Income Tax Appellate Tribunal – Jodhpur
Mukesh Agarwal , Bikaner vs Pcit-1, Jodhpur on 7 October, 2021 IN THE INCOME TAX APPELLATE TRIBUNAL, JODHPUR BENCH,
JODHPUR
BEFORE HON’BLE SH. SANDEEP GOSAIN, JUDICIAL MEMBER AND
HON’BLE SH. VIKRAM SINGH YADAV, ACCOUNTANT MEMBER
ITA No. 24/JODH/2021
Assessment Year: 2016-17
Mukesh Agarwal, Vs. Pr.CIT-1,
98, Industrial Area, Rani Bazar, Jodhpur.
Bikaner.
PAN No. AALPA 2772 Q
Assessee by Shri Manish Surana, CA
Revenue by Smt. Sanchita Kumar, CIT-DR
Date of Hearing 11/08/2021
Date of Pronouncement 07/10/2021
ORDER
PER: SANDEEP GOSAIN, J.M.
The present appeal has been filed by the assessee against the order of the
ld. Pr.CIT-1, Jodhpur dated 19/03/2020 for A.Y. 2016-17 passed u/s 263 of the
Income Tax Act, 1961 (in short, the Act) wherein following grounds have been
raised:
“1. The Ld. PCIT was wrong in law as well as in facts in setting aside the order of
the assessing officer without considering facts and circumstances of the
case.
2. The ld. PCIT has not been able to establish the pre-requisite conditions for
invoking the revisional provision.”
2. The brief facts of the case are that the assessee is AA class civil
contractor. During the year under consideration, the assessee was engaged
in civil construction work of roads with PWD, RSARMB, RICCO. During the
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year under consideration, a survey u/s 133A of the Act was carried out at
the business premises of the assessee. During the survey proceedings, the
assessee had voluntarily surrendered a sum of Rs. 1.15 Crore on account of
discrepancies found in the books of account and inflated expenditure. In the
return, the assessee had declared total income Rs. 1,79,37,270/-the year
under consideration. The case was selected for scrutiny and various notices
were issued by the AO on various dates. The AO completed the assessment
on 11/12/2018 determining totaling total income of the assessee at Rs.
2,24,87,770/-. Thereafter, the ld. PCIT had issued a show cause notice dated
22/02/2021 which was served upon the assessee. In response to the notice
U/s 263 of the Act, the assessee submitted reply before the ld. PCIT and
finally the ld. PCIT passed the order U/s 263 of the Act on the ground that
the order U/s 143(3) of the Act dated 11/12/2018 passed by the A.O. is
found to be erroneous in so far as it is prejudicial to the interests of the
Revenue. The order passed is based on incorrect/mistaken assumption of the
facts of the case by way of accepting the statement of the assessee without
due verification/erroneous application of provisions of the Act.
3. Now the assessee is in appeal before the ITAT on the grounds
mentioned above.
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4. Both the grounds raised by the assessee in this appeal are interrelated
and interconnected and mainly relates to challenging the order of the ld.
PCIT passed U/s 263 of the Act. In this regard, the ld. AR appearing on
behalf of the assessee has reiterated the same arguments as were raised
before the ld. PCIT and also relied on the written submissions filed before
the Bench and the same is reproduced below:
“Issue/Point 1: The Surrendered amount was declared by the assessee as
his business income and the capital was increased accordingly by this amount
instead of reducing debtors or creditors from it. AO accepted the claim of the
assessee without proper verification and examination of records.
The allegation of PCIT is unfounded since it is factually incorrect. Your kind
attention is drawn to audit financial Statements available on record. On
perusal it would be found that by virtue of surrendered amount the capital has
not increased directly. In place the surrendered amount formed part of the
credit side of the Profit & Loss account and consequently the profit for the
year was increased by corresponding amount of Rs. 1.15 Crore. On the
contrary in the capital account which is also available on record, your honour
find that there is no such credit entry of Rs. 1.15 Crore. Thus Capital Account
was not directly impacted by amount surrendered. The proposition of Id PCIT
calling for reduction in debtors or creditors from surrendered amount is
beyond comprehension. The assessee is a Civil Contractor and the awarders
happen to be corporates or Govt. Departments. They may figure in the list of
sundry debtors, how the amount of sundry debtors can be reduced as a result
of surrender.
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Further the Ld AO subjected the income surrendered of Rs. 1.15 Crore to tax at
the flat rate of 30% by invoking the provision of Section 115BBE. The Page 7 of
the Assessment order is a testimonial to it.
Hence the order passed by the Ld. Pr. CIT is bad in law and is requires to be
quashed.
Issue/Point 2: During the year under consideration, the assessee has obtained
unsecured loans from 22 Parties, but creditworthiness of none of them was
verified by the AO.
During the course of proceedings all the duly signed account statement, bank
accounts, ITR and interest account were duly furnished and properly verified
by Ld AO. There has not been any single amount of cash being deposited into
the accounts of cash creditors. The money has come from the banking
channel and the payers were regular assessee of Income Tax. Thus the onus
of identity and genuineness of cash creditors stand discharged. Since there is
no factum of cash being deposited immediately prior to the issue of cheque in
favour of assessee, the source of money is also established. There is no
obligation on the part of AO to inquire into the source of source of cash credit.
AO having examined all the details had not drawn any adverse inference
against any loan creditors and did not follow a view ‘unsustainable in law’ and
assessment order was not the result of non-application of mind or any
inadequate enquiry, accordingly, invocation of jurisdiction under section 263
was untenable. The courts across the spectrum have unanimously held that
the order of AO can be brandished as erroneous if it is unsustainable in the
eyes of law. He relied on the decision in the case of Citystar Ganguly
Projects Ltd. Vs PCIT (ITAT Kolkata) Appeal Number : 1TA No.
1103/Kol/2019 Date of Judgement/Order : 31/10/2018.
In view of foregoing the order passed by the Ld. Pr. CIT is bad in law and is
requires to be quashed.
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Issue/Point 3: Assessee has shown opening balance of loan as on
01.04.2015 from Virendra Agarwal HUF at Rs. 17,13,420/- and on 14.12.2015
you have again accepted loan of Rs. 10,00,000/- from Virendra Agarwal HUF.
Virendra Agarwal HUF has shown income of Rs. 94,426/-only in its ITR.
Further, Virendra Agarwal HUF did not charge any interest on this loan from
you. The AO id directed to examine and verify the creditworthiness of the
creditor namely Virendra Agarwal HUF and genuineness of Transaction.
The ITR, Confirmation, Bank Statement of Sh. Virendra Agarwal HUF is
available on record. The same was duly examined and verified by the Ld AO.
From the perusal of bank statement it is obvious that the immediate source of
money given to the asseesee as unsecured loan was the proceeds realized
from the FDRs. The money received from FDRs constituted the source of
unsecured loan given to the assesse. The Ld PCIT doubted that the
creditworthiness of the cash creditor in light of paltry return of Income
showing income of 94,426. It is not the present income but it is the
accumulated savings of the past years invested in the form of FDR became the
source to the assessee. There is also ITR of Shri Virendra Agarwal(Individual) is
on record. He has shown an income of Rs. 31.50 Lacs in his return of income.
Therefore, in the light of the entire nitty gritty of the case, the allegation of Mr.
Virendra Agarwal not having the credit worthiness is baseless and unfounded.
Hence the order passed by the Ld. Pr. CIT is bad in law and is requires to be
quashed.
Issue/Point 4: Non-Deduction of tax on payment of interest to the mentioned
persons and without obtaining Form No. 15G/H, the assessing officer have
disallowed the claim of interest expenses.
It has been alleged by Ld PCIT that TDS has not been deducted on the interest
paid above Rs.10,000.00. In this regard the assesse would like to draw your
kind attention to the 15G and 15H forms submitted on 28/04/2016 to the
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department. A copy of the acknowledgement is being enclosed for your ready
reference. Hence there is no liability to deduct TDS. The form 15G/H are
available on record therefore, no disallowance was made by AO on account of
Non deduction of TDS. Further the Chartered Accountant in TAR has not
pointed out any disallowance u/s 40(a)(ia) of Income Tax Act on account of
Non deduction of TDS.
Hence the order passed by the Ld. Pr. CIT is bad in law and is requires to be
quashed.
Issue/Point 5: It is evident that assessee has received a total loan of Rs. 15
Lacs from one Smt. Rekha instead of Rs. 10 Lacs as shown by you. Apart from
this Smt Rekha verma has filed her ITR for the year under consideration
showing income of Rs.2,68,662.
During the course of Assessment proceedings the ITR, Computation, Bank
Statement and confirmation of accounts of all cash creditors including Smt.
Rekha Verma were furnished. In the confirmation of accounts both assessee
as well as the cash creditor put their signatures in token of having accepted
the veracity of transactions. Further the bank statement of Rekha Verma also
highlighted the payment made by her to assessee. The Bank Statements of
the assessee are also on records. If such type of money had been paid by
Rekha verma it would have featured in the bank statement of the assessee.
The Ld PCIT has gone in overdrive in assuming and presuming the transaction
dated 14.05.2015 for Rs. 5 Lacs as that of the assessee. It may be noted that the
aforesaid amount was received by way of loan by the Wife of the assessee
Sunita Agarwal. The reason behind the existence of Narration “TO YS AC
RTGS” in both the transaction involving the assessee and his wife is the fact
that the assessee is Prop of M/s Yash Trading Corporation and his wife is
Prop of M/s Yogesh Enterprises. The cash credits were received by both of
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them in the bank account of their respective proprietorship concern.
Therefore, the nomenclature in the narration was same.
From the Bank Statement it is obvious that the immediate source of unsecured
loan of Rs, 10 lakhs Rekha Verma was the money received by her from M/s
Jaishree Products 09.05.2015 for Rs. 3 Lacs & 11.05.2015 for Rs. 7 Lacs through
account payee cheque.
The current income didn’t constitute the source of unsecured loan, hence the
comparison of current income which the amount of unsecured loan does not have
any meaning and relevance.
It is therefore sincerely requested that the order passed by the Ld. Pr. CIT is illegal
and may kindly be quashed.
It is therefore sincerely requested that the impugned order passed by Pr. CIT
u/s 263 of the Income Tax Act, 1961 may kindly be quashed and oblige.”
5. On the other hand, the ld. CIT-DR has vehemently supported the order
of the ld. PCIT.
6. We have heard the ld. Counsels of both the parties and have perused the
material placed on record. We have also deliberated upon the decisions cited in
the orders passed by the authorities below as well as cited before us and we
have also gone through the orders passed by the revenue authorities. We found
that the ld. PCIT has held that the order of AO U/s 143(3) dated 11/12/2018 is
erroneous in so far as it is prejudicial to the interest of the Revenue on the basis
of five issues/points as mentioned in its order, therefore, now we will deal with
all points separately. Ld. PCIT’s main thrust was that the A.O. had without
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proper verification and examination of records has accepted the claim of the
assessee. As per issue/point No. 1 of the order of ld. PCIT, we found that
according to PCIT the surrendered amount was declared by the assessee as his
business income and the capital was increased accordingly and A.O. has not
verified the same fact. However, as per the ld AR, the allegation of PCIT is
unfounded and factually incorrect. Our attention was drawn to audit financial
statements are available on record and from perusal the same, it was found
that by virtue of surrendered amount the capital has not increased directly.
In place the surrendered amount formed part of the credit side of the Profit
& Loss account and consequently the profit for the year was increased by
corresponding amount of Rs. 1.15 Crore. On the contrary in the capital
account which is also available on record, we find that there is no such credit
entry of Rs. 1.15 Crore. Thus Capital Account was not directly impacted by
amount surrendered. The proposition of ld. PCIT calling for reduction in
debtors or creditors from surrendered amount is beyond comprehension. As
per facts, the assessee is a Civil Contractor and the awarders are to be
corporate or Govt. Departments. They may figure in the list of sundry
debtors, but then how the amount of sundry debtors can be reduced as a
result of surrender. The AO after due examination and verification subjected the
surrendered income of Rs. 1.15 Crore to tax at the flat rate of 30% by invoking
the provision of Section 115BBE. In this respect, a detailed discussion at page
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No. 7 and para 7 of the A.O. is mentioned and penalty to this effect has also
been initiated, therefore, we are of the view that this issue has been examined
by A.O. and thus no proceedings U/s 263 could have been invoked.
7. Issue/Point No. 2: As per Ld. PCIT, during the year under consideration,
the assessee has obtained unsecured loans from 22 parties but creditworthiness
or none of them was verified by the A.O.
8. In this context, we have analysed the documents placed on record and as
per the ld. AR, during the course of proceedings, all the duly signed accounts
statements, bank accounts, ITR and interest account of respective parties
were duly furnished by the assessee and the same were also examined and
verified by the AO and on examination of the records, it was found by the
A.O. that there has not been any single amount of cash being deposited into
the accounts of cash creditors. As per the assessee, it has also been proved
that the money has come from the banking channel and the payers were
regular assessee of Income Tax. In this way, the onus of identity and
genuineness of cash creditors stand discharged by the assessee. It was
submitted that the A.O. was satisfied after examination of the records that
since there is no factum of cash being deposited immediately prior to the
issue of cheque in favour of assessee, therefore, the source of money also
stands established. Even otherwise, there was no obligation on the part of
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AO to inquire into the source of source of cash credit. After examining the
entre records and after hearing the parties, we have also found that AO after
having examined all the details had not drawn any adverse inference against
any loan creditors and did not follow a view ‘unsustainable in law’ and thus,
in our view, the assessment order was not the result of non-application of
mind or any inadequate enquiry, therefore, in these circumstances, the
invocation of jurisdiction U/s 263 was untenable and unsustainable in law.
The courts across the spectrum have unanimously held that the order of AO
can be brandished as ‘erroneous’ if it is unsustainable in the eyes of law. In
this regard, we draw strength from the decision of the Coordinate Bench of
Kolkata Tribunal in the case of Citystar Ganguly Projects Ltd. Vs PCIT
(ITAT Kolkata) in ITA No. 1103/Kol/2019 Date of order 31/10/2018
wherein it was held as under:
“We are also alive to clause (a) of Explanation (2) to Section 263 of the Act
inserted by Finance Act, 2015 w.e.f. 01.06.2015 which seeks to clarify that the
order passed by the lower authorities to be erroneous in so far as prejudicial to
the interest of the Revenue in the event of absence of inquiry which should
have been made. The aforesaid clause only provides for situation where
inquiries or verifications should be made by reasonable and prudent officer in
the context of the case. Such clause cannot be read to authorize or give
unfettered powers to the Commissioner to revise each and every assessment
order. The applicability of the clause is thus essentially contextual. As observed
in the preceding paras, the AO had made specific and detailed cross
verifications from the loan creditors and the information gathered from them,
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satisfied the three ingredients embedded in Section 68 of the Act. Apart from
making sweeping statements, which have been found to be factually
erroneous, no objective material has been brought on record by the ld. Pr. CIT
to implicate the assessee or the AO per se of being guilty of non-enquiry. We
further find that when confronted with the reasons set out in the SCN, the
assessee had led before the Ld. Pr. CIT sufficient documentary evidence which
proved that the SCN had proceeded on assumption of incorrect facts which
were not borne out from the assessment records. It was also established
before the ld. Pr. CIT that before completion of assessment, the AO had indeed
made enquiries from all the loan creditors u/s 133(6) and only after objective
consideration of the evidences furnished, order u/s 143(3) of the Act was
passed. On receipt of these objections, the Ld. Pr. CIT himself did not make
any effort to prove any factual or legal infirmity in the documents or
explanations furnished nor he was able to prove that any of the documents or
evidences were false so as to establish that the AO’s order was erroneous as
well as prejudicial to the Revenue’s interests because the view taken by him
was unsustainable in law. On the contrary, the Ld. Pr. CIT merely set aside the
assessment order directing AO to pass the order afresh in accordance with law
which in our opinion was nothing but giving the AO second innings without
establishing that the AO’s order was erroneous as well as prejudicial to the
interests of the Revenue. Our findings in this regard find support in the
following judgments:
DIT vs Jyoti Foundation reported in 357 ITR 388 (Del)
ITO vs DG Housing Projects Ltd reported in 343 ITR 329
CIT vs Ashish Rajpal reported in 320 ITR 674 (Del)
CIT vs Sunbeam Auto Ltd reported in 332 ITR 167 (Del) CIT vs R.K. Construction
Co. reported in 313 ITR 65 (Guj)
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For these reasons, we are of the considered view that the assessment order is
not the result of non-application of mind or any inadequate enquiry. We are
also of the considered opinion that while passing the assessment order the AO
did not follow a view which can be said to be ‘unsustainable in law’. In the
circumstances therefore, the jurisdictional facts for usurping the jurisdiction,
being absent, we hold that the action of Ld. Pr. CIT was without jurisdiction
and all subsequent actions are ‘null’ in the eyes of law.”
Therefore, considering the aforementioned facts on the issue under
consideration, the order passed by the ld. PCIT is bad in law.
9. As regards, issue/point No. 3: As per the PCIT, the assessee has
shown opening balance of loan as on 01.04.2015 from Virendra Agarwal HUF
at Rs. 17,13,420/- and on 14.12.2015 the assessee has again accepted loan
of Rs. 10,00,000/- from Virendra Agarwal HUF. Whereas the said Virendra
Agarwal HUF has shown income of Rs. 94,426/- only in its ITR. According to
ld. PCIT, the said Virendra Agarwal HUF did not charge any interest on this
loan from the assessee, therefore, the AO was directed to examine and
verify the creditworthiness of the creditor namely Virendra Agarwal HUF and
genuineness of transaction.
10. In this regard, after examining the documents placed on record and
hearing the parties, we found that the ITR, Confirmation, Bank Statement of
Sh. Virendra Agarwal HUF is available on record. As per ld. AR, the same was
duly examined and verified by the AO. However, from the perusal of bank
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statement, it is obvious that the immediate source of money given to the
asseesee as unsecured loan was the proceeds realized by Virendra Agarwal
HUF from the FDRs. Thus, in this way, the money received from FDRs
constituted the ‘source of unsecured loan’ given to the assessee but the Ld
PCIT doubted that the creditworthiness of the cash creditor in light of partly
return of income showing income of Rs.94,426. IN this regard, we also
noticed that it was not the present income but it was the accumulated
savings of the past years of the Virendra Agarwal HUF invested in the form of
FDR became the source to the assessee. The ITR of Shri Virendra Agarwal
(Individual) is also on record wherein an income of Rs. 31.50 Lacs has been
shown in his return of income. Therefore, in the light of the entire facts and
circumstances, the allegation that Mr. Virendra Agarwal was not having the
creditworthiness, is baseless and unfounded. Thus, in our view, the order passed
by the ld PCIT is bad in law.
11. Now coming to issue/point No. 4, the ld. PCIT has alleged that TDS has
not been deducted on the interest paid to the mentioned persons and without
obtaining Form No. 15G/H, the A.O. should have disallowed the claim of interest
expenses.
12. In this regard, after examining the documents placed on record as well as
hearing of the parties, we found that From 15G and 15H were submitted on
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28/04/2016 with the department. In this regard, the copy of the
acknowledgement has also been placed on record, thus in this way, there was
no liability to deduct TDS. Since, Form 15G/H are already available on record,
therefore, no disallowance was made by AO on account of Non deduction of
TDS. Apart from this, the Chartered Accountant in TAR has not pointed out
any disallowance u/s 40(a)(ia) of Income Tax Act on account of Non
deduction of TDS. Therefore, considering the totality of the facts, we are of
the view that the order passed by the ld. PCIT on this issue is bad in law.
13. Issue/point No. 5: Ld. PCIT noticed that the assessee had received a
total loan of Rs. 15 Lacs from one Smt. Rekha instead of Rs. 10 Lacs as
shown by him and apart from this, Smt Rekha Verma has filed her ITR for the
year under consideration showing income of Rs.2,68,662. In this regard, we
have gone through the documents placed on record and after hearing the
parties, we found that during the course of assessment proceedings, the ITR,
Computation, Bank Statement and confirmation of accounts of all cash
creditors including that of Smt. Rekha Verma were furnished. It is important
to mention that in the confirmation of accounts, both assessee as well as the
cash creditor put their respective signatures in token of having accepted the
veracity of the transactions. Further the bank statement of Rekha Verma also
highlighted the payment made by her to the assessee. The bank statements
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of the assessee are also on record and in case, any amount had been paid by
Rekha Verma then the same would be featuring in the bank statement of the
assessee. Accordingly, the Ld PCIT has gone wrong in assuming that the
transaction dated 14.05.2015 for Rs. 5 Lacs as that of the assessee. In this
regard, it was pointed out by the ld. AR that the aforesaid amount was
received by way of loan by the wife of the assessee Smt. Sunita Agarwal.
The reason behind the existence of Narration “TO YS AC RTGS” in both the
transaction involving the assessee and his wife is the fact that the assessee
is Prop of M/s Yash Trading Corporation and his wife is Prop of M/s Yogesh
Enterprises. The cash credits were received by both of them in the bank
account of their respective proprietorship concern. Therefore, the
nomenclature in the narration are same. Apart from this, from the Bank
statement it is obvious that the immediate source of unsecured loan of Rs. 10
lakhs to Rekha Verma was the money received by her from M/s Jaishree
Products on 09.05.2015 for Rs. 3 Lacs and on 11.05.2015 for Rs. 7 Lacs through
account payee cheques. Thus, in this way, the entire source of unsecured loans
of Rs. 10.00 lacs stands proved.
14. Since, the current income didn’t constitute the source of unsecured loan,
therefore, the comparison of current income with the amount of unsecured loan
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does not have any meaning and relevance. Thus, after considering the facts, we
are of the view that the order passed by the ld. PCIT is unsustainable.
15. After analyzing the totality of facts and circumstances and after evaluating
the documents placed on record and the order passed by the A.O., we are of the
view that A.O. had carried out all the necessary enquires and examined all the
issues and had formed a possible view. It is also settled law that where two
views are possible and the A.O. has taken one view, then in that eventuality, the
assessment order cannot be treated as erroneous. In this regard, we draw
strength from the decision of CIT Vs. Kwality Steel Suppliers Complex
(2017) 395 ITR 1 (SC) wherein it has been held that:
“Where two views are possible and the AO has taken one view, the assessment order
cannot be treated as erroneous or prejudicial to the interest of revenue. This is for the
reason that while exercising the revisionary jurisdiction, the CIT is not sitting in appeal.
In the instant case, the assessee firm was constituted with two partners viz., mother
and son. It stood dissolved by the operation of law in view of the death of one of the
partners, i.e. the mother but the business did not come to an end as the other partners,
viz., son who inherited the share of the mother continued with the business. In this
situation, there was no question of selling the assets of the firm including stock-in-
trade and therefore, it was not necessary to value stock-in-trade at market price. Thus,
the view taken by AO in accepting the book value of the stock-in-trade was a plausible
and permissible view and therefore, the CIT could not exercise his powers u/s 263.”
Even otherwise a bare perusal or bare reading of Section 263 of the Act, makes
it clear that the prerequisite for the exercise of jurisdiction by the Commissioner
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suo moto under it, is that the order of ITO/AO is erroneous in so far as it is
prejudicial to the interests of the revenue. The Commissioner has to be satisfied
or twin condition and in case if one of them is absent then recourse cannot be
had to Section 263 of the Act and thus in this way the provisions cannot be
invoked to correct each and every type of mistake or error committed by the
A.O.. It is only when an order is erroneous then the Section will be attracted.
Even the Coordinate bench of ITAT in the decision of Sir Dorabji Tata Trust
Vs DCIT(E) 188 ITD 38 had discussed and explained the nature and scope of
provisions of explanation 2(a) of Section 263 of the Act and held as under:
“19. The question that we also need to address is as to what is the nature of scope of
the provisions of Explanation 2(a) to Section 263 to the effect that an order is
deemed to be “erroneous and prejudicial to the interests of the revenue” when
Commissioner is of the view that “the order is passed without making inquiries or
verification which should have been made”.
20. Undoubtedly, the expression used in Explanation 2 to Section 263 is “when
Commissioner is of the view,” but that does not mean that the view so formed by
the Commissioner is not subject to any judicial scrutiny or that such a view being
formed is at the unfettered discretion of the Commissioner. The formation of his
view has to be in a reasonable manner, it must stand the test of judicial scrutiny,
and it must have, at its foundation, the inquiries, and verifications expected, in the
ordinary course of performance of duties, of a prudent, judicious and responsible
public servant- that an Assessing Officer is expected to be. If we are to proceed on
the basis, as is being urged by the learned Departmental Representative and as is
canvassed in the impugned order, that once Commissioner records his view that
the order is passed without making inquiries or verifications which should have
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been made, we cannot question such a view and we must uphold the validity of
revision order, for the recording of that view alone, it would result in a situation
that the Commissioner can de facto exercise unfettered powers to subject any
order to revision proceedings. To exercise such a revision power, if that
proposition is to be upheld, will mean that virtually any order can be subjected to
revision proceedings; all that will be necessary is the recording of the
Commissioner’s view that “the order is passed without making inquiries or
verification which should have been made”. Such an approach will be clearly
incongruous. The legal position is fairly well settled that when a public authority
has the power to do something in aid of enforcement of a right of a citizen, it is
imperative upon him to exercise such powers when circumstances so justify or
warrant. Even if the words used in the statute are prima facie enabling, the courts
will readily infer a duty to exercise a power which is invested in aid of enforcement
of a right–public or private–of a citizen. [L Hirday Narain v. ITO [1970] 78 ITR 26
(SC). As a corollary to this legal position, when a public authority has the powers
to do something against any person, such an authority cannot exercise that power
unless it is demonstrated that the circumstances so justify or warrant. In a
democratic welfare state, all the powers vested in the public authorities are for
the good of society. A fortiorari, neither can a public authority decline to exercise
the powers, to help anyone, when circumstances so justify or warrant, nor can a
public authority exercise the powers, to the detriment of anyone, unless
circumstances so justify or warrant. What essentially follows is that unless the
Assessing Officer does not conduct, at the stage of passing the order which is
subjected to revision proceedings, inquiries and verifications expected, in the
ordinary course of performance of duties, of a prudent, judicious and responsible
public servant- that an Assessing Officer is expected to be, Commissioner cannot
legitimately form the view that “the order is passed without making inquiries or
verification which should have been made”. The true test for finding out
whether Explanation 2(a) has been rightly invoked or not is, therefore, not simply
existence of the view, as professed by the Commissioner, about the lack of
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necessary inquiries and verifications, but an objective finding that the Assessing
Officer has not conducted, at the stage of passing the order which is subjected to
revision proceedings, inquiries and verifications expected, in the ordinary course of
performance of duties, of a prudent, judicious and responsible public servant that
the Assessing Officer is expected to be.
21. That brings us to our next question, and that is what a prudent, judicious, and
responsible Assessing Officer is to do in the course of his assessment proceedings.
Is he to doubt or test every proposition put forward by the assessee and
investigate all the claims made in the income tax return as deep as he can? The
answer has to be emphatically in negative because, if he is to do so, the line of
demarcation between scrutiny and investigation will get blurred, and, on a more
practical note, it will be practically impossible to complete all the assessments
allotted to him within no matter how liberal a time limit is framed. In scrutiny
assessment proceedings, all that is required to be done is to examine the income
tax return and claims made therein as to whether these are prima facie in
accordance with the law and where one has any reasons to doubt the correctness
of a claim made in the income tax return, probe into the matter deeper in detail.
He need not look at everything with suspicion and investigate each and every
claim made in the income tax return; a reasonable prima facie scrutiny of all the
claims will be in order, and then take a call, in the light of his expert knowledge
and experience, which areas, if at all any, required to be critically examined by a
thorough probe. While it is true that an Assessing Officer is not only an
adjudicator but also an investigator and he cannot remain passive in the face of a
return which is apparently in order but calls for further inquiry but, as observed by
Hon’ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99
ITR 375 “it is his duty to ascertain the truth of the facts stated in the return when
the circumstances of the case are such as to provoke an inquiry. (Emphasis, by
underlining, supplied by us). It is, therefore, obvious that when the circumstances
are not such as to provoke an inquiry, he need not put every proposition to the
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test and probe everything stated in the income tax return. In a way, his role in the
scrutiny assessment proceedings is somewhat akin to a conventional statutory
auditor in real-life situations. What Justice Lopes said, in the case of Re Kingston
Cotton Mills [(1896) 2 Ch 279,], in respect of the role of an auditor, would equally
apply in respect of the role of the Assessing Officer as well. His Lordship had said
that an auditor (read Assessing Officer in the present context) “is not bound to be
a detective, or, as was said, to approach his work with suspicion or with a
foregone conclusion that there is something wrong. He is a watch-dog, but not a
bloodhound.”. Of course, an Assessing Officer cannot remain passive on the facts
which, in his fair opinion, need to be probed further, but then an Assessing Officer,
unless he has specific reasons to do so after a look at the details, is not required to
prove to the hilt everything coming to his notice in the course of the assessment
proceedings. When the facts as emerging out of the scrutiny are apparently in
order, and no further inquiry is warranted in his bona fide opinion, he need not
conduct further inquiries just because it is lawful to make further inquiries in the
matter. A degree of reasonable faith in the assessee and not doubting everything
coming to the Assessing Officer’s notice in the assessment proceedings cannot be
said to be lacking bona fide, and as long as the path adopted by the Assessing
Officer is taken bona fide and he has adopted a course permissible in law, he
cannot be faulted- which is a sine qua non for invoking the powers under section
263. In the case of Malabar Industrial Co Ltd. v. CIT [2000] 109 Taxman 66/243 ITR
83, Hon’ble Supreme Court has held that “Every loss of revenue as a consequence
of an order of the Assessing Officer cannot be treated as prejudicial to the
interests of the revenue, for example, when an ITO adopted one of the courses
permissible in law and it has resulted in loss of revenue; or where two views are
possible and the ITO 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 ITO is unsustainable in law.” The test for
what is the least expected of a prudent, judicious and responsible Assessing
Officer in the normal course of his assessment work, or what constitutes a
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permissible course of action for the Assessing Officer, is not what he should have
done in the ideal circumstances, but what an Assessing Officer, in the course of his
performance of his duties as an Assessing Officer should, as a prudent, judicious or
reasonable public servant, reasonably do bona fide in a real-life situation. It is also
important to bear in mind the fact that lack of bona fides or unreasonableness in
conduct cannot be inferred on mere suspicion; there have to be some strong
indicators in direction, or there has to be a specific failure in doing what a
prudent, judicious and responsible officer would have done in the normal course of
his work in the similar circumstances. On a similar note, a co-ordinate bench of
the Tribunal, in the case of Narayan Tata Rane v. ITO [2016] 70 taxmann.com 227
(Mum.) has observed as follows:
“20. Clause (a) of Explanation states that an order shall be deemed to be
erroneous, if it has been passed without making enquiries or verification,
which should have been made. In our considered view, this provision shall
apply, if the order has been passed without making enquiries or verification
which a reasonable and prudent officer shall have carried out in such cases,
which means that the opinion formed by Ld. Pr. CIT cannot be taken as final
one, without scrutinising the nature of enquiry or verification carried out by
the AO vis-a-vis its reasonableness in the facts and circumstances of the case.
Hence, in our considered view, what is relevant for clause (a) of Explanation
2 to sec. 263 is whether the AO has passed the order after carrying our
enquiries or verification, which a reasonable and prudent officer would have
claimed out or not. It does not authorise or give unfettered powers to the Ld.
Pr. CIT to revise each and every order, if in his opinion, the same has been
passed without making enquiries or verification which should have been
made.”
22. Having said that, we may also add that while in a situation in which the necessary
inquiries are not conducted or necessary verifications are not done, Commissioner
may indeed have the powers to invoke his powers under section 263 but that it
does not necessarily follow that in all such cases the matters can be remitted back
to the assessment stage for such inquiries and verifications. There can be three
mutually exclusive situations with regard to exercise of powers under section 263,
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read with Explanation 2(a) thereto, with respect to lack of proper inquiries and
verifications. The first situation could be this. Even if necessary inquiries and
verifications are not made, the Commissioner can, based on the material before
him, in certain cases straight away come to a conclusion that an addition to
income, or disallowance from expenditure or some other adverse inference, is
warranted. In such a situation, there will be no point in sending the matter back to
the Assessing Officer for fresh inquiries or verification because an adverse
inference against the assessee can be legitimately drawn, based on material on
record, by the Commissioner. In exercise of his powers under section 263, the
Commissioner may as well direct the Assessing Officer that related addition to
income or disallowance from expenditure be made, or remedial measures are
taken. The second category of cases could be when the Commissioner finds that
necessary inquiries are not made or verifications not done, but, based on material
on record and in his considered view, even if the necessary inquiries were made or
necessary verifications were done, no addition to income or disallowance of
expenditure or any other adverse action would have been warranted. Clearly, in
such cases, no prejudice is caused to the legitimate interests of the revenue. No
interference will be, as such, justified in such a situation. That leaves us with the
third possibility, and that is when the Commissioner is satisfied that the necessary
inquiries are not made and necessary verifications are not done, and that, in the
absence of this exercise by the Assessing Officer, a conclusive finding is not
possible one way or the other. That is perhaps the situation in which, in our
humble understanding, the Commissioner, in the exercise of his powers under
section 263, can set aside an order, for lack of proper inquiry or verification, and
ask the Assessing Officer to conduct such inquiries or verifications afresh.”
Thus, while applying the principles laid down in the case of Sir Dorabji Tata
Trust Vs DCIT(E) (supra), it is evident that in the present case, the A.O. had
made all necessary enquiries and verifications as can be expected of a prudent,
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judicious and responsible A.O. in normal course of his assessment work. Even ld.
PCIT has not specified as to what type of enquiry ought to have been made by
the A.O. which would have resulted into income or disallowance or any other
adverse action, therefore, in such circumstances, the order passed by the A.O.
cannot be branded as erroneous and prejudicial to the interest of revenue,
therefore, we set aside and quash the order passed u/s 263 of the Act.
16. In the result, this appeal of the assessee is allowed.
Order pronounced in the open court on 07/10/2021.
Sd/- Sd/-
(VIKRAM SINGH YADAV) (SANDEEP GOSAIN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Jodhpur
Dated 07/10/2021
*Ranjan
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT (A)
5. The DR
6. Guard File
Assistant Registrar
Jodhpur Bench
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