction u/s 263 of the Act by the Ld. PCIT was bad in law in the case where the Ld. PCIT had set aside the assessment order and directed the Assessing Officer to conduct enquiries. The Ld. AR submitted that the assessee had furnished a reply to the Ld. PCIT that it had provided the complete details of unsecured loans, sundry creditors, details of cash sales and cash deposits in F.Y. 2015-16 and F.Y. 2016-17 (month-wise) and it was submitted that the cash balance as on 08.11.2016 had not been disputed either by the Assessing Officer or by the Ld. PCIT. The Ld. AR further took us through the notices issued by the Assessing Officer and the replies that had been furnished by the assessee during the course of assessment proceedings, to point out that the assessee had been asked for, and had submitted information with regard to the bank accounts it operated, the shops that it was running, gross profit and net profit margin over the past three years details of secured and unsecured loans, details of squared up accounts, details of closing stock and additions to fixed assets, details of loans and advances during the year, details of sundry creditors, details of interest paid, details of major expenses incurred, reconciliation of figure of 26AS with purchases, details of month-wise sale in the present assessment year and previous assessment year, details of ITA No. 64/LKW/2022 Page 10 of 25 month-wise cash deposits in present assessment year and previous assessment year, details of cash sales and cash deposits in the present assessment year and previous assessment year, to show that the Assessing Officer had conducted enquiries on almost on issues and there was no reason to hold that the enquiries had not been conducted. On specific issues, it was pointed out that the entire cash deposits were verified at the time of assessment proceedings with ITS data as generated from the ITBA Portal. The majority of the cash deposit was cash sales since the nature of business was liquor, in which the sales were made in cash only and part of the cash deposit was from cash withdrawal during the year. It was submitted that each and every entry in the ITS data as available with the Assessing Officer, was verified from bank statements and ledger provided by the assessee during the assessment proceedings. It was submitted that the assessee had provided details of the deposits, including in deposits in old SBNs vide its response dated 08.12.2019, 29.11.2019 and 25.02.2019. The Ld. AR further submitted that the Assessing Officer called for complete books of account which contained the shops-wise records of purchases and sales expenses. He further submitted that the Assessing Officer had examined the purchases viz-a-viz the tax collected at source and thus even party-wise details of purchases made by assessee were available before him and no adverse inference had been drawn. The Ld. AR further submitted that the cases of CIT Vs. Rangila Ram and others reported in 254 ITR 230 and the case of Chamundi Winery and Distillery (supra) that had been cited by the Ld. PCIT were distinguishable from the case of the assessee and in turn he drew reference to the case of CIT Vs. SB ITA No. 64/LKW/2022 Page 11 of 25 Pannalkar and Co reported in 344 ITR 232 (Kar) to point out that the Hon'ble Karnataka High Court had held that if a partnership firm chooses to obtain a licence in the name of one of its partner that would be a partnership asset. Regarding vouchers for liquor, the Ld. AR pointed out that the details of sale have been furnished before the AO along with audited accounts and in the line of business of liquor trade, sales bills were not issued and even the customers do not give their names and address. The Ld. AR placed reliance on the decisions of the Hon'ble Allahabad High Court in the case of Shahabuddin & Sons 38 STC 47 and Ramjilal & Sons 50 STC 344 and the decision of the Jabalpur Bench ITAT in Additional CIT Sagar VS. Basant Kesherwani & Co. Sagar & others in ITA No.30/Jab/2009, in support of such arguments and submitted there was no reason to reject its books of accounts on this ground. He submitted that the issue of purchases was already verified by the Assessing Officer by reconciling them with Form no. 26AS of the assessee. The licence fee was paid was evidenced by the treasury challans which were recorded in the books of the assessee and therefore, it could not be said that the fact of the purchases as well as of payment of licence fee has not been looked into by the Assessing Officer during the course of proceedings. It was further submitted that the assessee being a retailer, paid the excise to the distillery during the purchase of liquor, and it was the distilleries within in turn deposited the excise to the credit of the Government on the account of liquor distilled and manufactured. Thus, verification from the Excise Department with respect to the assessee was not required and since was a controlled substance; no sale could be made by distilleries with approval of the Excise Department. It ITA No. 64/LKW/2022 Page 12 of 25 was submitted that the Excise Department maintained detailed sale and stock registers of distilleries but for retailer purchases Form 26AS was considered conclusive. In the case of the assessee, it was submitted that the AO had enquired about the purchases made by the assessee AOP vide his notice dated 04.07.2019 and the assessee had duly furnished party-wise statement, details of sundry creditors vide its submission dated 27.03.2019. On the issue of unsecured loans of Rs.7.91 crore, it was submitted that vide notice dated 03.12.2019, the Ld. AR had raised a specific query on this record and the assessee had filed its reply online on 08.12.2019 wherein it had given the details of the parties along with their confirmations and Income Tax Returns. On the issue of creditors, the Ld. AR pointed out that the issue had been explained before the Assessing Officer that the creditors reflected the various distilleries from whom purchases had been made and who had collected that TCS from the assessee. Since the purchases from the parties and payments made to them has been found to be genuine there was no reason for the Assessing Officer to confirm or question what were outstanding balances. The assessee had produced the ledger account of purchases and creditors before the AO and furnished a reply to the Assessing Officer notice dated 24.02.2019, which had sought information in this regard, vide its reply dated 27.03.2019. With regard to expenses claimed in profit and loss account, it was submitted that the assessee had furnished details of various expenses called for by the Assessing Officer during the course of assessment proceedings as called for vide his notice dated 04.07.2019. With regard to payment of rent, it was submitted that AOP had paid total rent of Rs.34,82,500/- ITA No. 64/LKW/2022 Page 13 of 25 and provided details of all the address of operations of the AOP (which were the liquor shops and allotted to the AOP during the year under consideration). The shop-wise rent from the assessee had been provided to the AO during the assessment proceedings and TDS was deducted whenever it was required to be deducted u/s 194IA of the Act. It was submitted that AO had called for the details vide notice dated 04.07.2019 and the assessee had submitted its response on 20.12.2019. The Ld. AR, therefore, submitted that all the issues upon which the Ld. PCIT held that the enquiry was not done, had in fact been enquired into by the Ld. AO and these facts had been duly intimated to the Ld. PCIT in the submission made before him during the proceedings u/s 263 of the Act. However, the Ld. PCIT had refused to take cognizance of these submissions and had proceeded to set aside the case for de-novo assessment, which was not justified in the eyes of law. Accordingly, it was prayed that the order u/s 263 of the Act may be quashed. In support of his arguments, the Ld. AR submitted a gist of case laws where assumption of jurisdiction by Ld. PCIT/CIT u/s 263 of the Act had been held to be invalid. The case laws submitted by him were as under: - Sr No. Case Laws 1 Malabar Industrial Co. Ltd (2000) 243 ITR 83 (SC) 2 CIT vs Gabriel India Ltd., 203 ITR 108 Bombay (1993) 3 CIT vs Land Infrastructure Development Projects Ltd (2013) 357 ITR 763 (Mad) 4 CIT vs Max India Limited (2007) 295 ITR 282 (SC) 5 CIT vs Sunbeam Auto Ltd (2011) 332 ITR 167 (Del) 6 Income Tax Officer vs Dg. Housing Projects Ltd ITA. No.179/2011- HC of Delhi – Dt of order 1.3.2012 343 ITR 329 (Delhi) 7 DIT vs Jyoti Foundation (2013) ITR 388 (Delhi) 8 CIT vs Vikas Ploymers (2010) 194 Taxman 57 (Delhi) 9 Haryana Coach Body Builders (2006) 10 SOT 736 (Delhi) 10 CIT vs Mohd Ishaq Mod. Gulam 276 ITR 13 (MP) 11 CIT vs Ganpat Ram Bishnoi 152 Taxman 242 (Raj) 296 ITR 292 12 CIT vs Mangilal Didwania 28C ITR 126 (Raj) 13 Balram Manmani vs ACIT 7 SOT 368 (Lucknow) ITAT 14 Salora International vs ACIT (2005) 02 SOT 705 (Delhi) 15 CIT vs Arvind Jewellers, 259 ITR 502 (Guj) ITA No. 64/LKW/2022 Page 14 of 25 16 ACIT vs Technip Italy Spa (2006) 150 Taxman 13 (Delhi) 17 Antala Sanjaykumar Ravjibhai vs CIT (2012) 135 ITD 506 (Rajkot) 18 Vijay Kumar Megotia vs CIT (2010) 3 ITR (T) 760 (Pat.) 19 Roshan Lal Vegetable Products (P) Ltd., vs Income Tax Officer Appeal No. 6 (ASR) of 2010 A.Y. 2006-07 20 Fine Jewellery (India) Ltd vs ACIT (2012) 19 ITR 746 (Mum 21 Amrit Singh vs ITO (2003) 127 Taxman 87 (Mag) (Chd.) Baljees vs ACIT (2003) 127 Taxman 150 (Mag.) 22 Ratlam Coal Ash Co. vs CIT 171 ITR 141 (MP) 23 Bagaria Vegetable Products Ltd vs JCIT (2008) 303 ITR (AT 278) (Pune) 24 Saw Pipes Ltd vs CIT (2005) 3 SOT 327 (Delhi) 25 Brij Bhushan Agarwal vs CIT (Agra) 2 SOT 811 (2005) 26 CIT vs Associated Food Products P. Ltd 280 ITR 377 (MP) 27 Goyal Family Trust vs CIT 171 ITR 698 (Alld) 28 Hari Iron Trading Co. vs CIT – 263 ITR 437 6. On the other hand, Smt Namita S. Pandey, Ld. CIT-DR, appearing on behalf of the Revenue submitted that the case was a case of complete scrutiny and a bare perusal of the of the last paragraph of the order of the Ld. AO itself showed that the enquiry was incomplete. She further submitted that in the order of the AO, analysis of the information submitted by the assessee in the light of the points which were required to be examined, were conspicuous by their absence. She drew our attention to the fact that the operational portion of the order was confined to just one page. The Ld. DR pointed out that the assessee had shown less net profit in comparison to its turnover. She further drew our attention to the fact that the AO had issued six notices u/s 142(1) of the Act along with detailed questionnaire as per his own assessment order, but had not rendered any findings on any of the issues which had been raised by him in these notices. The Ld. DR drew reference to the order of the Ld. PCIT and pointed out that the CBDT internal guidance note had not been followed and these details had not been taken. Furthermore, the AO had not completed any verification of the sundry creditors and not examined the various expenses in the profit and loss account. He had also not enquired regarding the rent paid in cash. The AO ITA No. 64/LKW/2022 Page 15 of 25 had failed to reject the books of accounts and not made any third party enquiries. The Ld. DR pointed out that where the Assessing Officer did not make third party enquiries; the Ld. PCIT was justified invoking his jurisdiction u/s 263 of the Act. She placed reliance on the following case laws, CIT Vs. Dhananjay Kumar Yadav (2024) 159 taxmann.com 638 (Patna), PCIT Vs. Paramount Propbuild (P.) Ltd (2024) 161 taxmann.com 85 (Del), Vedanta Ltd Vs. CIT (2021) 124 taxmann.com 435 (Bom), BSES Rajdhani Power Ltd Vs. PCIT (2023) 152 taxmann.com 139 (SC), Suresh Patel Vs. PCIT (2024) 164 taxmann.com 189 (Mad), CIT Vs. Paville Projects (P.) Ltd (2023) 149 taxmann.com 115 (SC) and PCIT Vs. Zuari Maroc Phosphates Ltd (2021) 126 taxmann.com 170 (Bom). The Ld. CIT-DR prayed that all judicial precedents show that where the Assessing Officer did not make enquiry the Court had upheld the proposition that PCIT was well within the rights to invoke his jurisdiction u/s 263 of the Act. 7. We have duly considered the facts and circumstances of the case, the arguments made by both parties, cases relied upon by them and the provisions of law. It is observed that as per Explanation-2(a) to section 263 an order passed by an Assessing Officer can be deemed to be erroneous in so far as, it is prejudicial to the interest of revenue, if in opinion of the Principal Commissioner, the order has been passed without making enquiries or verification which should have been made. Some of the case laws relied upon by the Ld. DR such as Vedanta Ltd Vs. CIT (supra) and CIT Vs. Dhananjay Kumar Yadav (supra) have upheld the decisions of the Commissioner to revise orders of the assessment where proper enquiry had not been done in the view of the Commissioner. On the other hand, the Ld. AR has filed ITA No. 64/LKW/2022 Page 16 of 25 various other case laws such as Amrit Singh Vs. ITO (supra), Baljees Vs. ACIT (supra), CIT Vs. Arvind Jewellers (supra), Vijay Kumar Megotia Vs. CIT (supra) and CIT Vs. Ganpat Ram Bishnoi (supra) wherein the Courts and Tribunal had held that the powers u/s 263 of the Act cannot be invoked for making enquiries or going into the assessment again and again merely on the basis that some more enquiry ought to have been conducted or that on the belief that desired enquiry had not been conducted, if, the Assessing Officer had made enquiries with regard to the matters in question and arrived at different conclusions. Therefore, what follows from consideration of these judgments is that if there was some enquiries which the Assessing Officer was required to make, and has not made and due to the fact that such enquiries had not been made, income has escaped assessment, the Principal Commissioner/Commissioner would be within his right to order that the said order be revised. However, if, the Assessing Officer had conducted enquiries and come to another finding, then the powers u/s 263 of the Act could not be invoked to direct that the Assessing Officer conduct the enquiries or to arrive at a conclusion that was the correct conclusion in the opinion of the Principal Commissioner. Therefore, essentially what has to be seen in each case is whether the enquiries that ought to have been done were, in fact, done. 8. In the present case, on a perusal of the order of the Ld. PCIT, we observe that the case was picked up for complete scrutiny but the CASS selection reasons for the same were (i) large cash deposit during demonetization period (ii) abnormal increase in sales with the lower profitability. Now while the case ITA No. 64/LKW/2022 Page 17 of 25 was picked up for complete scrutiny, the indicator of the reasons why it had been picked up in CASS, would to our mind indicate the focus with which this complete scrutiny was to be taken up. The Assessing Officer had been given powers to examine all the accounts of the assessee with a view to determine whether the large value of cash deposited during the demonetization period needed to be brought to tax and whether the profits had been adequately recorded in view of the sales made. When considering the import of Explanation 2(a) of Section 263 of the Act, we are of the opinion that complete scrutiny, with such indicators does not mean that each and every aspect of the assessee’s accounts was required to be looked into, if they were not immediately relevant to the reasons for the selection and in our opinion, a failure to conduct enquiries not related to the main reason for selection, would not render a case to be one of lack of enquiry or verification under Explanation-2(a) of Section 263 of the Act. That being the case, we may examine the conclusions of the Ld. PCIT in the light of enquiries conducted by the Assessing Officer to determine whether in fact these conclusions were warranted. The Ld. PCIT has held that on examination of records, it is evident that the assessment order was passed without proper enquiry with regard to the following points, (i) no enquiry made by the AO regarding genuineness of the source of the cash deposits of Rs.12.76 crore and Rs.11.98 crore in old SBNs during the demonetization period (ii) AO did not enquire about the details of licence issued to assessee for the trading of liquor (iii) AO failed to obtain the ledgers/confirmation from parties through which the assessee as made a purchase of Rs.74,05,11,413/- (iv) AO did not examine about the ITA No. 64/LKW/2022 Page 18 of 25 genuineness of the creditworthiness of the persons who had given unsecured loans of Rs.7.91 crore to the assessee. Further, (v) no enquiry made by the AO regarding the genuineness and the correctness of the sundry creditors amounting to Rs.9.13 crore which were shown as liabilities for the balance-sheet of the assessee (vi) there were many expenses like, “assessment fees”, “breach expenses” and “license fee canteen”, amounting to Rs.2,55,69,417, Rs.17,70,861/- and Rs.20,36,350/- respectively, which were not examined neither with regard to genuineness of the expenses claimed nor whether the same were allowable as per the provisions of the Act (vi) substantial amount of rent expense amounting to Rs.34,82,500/- was paid in cash by assessee but this issue was not examined by the AO. The Ld. PCIT has also held that the assessee has not submitted any reply with regard to specific points raised in the show cause notice during the proceedings u/s 263 of the Act. 9. We have gone through the reply furnished by the assessee to the Ld. PCIT in response to his show cause notice u/s 263 of the Act. With regard to first point i.e. lack of enquiry regarding genuineness of the source of cash deposit of Rs.12.76 crore and Rs.11.98 crore in old SBNs during demonetization period, we observe that the cash deposits were verified at the time of assessment proceedings with the ITS Data as generated from the ITBA Portal. The assessee had explained the cash deposits from cash sales since the nature of the business was retailer of liquor also out of cash deposits from cash withdrawals during the year under assessment. We observe that the AO could not obtain the details of SBNs from the banks because of lack of response from them, but the assessee had itself submitted the details of ITA No. 64/LKW/2022 Page 19 of 25 deposits and also the detail of deposits in SBNs to the Assessing Officer. Furthermore, we observe that the AO had called for the details of all the bank accounts maintained by the assessee and the cash deposited in various accounts during the demonetization period, to which the assessee had responded. We also observe that, on being quarried the assessee had submitted a month-wise chart of cash sales, cash deposited, cash withdrawal and closing cash available with it from April, 2015 till 08.11.2016. In addition, we observe that the assessee had furnished its books of accounts before the Assessing Officer and that the Assessing Officer had actually examined the books of accounts. Thus, in view of the fact that the cash deposits were sought to be explained out of sales and withdrawals and complete details of the same had been obtained by the AO and the AO had also examined the books to verify that such sales were duly recorded in the books and audited accounts, it cannot be said that the AO did not do the necessary enquiries to examine the genuineness of the cash deposits of Rs.12.76 crore or the SBNs deposits of Rs.11.98 crore during the period. No information has been brought on record that the figure of SBNs that was obtained by the Assessing Officer from the assessee, was inaccurate or incomplete. Nothing has been brought on record to show that the assessee did not make the sales that it claimed to have made. We observe that the assessee, in the course of its reply to the Ld. PCIT had submitted that the nature of the trade is such that sales are unverifiable being mostly made in cash and bills are not drawn up and even if bills are drawn up the names and address of the parties are not recorded in such bills and it has brought on record instances of the cases where ITA No. 64/LKW/2022 Page 20 of 25 the Hon'ble Courts and Tribunal have held that since liquor trade is a controlled commodity, lack of bills will not make a difference to determining sales because the sales are determined with regard to the quantity of purchases and the closing stock. We observe that the Assessing Officer has verified the purchases from the figure recorded in Form 26AS and also obtained statement of closing stock from the assessee. In the circumstances, we hold that the failure to produce sales vouchers does not materially alter the fact that sales were duly explained by the utilization of stock. Therefore, we are not able to agree with the Ld. PCIT that the Assessing Officer had not done enquiries with regard to the genuineness of the cash deposits that were sought to be explained out of cash sales. 10. The next issue on which the CIT held that the order to be erroneous, is that the AO did not enquire about the details of licences issued to the assessee for trading of liquor. We observe that in his reply to the CIT, the assessee has pointed out that it could not run shops without paying the license fee which was paid to the credit of the government account and that details of all shops being run by it were furnished to the AO. These license fees were duly recorded in the books of account of the assessee and these books of accounts have been produced before the AO. Thus, the source of payment of licence fees stood explained from the books of accounts, in which no infirmity has been pointed out. Furthermore, it is observed that the payment of licence fee for the running of excise shops is not immediately relevant to the reasons for selection of the case for scrutiny. Therefore, even though, the books of accounts have been produced and examined and to that extent the license fee has been considered by AO, this ITA No. 64/LKW/2022 Page 21 of 25 observation of the Ld. PCIT would not, in our opinion, constitute an item of lack of inquiry, given the reasons for selection of case for scrutiny. 11. With regard to the Ld. PCIT opinion that the AO had failed to obtain the ledgers/confirmation from the parties through which the assessee had made purchases of Rs.74,05,11,413/-, we have noted the submissions of the assessee that were made before the Ld. PCIT that the purchases had been verified by the AO by reconciling purchases recorded in its books, with purchases reflected in Form 26AS of the assessee and therefore evn the party wise purchases were available before the AO. Furthermore, the assessee has submitted that the liquor is a controlled commodity and all purchases were made from distilleries and excise was paid by the assessee to the distilleries during the purchases of liquor from them. It was the distiller which was deposited the excise to the credit of the Government on the amount of liquor distilled/manufactured. Since the entire extent of purchases stood confirmed by Form 26AS of the assessee, further verification from the distilleries with regard to the extent of purchase was not necessary. We would agree that , for this reason, the failure to cross verify the purchases from the distilleries cannot support the conclusion of the Ld PCIT, that the purchases stood unverified. 12. The next point on which the Ld. PCIT has held that enquiries have not been made was the failure to examine the genuineness and creditworthiness of persons who have been given unsecured loans of Rs.7.91 crore to the assessee and sundry creditors amounting to Rs.9.13 crore. The assessee has ITA No. 64/LKW/2022 Page 22 of 25 explained in his reply to the Ld. PCIT, that in response to query from the AO, it has furnished the details of unsecured loans, along with confirmation from the above persons and also along with the ledgers of the unsecured loans, their Income Tax Return by way of supporting evidences. The Ld. PCIT has not brought on record anything to show that there was any reason for the AO to go beyond such evidences or that there was any suspicious transaction that required further investigation, for it to be regarded as the case of lack of enquiry. With regard to the sundry creditors of Rs.9.13 crore, we observe that the AO asked for the details of sundry creditors vide his notice dated 24.03.2019 and that these were submitted vide annexure 6 of the reply dated 27.03.2019 and again in response to notice dated 7.09.2019.We further note that the assessee had explained to the Ld. PCIT that these sundry creditors were only the distilleries from which liquor had been purchased and who had collected tax at source against such purchases and hence in view of the fact that these were regular suppliers to the assessee, the AO did not deem it necessary to verify the genuineness of the sundry creditors as the purchases themselves were confirmed. The next issue on which the Ld. PCIT has held that the enquiry were not made were certain expenses claimed in the profit and loss account. The assessee has submitted that details of various expenses were called for by the AO during the course of assessment proceedings and since the AO was satisfied with what had been furnished, therefore, there was no reason to draw adverse inference. We notice that the Assessing Officer vide his notice dated 24.03.2019 called for details of major expenses debited to profit and loss account and also asked for comparative chart of expenses for the ITA No. 64/LKW/2022 Page 23 of 25 A.Y. 2016-17 and A.Y. 2017-18. We further notice that the ledger account of the major expenses as well as the comparative chart of expenses were provided to the AO vide Annexure -8 of the assessee’s reply to the said notices. We further observe that the examination of expenses primarily pertains to the second issue on which account the case was picked up for scrutiny i.e. “abnormal increase in sales with lower profitability” and we find that the AO vide his notice dated 24.03.2019 has examined the gross profit/net profit shown in corresponding turnover for the current year and the past year, wherein he has asked the assessee to furnish details of turnover, gross profit, G.P ratio, net profit, and N.P ratio and after such examination, the AO has observed that net profit ratio of the assessee was much higher than previous years and therefore, the AO has not drawn any adverse inference on this account. Therefore, we are not able to agree with the Ld. PCIT that the AO has not examined the major expenses incurred by the assessee. 13. The final ground on which the Ld. PCIT has held that the order to be erroneous was on account of payment of rent expenses amounting to Rs.34,82,500/- in cash stating that the said issue had not been examined by the AO. However, we note that vide his notice dated 04.07.2019, the AO had asked for details of TDS liability discharged on payment of rent & salary and vide his notice dated 20.12.2019, he has asked the assessee to furnish a copy of rent agreement and the details of TDS made along with documentary evidences. We, further, notice that in response to these notices, the assessee furnished copies of rent agreement to the AO along with ledger accounts and stated that ITA No. 64/LKW/2022 Page 24 of 25 TDS, wherever necessary, was deducted and deposited in Central Government Account. 14. Thus, on almost all the issues which the Ld. PCIT has held that the enquiry was not conducted, the record shows that the enquiry was, in fact conducted. In the circumstances, we are of the opinion that this is not a case where Explanation-2(a) of Section 263 of the Act is applicable because all enquiries which in the opinion of the Ld PCIT ought to have been made, were made by the Assessing Officer, albeit in not exactly the same manner as desired by the Ld. PCIT, but very substantially and towards verifying the very same set of facts. The Ld AR has brought on record several judicial precedents, which we have referred to in paragraph 7 of this order, wherein it has been held that if matters have been inquired into, then revisionary jurisdiction cannot be exercised to order still further inquiries so as to reexamine the veracity of the results of earlier inquiries. Ld AR has also invited our attention to the orders of the Hon Delhi High Court in the case of ITO vs DG. Housing Projects Ltd 343 ITR 329 & DIT vs Jyoti Foundation ITA. No.267/2013, wherein the Courts have held that where a Commissioner feels that the inquiry was inadequate , he must conduct further inquiry to show that the order was erroneous as a result of such inadequate inquiry and cannot simply set it aside for further inquiry by the assessing officer, to find out whether the order is erroneous or not Therefore, after considering the facts of the case and the law as laid down by the courts, we hold that the Ld. PCIT was not justified in holding that the order of the AO was erroneous and prejudicial to revenue and therefore we quash the order of the Ld. PCIT u/s 263 of the Act and restore the order of the Ld. AO ITA No. 64/LKW/2022 Page 25 of 25 passed u/s 143(3) of the Act. Accordingly, all the grounds of appeal of the assessee are allowed. 15. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 26/03/2025. Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [NIKHIL CHOUDHARY] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26/03/2025 Vijay Pal Singh, (Sr. PS) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. DR 5. Guard File By order // True Copy// Assistant Registrar "