SONAL SANDEEP SATAV,PUNE V. PCIT, PUNE-2, PUNE

ITA 945/PUN/2024

AI Insights

The case involves Sonal Sandeep Satav, who appealed against the order of the PCIT, Pune, which set aside the assessment order passed by the AO under section 143(3) of the Income Tax Act, 1961. The original assessment accepted the assessee's return declaring nil income and carrying forward business losses, without adequate scrutiny of the unsecured loans amounting to over Rs. 3 crore. The PCIT found the assessment order to be erroneous as it did not consider essential evidence regarding the creditworthiness of the lender and the genuineness of the loan transactions. The Tribunal's decision affirmed the PCIT's order, emphasizing the need for thorough inquiry in cases involving substantial financial transactions.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 472570 (ITAT-PUNE)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-10-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 06-05-2024
• Other Referred Cases: Bhagvandas vs. CIT, P.T. Lashkari Ram vs. CIT, Ashok Leyland Ltd. vs. CIT, Malabar Industrial Co. Ltd. vs. CIT, Sesa Starlite Ltd. vs. CIT, Panaji, Goa, Nirav Modi vs. CIT, Rampyari Devi Saraogi vs. CIT, Deepak Kumar Garg vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJAY KUMAR KESHARI
• Assessee Lawyers: SARANG GUDHATE
• Keywords: Set aside; Additional evidence; Revenue expenditure; Transfer pricing; International transaction; Corroborative evidences; Depreciation; Capital expenditure; TDS; Revision of order; Prejudicial to interest
• Section: 143(3); 142(1); 263; 68; 113; 92CA; 10; 10B

Judgement Text

" आयकर अपीलीय अधिकरण “बी” न्यायपीठ पुणे में । IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, PUNE BEFORE MS. ASTHA CHANDRA, JUDICIAL MEMBER AND SHREE G.D. PADMAHSHALI, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.945/PUN/2024 धििाारण वर्ा / Assessment Year : 2018-19 Sonal Sandeep Satav, A/1, Chhatrapati Shivaji Hsg. Soc., Opp. Patrakar Nagar, Gokhalenagar, Pune-411016 PAN : ASDPB2963J Vs. Principal Commissioner of Income Tax, Pune - 2 अपीलार्थी / Appellant प्रत्यर्थी / Respondent Assessee by : Shri Sarang Gudhate Department by : Shri Ajay Kumar Keshari Date of hearing : 16-10-2024 Date of Pronouncement : 03-12-2024 आदेश / ORDER PER ASTHA CHANDRA, JM : The appeal filed by the assessee is directed against the order dated 18.03.2024 of the Ld. Principal Commissioner of Income Tax-2, Pune (“PCIT)” passed u/s 263 of the Income Tax Act, 1961 (the “Act”) pertaining to Assessment Year (“AY”) 2018-19. 2. The assessee has raised the following solitary ground of appeal :- “1. Under the facts and circumstances of the case and in law, Ld. Principal Commissioner of Income Tax, is erred in setting aside the Assessment Order u/s 143(3) dated 13th April, 2021 issued by Ld. Assessing Officer.” 2 ITA No.945/PUN/2024, AY 2018-19 3. Briefly stated, the assessee is an individual engaged in the business of transportation of cement of Laxmi Cement Ltd. She e-filed her return of income for AY 2018-19 on 13.10.2018 declaring income at Rs. Nil and claiming carry forward of business loss of Rs.1,06,15,157/-. The case was selected for scrutiny under the E-assessment Scheme, 2019 on the following issues-(i) non-furnishing of quantitative details; (ii) securities (derivative) transaction; (iii) unsecured loans; (iv) business expenses; and (v) securities transaction. 3.1 During the assessment proceedings the Ld. Assessing Officer, National e-Assessment Centre, Delhi (“AO/FAO”) issued notice(s) u/s 143(2) and 142(1) of the Act along with questionnaire calling for certain details, in response to which the assessee furnished her reply online through the e-filing portal. The Ld. AO examined the reply/details uploaded by the assessee and accepted the explanation of the assessee on the above issue(s) under E-assessment Scheme. He, therefore completed the assessment at the total income returned by the assessee at Rs. Nil vide order dated 13.04.2021 passed u/s 143(3) r.w.s. 143(3A) of the Act. 3.2 The Ld. PCIT examined the case record of the assessee. To him it appeared that the impugned assessment order is erroneous and prejudicial to the interest of Revenue for the reason that during the assessment proceedings, the Ld. AO/FAO has accepted the income declared by the assessee in an erroneous manner without even taking on record the basic minimum supporting evidence required for that purpose. He, therefore invoked his powers u/s 263 of the Act and issued show cause notice which was served electronically on 22.01.2024 to the assessee pointing out Query No. 1 raised by the Ld. AO in the questionnaire issued along with notice u/s 142(1) of the Act in relation 3 ITA No.945/PUN/2024, AY 2018-19 to the “unsecured loans” taken by the assessee during the year under consideration. The said Query No. 1 reads as under : “With respect to unsecured loan as reflected in balance sheet during the year, please provide the following details:- a) Name, address and PAN of all the lenders. b) Opening balance, Addition/repayment during the year, closing balance. c) Purpose/Utilization of the loan amount. d) rate of interest, total interest paid during the year and TDS deducted on interest. e) Provide documentary evidences to substantiate the identity and ITR of last 3 years of the lenders to substantiate their creditworthiness as well as the proof of genuineness of transaction of unsecured loan.\" 3.3 The assessee’s response to the above Query No. 1 read as under : \"With respect to notice referred above, I would like to submit following. 1. Details of Unsecured Loan Unsecured Loan reflected in Balance Sheet of Rs.2,95,25,561/- is received from Mr. Sandeep Satav having Pan BKAPS6883E. Sandeep Satav is my husband. Opening Balance: 75,99,000/- Additions: 3,37,65,561/- Repayment: 1,18,39,000/- Closing Balance: 2,95,25,561/- Purpose of Loan: For trading in shares, Futures & Options Rate of Interest, TDS: As loan is taken from Husband, no interest is paid. ITR of Last 3 years: Attached Herewith.\" 4 ITA No.945/PUN/2024, AY 2018-19 3.4 On examination of the above submission, the Ld. PCIT observed that the only evidence submitted by the assessee in respect of the unsecured loans of Rs.3,37,65,561/- taken by her during the relevant AY 2018-19 is the copies of acknowledgment of ITRs of Sri Sandeep Satav (assessee’s husband and lender) for AYs 2016-17 to 2018-19. No bank statement, ledger account, balance sheet, confirmation or any other evidence to prove the genuineness of the transaction or the creditworthiness of the lender, Sri Sandeep Satav was available on record. In the absence of such evidence, the Ld. PCIT opined that the provisions of section 68 r.w.s. 115BBE of the Act should have been applied in this regard and the decision of the Ld. AO to not draw any adverse inference about the substantive loan of Rs.3,37,65,561/- was not only erroneous but also prejudicial to the interest of Revenue. 3.5 The assessee filed her detailed reply to the show cause notice issued u/s 263 of the Act on 01.02.2024 making submission on the issue of genuineness of the loan transaction and creditworthiness of Mr. Sandeep Satav as also on the validity of the proceedings u/s 263 of the Act (Pages 1 to 222 of the Paper Book refers). 3.6 The assessee submitted the following details/documents in support of her claim during the original assessment proceedings and thereafter during the revision proceedings before the Ld. PCIT : 5 ITA No.945/PUN/2024, AY 2018-19 3.7 Before the Ld. PCIT, challenging the validity of proceeding u/s 263 of the Act, the assessee submitted that the identity, genuineness and creditworthiness of the assessee’s husband, Mr. Sandeep Satav has been substantiated by production of above details/documents and hence the assessment order is neither erroneous nor prejudicial to the interest of Revenue. The assessee further submitted that the assessment order cannot be held to be erroneous on the ground that the enquiry by the Ld. AO was not adequate or that no detailed enquiry was 6 ITA No.945/PUN/2024, AY 2018-19 made by him. The twin conditions that the assessment order should be erroneous and prejudicial to the interest of the Revenue are therefore not satisfied. 3.8 The submissions of the assessee were not acceptable to the Ld. PCIT. In the light of the provisions of section 263 and relying upon various judicial precedents, the Ld. PCIT was of the view that the proceedings initiated by him u/s 263 of the Act is in accordance with law. He discussed the basic facts in Para 4 of his order; offered his comments on the specific arguments taken by the assessee and the evidences relied upon by her during the proceedings before him in Para 5 as also the various judgments relied upon by the assessee and his findings thereof in Para 6 of his order and recorded his conclusion in Paras 6 to 9 of his order which reads as under : “6. In consideration of the discussion above, I am not in agreement with the assessee’s contention before me that the assessment order is neither erroneous nor prejudicial to the interest of revenue. Here, we have a case where a specific issue (taxability of the huge amount incorrectly described as an 'unsecured loan' in her balance-sheet) was selected on the basis of computer-based analysis of the database of ITRs filed by the assessees. During the assessment proceedings, though certain questions were asked from the assessee, no effort was made by the FAO to analyse the response and facts on record indicate no application of mind by him. In fact, even the incompleteness of the assessee's response was not noticed by him despite FAO specifically requisitioning last three years' ITRs of the lender (in this case, the assessee's husband), these were not provided by the assessee and instead one-paged acknowledgements of the same carrying little information was uploaded by her on the portal. Thereafter, in absence of essential documents and without even calling for the bank statements, ledger accounts or ITRs of the husband, and without even making any effort to collect those, the issue was decided in favour of the assessee. After carefully taking into account the facts narrated in this order and the inferences drawn in paragraph no. 5 above, I am convinced that the assessment order has been passed by the FAO without making the inquiries or verification which should have been made by him as has been ordained by the statute under the provisions contained in sub- clause (a) of the explanation 2 to section 263(1) of the Income Tax Act, 1961 and therefore it is deemed to be erroneous in so far as it is prejudicial to the interests of revenue. 7 ITA No.945/PUN/2024, AY 2018-19 I also find that it is a case where while passing the assessment order, the FAO has not applied his mind to the issue or the facts available before him. Finally, on consideration of the additional documents produced by the assessee during the present proceedings, I am led to inferences which convince me about the erroneous nature of the decision of the FAO of not drawing any adverse inference in respect of the funds received by the assessee from her husband. Therefore, I find myself satisfied that even without resorting to the deeming provisions of sub-clause (a) of explanation 2 to section 263 (1) of the Income Tax Act, 1961, the assessment order passed by the FAO on 13.04.2021 is erroneous in so far as it is prejudicial to the interest of revenue. 7. My finding that the assessment order under consideration in the present proceedings falls within the ambit of the provisions of section 263 is supported by many judicial precedents. Hon'ble Allahabad High Court in the case of Bhagvandas[(2005) 272 ITR 367(ALL)] and also in the case of P.T.Lashkari Ram [(2005) 272 ITR 309(ALL)] and the Hon'ble Madras High Court in the case of Ashok Leyland Ltd.((2003) (260 ITR 599(MAD)] have held that action under section 263 is valid where the assessment order is passed without application of mind and without conducting proper inquiry. Reliance is also placed on the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. [(2000)(243 ITR 83(SC)]. wherein it was clearly held that the Commissioner of Income tax is within his jurisdiction to set aside the assessment order if it is passed without examination of the relevant details or without application of mind. 8. The relatively recent judgment dated November 2, 2020of the jurisdictional Hon'ble Bombay High Court in the case of Sesa Starlite Ltd. v. Commissioner of Income Tax, Panaji, Goa (2021) 430 ITR 121 (Bombay)) has dealt with the issue of applicability of the provisions of section 263 in detail. In this case, during the assessment proceedings, the issue of allowability of the claim of exemption under section 10B of the Income Tax Act was explained by an initial submission of the assessee and also thereafter inquired into by the Assessing Officer raising specific queries on that issue. These queries were responded to by the assessee and then the said issue was decided in the assessee's favour. Hon'ble High Court of Bombay has held in this case that the provisions of section 263 were applicable because of non-application of mind by the Assessing Officer. The most relevant extracts of its judgment are reproduced below:- \"31. The material on record does indicate that the AO, in this case, sought for information from the Assessee with regard to its claim for deduction under section 10B of the IT Act vide its communication dated 2/12/2009. However, according to us, this by itself can never be regarded as 8 ITA No.945/PUN/2024, AY 2018-19 sufficient. What is further necessary is that the AO actually applies his mind to the information that may be supplied by the Assessee and considers such information and thereafter forms an opinion whether the Assessee is actually entitled to deduction under section 10B of the IT Act for the relevant assessment year. There is a distinction between merely calling for information on a particular issue and considering such information with due application of mind if and when such information is actually provided by the Assessee. 32. Now, if the order dated 23/12/2009 made by the AO is perused, we find merit in the contention of Ms. Linhares that there was no consideration whatsoever of the information provided by the Assessee in the context of its claim for deduction under section 10B of the IT Act. The assessment order dated 23/12/2009 indicates that the AO has not even considered, much less, applied his mind to such information before allowing the deduction under section 10B of the IT Act. On perusal of the assessment order dated 23/12/2009, an impression is created that the AO proceeded on the basis that such deduction was allowable without considering whether the same was actually allowable at all in the context of the various prerequisites provided in Section 10B of the IT Act. 33. Analysis of the assessment order dated 23/12/2009 indicates that in its first three paragraphs, there is a reference to the nature of business undertaken by the Assessee and reference of the case of the Assessee under section 92CA of the IT Act to the Transfer Pricing Officer for determination of arm's length price in respect of international transactions reported for the relevant assessment year. Then paragraph 4, along with its sub paragraphs 4.1 to 47 deal with disallowance under section 40(a)(ia) in the context of commission exceeding Re. 18.00 crore paid by the Assessee during the relevant assessment year, even though the TDS on the commission paint was negligible. Paragraph 5 deals with the expenditure incurred fowants research and development Paragraph 6 deals with the issue of depreciation on UPS. Finally, paragraph 7 deals with computation on the basis of the opinion in paragraphs 4.5 and 6. Thus, on the issue of deduction under section 100 of the IT Act, there is absolutely no consideration and yet, the AO has allowed such deduction. This is, according to us, is a case of ho consideration' as opposed to mere inadequate consideration. This is, acconting to us, a clear case of non- application of mind to the material on record, without even going into the issue whether the material supplied by the Assessee was adequate or inadequate to determine its claim for deduction under section 108 of the IT Act. in such a situation, the exercise of revision jurisdiction by the CIT under section 263 of the IT Act, cannot be said to be prohibited even based upon the decisions relied upon by Mr. Pardiwalla, the learned Counsel for the Assessee in this matter. 34. In Vodafone Essar South Ltd. (supra), Delhi High Court has held that if there is some inquiry by the AO in the original proceedings, even if inadequate that cannot clothe the Commissioner with jurisdiction under 9 ITA No.945/PUN/2024, AY 2018-19 section 263 of the IT Act merely because he has formed another opinion in the matter. This decision is basically an authority for the proposition that revision powers under section 263 of the IT Act cannot be exercised merely because the Commissioner may have formed another opinion in the matter. This decision is also an authority for the proposition that revision jurisdiction is not to be exercised merely because the Commissioner is of the opinion that the inquiries made by the AO were inadequate. 35. In the present case, however, whatever status of the queries, it is apparent that the AO did not even bother to look into or consider the information provided by the Assessee in the context of the claim for deduction under section 10 of the IT Act. Therefore, this is not a case of some inadequate inquiries. This is a case of no inquines. This is a case of non-consideration and consequently, non- application of mind to the material on record. 36. In Malabar Industrial Co Ltd. (supra), the Hon'ble Supreme Court has held that the revision jurisdiction under section 263 of the IT Act cannot be Invoked to correct each and every type of mistake or error committed by the AG. It is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. Further, where the AO adopts one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the AO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue, unless the view taken by the AO is unsustainable in law. 37. Further, the Hon'ble Supreme Court noted that the AO in the case before it, passed the order of nil assessment without application of mind. The Court also recorded a finding that the AO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. The AO in the said case, accepted an entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. The Hon'ble Apex Court then held that on these facts, the conclusion that the order of the AO was erroneous was irresistible. Therefore, the High Court had rightly upheld that the exercise of the jurisdiction by the Commissioner under section 263(1) of the IT Act. 38. This decision, according to us, assists the case of the Revenue, since, in the present case as well, there was no inquiry by the AO on the issue of fulfillment of requirements under section 108 of the IT Act. The mere seeking of information but thereafter, not even looking into the same is not the same thing as inquiring into the matter. Further, the AO has to consider the information so furnished and after applying the mind, arrive at a decision one way or the other on the issue before him. 10 ITA No.945/PUN/2024, AY 2018-19 39. In Gabriel India Ltd. (supra), this Court has held that the decision of the AO cannot be regarded as erroneous simply because the AO did not make an elaborate discussion in the order. In our case, as noted earlier, there is no discussion whatsoever, much less any inadequate discussion. Moreover, in Gabriel India Ltd. (supra), the Commissioner after initiating proceedings for revision, could not himself say that the allowance of the claim of the Assessee was erroneous and that the expenditure was not revenue expenditure, but an expenditure of capital nature. It is in these circumstances that the exercise of revision jurisdiction was interfered with by this Court. 40. In CIT v. Nirav Modi [2016] 71 taxmann.com 272/241 Taxman 255/[2017] 390 ITR 292 (Bom.), this Court noted that the AO had not only made detailed inquiries, but recorded a finding that the Assessee had duly proved the identity, source and creditworthiness of donors. In these circumstances, the Court held that if two views are possible and the AO has taken one of the possible views, no occasion to exercise powers of revision can arise. In this case, this Court has also observed that power of revision can be exercised only where there was no inquiry as required under law and not where inquiry was held and the same was inadequate. ……………….. ……………….. 45. In a case of this nature, it is not sufficient that the AO merely raises queries or poses questions. If such queries are answered, it is the duty of the AO to consider such answers and based thereon, to take further steps to arrive at a reasoned decision. Perusal of the impugned order does not indicate that the AO has even adverted to, much less, considered the responses filed by the Assessee. There is not even finding in the assessment order that the Assessee was entitled to deduction under section 10B of the IT Act on account of the answers furnished by the Assessee to the queries raised by the AO. In respect of such order, the CIT was entitled to exercise the revision jurisdiction since the order is both, erroneous as well as prejudicial to the interests of the Revenue. 46. Ms. Linhares has quite correctly relied upon Rampyari Devi Saraogi (supra), in which the Hon'ble Supreme Court has held that the Commissioner can regard the AO's order as erroneous on the ground, that in the circumstances of the case, the AO should have made further inquiries before accepting the statement made by the Assessee in his rectum. Besides, the Hon'ble Supreme Court, in the facts of the said case, held that the Assessee had not suffered in any way from the failure of the Commissioner to indicate results of inquiries since, the Assessee would have full opportunity of showing the AO whether he has jurisdiction or not, and whether the income assessed in the assessment orders which were originally passed was correct or not.\" 11 ITA No.945/PUN/2024, AY 2018-19 “9. Adverting to the facts of the instant case, it is amply clear that the FAO has not examined the issue of taxability of the advances received by the assessee from her husband. It neither emanates from the order nor from the records that there is application of mind by the FAO on this issue. The credibility of the lender and the genuineness of the transactions involved has not been examined by him. In absence of any financials of the lender whatsoever, except copies of acknowledgements of his three years' ITRs, his creditworthiness was erroneously assumed to exist. The purpose of the advance received by the assessee was questioned but not examined by the FAO. The query regarding the rate of interest charged by the lender was made by the FAO but on coming to know that it was zero, no doubts about the genuineness of the said interest-free transactions between the assessee and her husband were raised by him thereby strengthening my belief that the assessment order is compromised because of total non- application of mind on the part of the FAO. Finally, during the revision proceedings after examining the additional documents provided by the assessee, I also notice that the funds advanced by the husband, Sri Sandeep Satav to the assessee were not in the nature of 'unsecured loan' as depicted by her in her ITR but an advance' given by him for some purpose or venture not brought on record by the assessee during the assessment proceedings. Therefore, under the facts and circumstances of this case, respectfully applying the ratio of the decision of Jurisdictional High Court, namely SesaStarlite Ltd. v. Commissioner of Income Tax, Panaji, Goa (supra), I am convinced that the assessee's case is fit for invocation of the provisions of section 263 of the Income Tax Act, 1961.” 4. It is against the direction of the Ld. PCIT to the Ld. AO to revise the impugned assessment order in the light of the aforesaid discussion that the assessee is in appeal before the Tribunal and the solitary ground raised by the assessee relates thereto. 5. The Ld. AR submitted that the impugned assessment order is neither erroneous nor prejudicial to the interest of the Revenue. He submitted that initiation of revision proceedings by the Ld. PCIT is not contested by the assessee. The grievance of the assessee is that the Ld. 12 ITA No.945/PUN/2024, AY 2018-19 PCIT passed the impugned order without considering the additional evidence/details filed by the assessee during the revisionary proceedings before him. The Ld. AR argued that the Ld. PCIT ought to have considered the additional documents/details filed. The Ld. AR then took us through the assessment order and pointed out that the Ld. AO has clearly mentioned in his order that the details and evidences furnished by the assessee have been duly examined by him. The Ld. AR further reiterated the arguments taken before the Ld. PCIT and submitted that it may be the case of inadequate enquiry by the Ld. AO but not lack of enquiry or non-enquiry. He submitted that the identity of the lender was duly proved before the Ld. AO as also the genuineness of the loan transaction which is evident from the tax audit report for AY 2018-19 uploaded by the assessee on ITBA portal showing the details of loan taken by the assessee from Mr. Sandeep Satav and repayment of the same. He further submitted that the movement of loan i.e. the opening balance, addition, repayment and closing balance was also explained before the Ld. AO. He emphasized that the assessee filed additional documents in support of her claim before the Ld. PCIT which establishes the genuineness of the transaction and creditworthiness of the lender Mr. Sandeep Satav. If the Ld. PCIT was of the view that the assessment order was erroneous, instead of remitting the impugned issue back to the Ld. AO for framing fresh assessment, he should have made the enquiry himself considering the additional details/documents filed by the assessee before him. He, therefore pleaded that the Ld. PCIT was not justified in invoking his revisionary powers u/s 263 of the Act and remitting the impugned issue back to the file of the Ld. AO for fresh assessment thereon. In support of his arguments, the Ld. AR filed a legal compilation comprising of the following decisions : i. Bagsu Devi Bafna Vs. Commissioner of Income Tax & Ors. (1966) 62 ITR 506 (Cal.); 13 ITA No.945/PUN/2024, AY 2018-19 ii. Commissioner of Income Tax Vs. Gabriel India Ltd. (1993) 203 ITR 108 (Bom.); iii. Commissioner of Income Tax Vs. Trustees Anupam Charitable Trust (1987) 167 ITR 129 (Raj.). 5.1 Several other decisions have been relied upon by the assessee in the written submissions filed before us. 6. The Ld. DR referred to the relevant paras of the assessment order and pointed out that the Ld. AO has passed the assessment order without carrying out necessary enquiry/verification in relation to the issues (including unsecured loans) for which the case of the assessee was selected for scrutiny through CASS under the E-Assessment Scheme. With regard to the impugned issue of unsecured loans of Rs.3,37,65,561/-, the Ld. DR argued that the assessee failed to prove the genuineness of the transaction as well as the creditworthiness of the lender by filing the relevant details/documents before the Ld. AO. The assessment order is cryptic. The Ld. AO has accepted the claim of the assessee on the face of it without probing any enquiry thereto. This indicates non-application of mind by the Ld. AO. In support of his arguments, he submitted a legal compilation comprising of the following cases : i. Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax (2000) 243 ITR 83 (SC); ii. Sesa Starlite Ltd. Vs. Commissioner of Income Tax (2021) 430 ITR 121 (Bom.); iii. CIT Vs. Maithan International (2015) 375 ITR 123 (Calcutta); iv. Nagal Garment Industris (P.) Ltd. Vs. Commissioner of Income Tax (2020) 113 taxmann.com 4 (MP); v. Rajamandir Estates (P.) Ltd. Vs. PCIT (2016) 386 ITR 162 (Cal.); 14 ITA No.945/PUN/2024, AY 2018-19 vi. CIT Vs. Jawahar Bhattacharjee (2012) 342 ITR 74 (Gauhati); vii. Commissioner of Income Tax Vs. Bhagwan Das (2005) 272 ITR 367 (All.); viii. PT. Lashkari Ram Vs. Commissioner of Income Tax (2005) 272 ITR 309 (All.); ix. PCIT Vs. Smt. Manju Devi Chourasia (2024) 161 taxmann.com 809 (Jharkhand); x. Pooja Gupta Vs. PCIT in ITA No. 4057/Del/2018, dated 31.01.2019; xi. Ramesh Kumar Goyal HUF Vs. ITO in ITA No. 1982/Del/2018, dated 25.01.2019; xii. Lado Ceramic (P.) Ltd. Vs. PCIT (2023) 157 taxmann.com 194 (Rajkot-Trib.); xiii. Anuj Jayendra Shah Vs. PCIT (2016) 67 taxmann.com 38 (Mumbai-Trib.). 6.1 Referring to the decision of Hon’ble Calcutta High Court in the case of CIT Vs. Maithan International (supra), the Ld. DR contended that the genuineness of the loan cannot be accepted merely on the basis of the bank statement(s) of the parties and confirmation letter of the lender that was filed for the first time during the revision proceedings before the Ld. PCIT. Moreover, the Ld. AO grossly failed to examine the creditworthiness of the lender since the assessee filed only copy of the acknowledgment of ITRs of the past three years (AYs 2016-17, 2017-18 and 2018-19) of the lender, Mr. Sandeep Satav and not the complete ITRs showing the details regarding the transaction between the parties. He, therefore submitted that the Ld. PCIT was completely justified in exercising powers vested in him by invoking the provisions of section 263 of the Act and directing the Ld. AO to revise the assessment order in light of his observations and findings. 15 ITA No.945/PUN/2024, AY 2018-19 7. We have heard the Ld. Representatives of the parties and perused the records and also considered the various judicial precedents cited by the Ld. AR as well as Ld. DR in support of their respective arguments. It is revealed from para 1 and para 3 of the assessment order that during the course of assessment proceedings the Ld. AO communicated the issues (including unsecured loans) for selection of case under E- assessment Scheme and sought the explanation of the assessee. However, there is no inkling in the assessment order as to what explanation was given by the assessee. In para 4 it is merely stated by the Ld. AO that in response to the statutory notice, the assessee furnished the details through the e-filing portal. What details were filed is not forthcoming from the assessment order. Para 6 of the assessment order states that the reply and details uploaded by the assessee were carefully examined but what details were examined by the Ld. AO are not known. No reasons have been recorded by him to arrive at a conclusion that the income returned by the assessee at Rs. Nil is acceptable and confirms the legal position. Nothing is discernible as to how the issues raised were examined and found acceptable by him. Before us the Ld. AR admitted that there was inadequate enquiry on the impugned issue by the Ld. AO. Therefore, the Ld. PCIT was justified in invoking his power u/s 263 of the Act. However, since the assessee subsequently furnished the additional evidence/details before the Ld. PCIT, he should have considered the same instead of holding the assessment order erroneous and prejudicial to the interest of the Revenue and directing the Ld. AO to revise the assessment order. 8. The Finance Act, 2015 inserted Explanation-2 to section 263 of the Act w.e.f. 01.06.2015 and CBDT in Circular No. 19 of 2015, dated 27.11.2015; (2015) 379 ITR (ST) 19 has explained that interpretation of the expression “erroneous in so far as it is prejudicial to the interest of 16 ITA No.945/PUN/2024, AY 2018-19 the Revenue” has been a contentious one. In order to provide the clarity of the issue, section 263 of the Act has been amended to provide that 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, in the opinion of the Principal Commissioner or Commissioner the order is passed without making enquiries or verification which, should have been made. Thus, by virtue of the above amendment assessment order passed without making requisite enquiry or verification shall be deemed to be erroneous in so far as it is prejudicial to the interest of the Revenue. This will enable the Ld. PCIT to exercise jurisdiction u/s 263(1) of the Act in respect of such an assessment order passed by the Ld. AO. Moreover, the documentary evidence available in the records which the Ld. AO admits to have examined the veracity thereof amply demonstrate that the Ld. AO has not made the requisite enquiry in relation to the transaction in question / dispute. 9. On the factual matrix set out above, it is for our consideration whether the Ld. PCIT was justified in directing the Ld. AO to frame fresh assessment by assuming jurisdiction u/s 263 of the Act. It is now well established that incorrect assumption of fact and incorrect application of law will satisfy the requirement of assessment order being erroneous. In the assessee’s case it would be obvious that the Ld. AO has not conducted proper enquiry as regards the genuineness of the loan transaction and creditworthiness of the lender. This indicates non- application of mind by the Ld. AO on the impugned issue. In our opinion, the impugned order of the Ld. AO is erroneous and prejudicial to the interest of the Revenue in the given facts and law related to them. 10. On perusing the various judicial precedents relied upon by the Ld. AR, we find that these decisions are not of much assistance to the 17 ITA No.945/PUN/2024, AY 2018-19 assessee in light of the present facts of the assessee’s case under consideration. The observations and findings of the Ld. PCIT clearly shows the non-application of mind by the Ld. AO while accepting the assessee’s submissions on the impugned issue of unsecured loans. We notice that the Ld. PCIT has duly considered the query raised by the Ld. AO in respect of the loan transaction between the assessee and her husband, Mr. Sandeep Satav and the response filed by the assessee in respect thereof. Only after considering the same, the Ld. PCIT observed that reply of the assessee was not enough to prove the three required limps i.e. identity of the lender, genuineness of the transaction and creditworthiness of the lender. We also notice that the Ld. AO accepted the reply and details filed by the assessee before him without making any further enquiry. In this view of the matter, we find force in the argument of the Ld. DR that the Ld. PCIT was justified in treating the assessment order as erroneous and prejudicial to the interest of the Revenue and directing the Ld. AO to frame assessment order afresh. The Ld. AO has accepted the creditworthiness of the lender merely on the basis of the copies of the acknowledgement of ITRs for the past three years without even considering the fact that the complete set of ITRs remained undisclosed by the assessee. It is thus evident that the Ld. AO passed a cryptic order by simply accepting the version of the assessee without application of mind. The Ld. AO therefore failed to make the necessary enquiry/verification that should have been made and hence the impugned assessment order, in our considered view, becomes erroneous and prejudicial to the interest of the Revenue. 11. In such a scenario wherein the assessment is completed without adequate enquiry/verification of the issue involved, the Hon’ble Delhi High Court in the case of Gee Vee Enterprises Vs. Addl. CIT 99 ITR 375 (Del.) held that the assessment order is erroneous as also prejudicial to 18 ITA No.945/PUN/2024, AY 2018-19 the interest of the Revenue as it caused prejudice to the Revenue administration as emphasized by the Hon’ble Madras High Court in the case of Venktakrishna Rice Co. Vs. CIT 163 ITR 129 (Mad.). Therefore, we are of the view that the Ld. PCIT was justified in resorting to the provisions of section 263 of the Act. 12. Similar view has been taken by the Jurisdictional Bombay High Court in the case of Sesa Starlite Ltd. Vs. Commissioner of Income Tax (supra) which has also been relied upon by the Ld. PCIT. 13. In the assessee’s case in hand, there is an evident lack of proper enquiry by the Ld. AO during the course of assessment proceedings. Therefore, the Ld. PCIT, in our view, has not erred in holding the order passed by the Ld. AO as erroneous and prejudicial to the interest of the Revenue and directing him to make assessment afresh. This view finds support by the decision of the Rajkot Tribunal in the case of Lado Ceramic (P.) Ltd. Vs. Principal Commissioner of Income Tax (2023) 157 taxmann.com 194 (Rajkot-Trib.). The relevant finding is reproduced below: “6. We have heard the rival contentions and perused the material on record. On going to the facts of the instant case, we observe that in the instant case, undeniably the Assessing Officer had made certain enquiries during the course of assessment proceedings, in response to which the assessee had also filed certain details. However, there are also certain glaring discrepancies in the facts of the assessee’s case, in respect of which evidently Assessing Officer did not make any observations/made necessary enquiries during the course of assessment proceedings. In this case, the principal CIT has observed that the substantial investment was made in the shareholding of the assessee company, but during the course of assessment there is no explanation on record for the source of investment in the hands of the subscribers. Further, out of 21 persons, only four persons had filed their balance sheets, it was observed that huge amount of unsecured loans was availed by these persons and accordingly, the aforesaid investments in the share capital of the assessee company were made out of borrowed funds. Further, the shareholders referred to above also gave substantial amount of unsecured loans to the assessee company, but a perusal of the 19 ITA No.945/PUN/2024, AY 2018-19 return of income shows that they did not have sufficient means to make the aforesaid investments/give unsecured loans to the assessee company. Accordingly, looking into the facts of the instant case we are of the considered view is that the principal CIT has correctly observed that there was an evident lack of enquiry by the Assessing Officer into the source of investment, which should have been made by the Ld. AO, looking into the facts of the instant case. Also, we observe that the Gujarat High Court in the case of Umesh Krishnani (supra) has also given a specific finding that when immediately before the issuance of funds to the assessee company there was immediate credit in the bank accounts of some of the investors, for which there is no plausible explanation, then addition under Section 68 of the Act is liable to be made. Even in the present facts, the principal CIT observed that in some of the cases prior to making the investments in the assessee company, there was immediate credits in the bank accounts of some of the investors, for which no explanation has been provided by the assessee during the course of assessment proceedings. In the case of Malabar Industrial Co. Ltd. 109 Taxman 66 (SC), the Hon'ble Supreme Court held that if due to an erroneous order of ITO, Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to interests of revenue. In the case of Neelkantha Commosales (P.) Ltd. 135 taxmann.com 326 (Calcutta), the High Court held that even under non-amended provision of Section 68, an Income-tax Officer was not precluded from making an inquiry about true nature and source of sum found credited in books of assessee, even if same was credited as receipt of share application money. In the case of Nisha Sharma146 taxmann.com 209 (Jabalpur - Trib.), the ITAT held that where assessee's case was selected for limited scrutiny for reasons that it deposited large cash during demonetization and showed large agricultural income, however AO merely relied on assessee's submissions which included sale bills for agricultural income and claimed that cash deposits were made out of past savings, since AO did not make any findings related to opening cash ascribed to past savings nor there was mention of land holdings, crop cultivated and sold, Principal Commissioner was right in invoking revisionary proceedings. In the case of Himachal Pradesh Financial Corpn. 186 Taxman 105 (Himachal Pradesh), the High Court held that the expression 'prejudicial to interest of revenue' as understood in its ordinary meaning is of wide import and not confined to loss of tax alone. Further, if due to an erroneous order of Assessing Officer, revenue is losing tax lawfully payable by a person, it should be certainly prejudicial to interest of revenue. In the case of Deepak Kumar Garg 299 ITR 435 (Madhya Pradesh), the High Court held that where from order of Assessing Officer, it was clear that where the Assessing Officer had done only a semblance of enquiry and, that too, in very slipshod manner and Assessing Officer had accepted version of assessee without proper enquiry, as a result of which substantial amount of taxable income was not brought to tax, Commissioner rightly held assessment order as erroneous and prejudicial to interest of revenue. Accordingly, looking into the facts of the instant case, we find an evident lack of proper enquiry by the Assessing Officer during the course of 20 ITA No.945/PUN/2024, AY 2018-19 assessment proceedings. In our considered view, the enquiry made by the Assessing Officer was not adequate and he simply accepted the version of the assessee without application of mind. Accordingly, looking into the facts of the instant case and the judicial precedents on the subject, we are of the considered view that the Principal CIT has not erred in facts and in law in holding that the order passed by the Assessing Officer is erroneous and prejudicial to the interests of the revenue.” 14. On the facts and in the circumstances of the case and the legal position enumerated above, we find no substance in the ground taken by the assessee which we hereby reject. 15. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 03rd December, 2024. Sd/- Sd/- (G.D. Padmahshali) (Astha Chandra) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; दिन ांक / Dated : 03rd December, 2024. रदि आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT concerned. 4. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, “बी” बेंच, पुणे / DR, ITAT, “B” Bench, Pune. 5. ग र्ड फ़ इल / Guard File. //सत्य दपि प्रदि// True Copy// आिेश नुस र / BY ORDER, िररष्ठ दनजी सदचि / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune "