TaxTMI 
TaxTMI 
2022 (4) TMI 901
X X X X Extracts X X X X
X X X X Extracts X X X X
....7 and thus asking further details was beyond the purview of the assessment, and (b) The notice u/s 263 of the I.T. Act, 1961 has been issued by him on the basis of suggestion made by the audit party without exercising his own discretion and judgment. 2. That without prejudice the ground no.(1) above, the ld. Pr. CIT, Jaipur-2 is further wrong and has erred in law in holding that the assessment order for A.Y. 2015-16 passed by the ld. AO u/s 143(3) of the I.T. Act, 1961 on 21.12.2017 is erroneous as well as prejudicial to the interest of revenue alleging that the AO has passed the assessment order without proper enquiries and verification of fresh unsecured loan shown in balance sheet and source of increase in capital. 3. That the ld. Pr. CIT, Jaipur-2 while holding assessment order passed by the ld. AO as aforesaid in ground No. (2) as erroneous as well as prejudicial to the interest of revenue has : (a) Wrongly held that genuineness of fresh unsecured loans aggregating to Rs. 2,59,25,611/- was not verified by the AO in as much as complete details in respect of these unsecured loans were submitted before the AO and (b) Wrongly held that verification of source of increase ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e furnished copy of capital account and personal bank statement of assessee for verification. Further addition in individual capital account M/s. Radha Govind Lashkari is self explanatory being only addition in capital account is profit of current year. Thus the addition in capital account is fully verifiable. The assessee also filed other details viz. copies of return of income, computation of total income, balance sheet and profit & loss account, details of addition made to the fixed assets along with copies of bills etc. The A.O. after being satisfied with the submissions and the evidences furnished by the assessee, accepted the returned income. Thereafter, the ld. Principal CIT-2 called for the assessment record and after examining the assessment record, opined that there is fresh inflow of unsecured loan of Rs. 2,59,25,611/- during the year and on which interest expenditure amounting to Rs. 39,94,965/- has been debited in the Profit & Loss account. Further, the ld. Pr.CIT observed that assessee has during the year added fresh capital amounting to Rs. 11,59,55,000/- source of which has not been verified by the AO. The ld. PCIT not being satisfied with the assessment order passe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....computer for Rs. 11,700/- and Refrigerator and AC for Rs. 38,800/- in proprietorship concern M/s Green Leaf for which no interest was incurred. Even no interest amount of Rs. 39,94,965/- was claimed under the head Business & Profession. The interest expenses of Rs. 39,94,965/- was claimed by the assessee u/s 57 of the I T Act, 1961 against the interest income shown under the head Income from other sources. It is submitted that said entire interest of Rs. 39,94,965/- was paid to family members as follows :- Radha Govind Lashkari HUF (Assessee is Karta in HUF) 23,76,792/- Sunita Devi Garg (Wife of assessee) 13,80,369/- Rimika Lashkari (Daughter of Assessee) 1,64,767/- Kratika Lashkari (Daughter of Assessee) 56,237/- Asha Devi Garg (Sister in Law of assessee) 16,800/- Total 39,94,965/- Out of said total interest expenses of Rs. 39,94,965/-, a sum of Rs. 37,57,161/- was paid to assessee's own HUF i.e. M/s Radha Govind Lashkari HUF and his wife Sunita Devi Garg. Confirmation letters of both the loan creditors along with their returns of income, balance sheets and Bank statements were filed before ld. CIT (A) and the same are placed at paper book at pages no. 27 to 54.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....beyond the purview of the assessment. The ld. A/R submitted that there is no dispute that the case of the assessee was picked up for scrutiny under the category of limited scrutiny. This fact is established from the assessment order and also the notice issued under section 143(2) of the Act. It is also not in dispute that the CBDT issued the instructions relied upon by the assessee and for the sake of convenience the extract of the relevant portions are reproduced hereunder : "CBDT Instruction No. 7/2014 The reason(s) for selection of cases under CASS are displayed to the Assessing Officer in AST application and notice u/s 143(2), after generation from AST, is issued to the taxpayer with the remark ".Selected under Computer Aided Scrutiny Selection (CASS)". The functionality in AST is being modified suitably to flag the reasons for scrutiny selection in AIR/CIB/26AS cases. This functionality is expected to be operationalized by 15th October, 2014. Further, the Assessing Officer while issuing notice under section 142(1) of the Act which is enclosed with the first questionnaire would proceed to verifyonly the specific aspects requiring examination/verification. In such cases, all....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te scrutiny case and the order sheet was maintained very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions." The above CBDT instructions and the letter clearly establish that it is not open for the Assessing Officer to travel beyond the reasons for selection of the matter for limited scrutiny and on this aspect the assessment order in this case is in accordance with the instructions governing the field. In such circumstances, the ld. PCIT is not justified in holding that the assessment order is erroneous insofar as it is prejudicial to the interest of the Revenue for the A.O not considering the aspects which are beyond the purview of limited scrutiny. 4.3. The ld. A/R further submitted that when the very basis of scrutiny of the case was on account of limited issues which have been replied by the assessee and considered by the AO, then it is not justified to hold that the AO has failed to make the inquiry, where the scope of inquiry is limited only to the extent of that issues. The position is still same and there is no change. It was a limited scrutiny assessment for the limited purpose or issue and on perusal of the entire record, it cannot be sai....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed scrutiny, revisional jurisdiction cannot be exercised for broadening scope of jurisdiction that was originally vested with A.O while framing assessment- As per PCIT, reason for which matter was selected for limited scrutiny i.e, mis-match of sales turnover vis-à-vis ITR, CIB & AIR has a direct bearing on opening and closing stock of cost of construction and W.I.P and in turn, on taxable income, therefore, AO was duty bound to examine these issues and AO having failed to examine these issues, AO has effectively failed to examine issues for which matter was selected for limited scrutiny-As far as matters for which case was selected for limited scrutiny in terms of mismatch of sales turnover, same has been duly examined by AO and even PCIT has not recorded any adverse findings in terms of lack of enquiry or inadequate enquiry on part of AO-Order passed by PCIT u/s 263 is set aside-Assessee's appeal allowed." The ld. A/R further submitted that the Chandigarh Bench of the Tribunal in the case of Paul Bharwaj vs. Pr.CIT in ITA No. 463/Chd/2019 May 13, 2021 (2021) 62 CCH 0120 (Chd Trib) held as under : Revision-Order erroneous or prejudicial to revenue-Over exercise of power-....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has exceeded jurisdiction u/s 263 by directing AO to make fresh assessment on issues which were not subject matter of assessment framed on basis of limited scrutiny-Assessee's appeal allowed. Thus in the present case the position are same and the principal of the above judgments are also applicable in the present case. Thus in the light of the facts and position the Pr. CIT cannot be said to be justified in holding that assessment order was passed without making inquiry or verification when firstly the case of reopened for the limited purpose secondary despite the same assessee has produced all the details which examined and deduction allowed. In this connection the ld. A/R also relied on the of following decisions : - A) In the Deccan Paper Mills Co. Ltd. vs. CIT in ITA 1013 AND 1635/PUN/2015, Pune Bench of the Tribunal held that - "40. Now, coming to the aspect of book profits which was considered by the Commissioner and the order of the Assessing Officer was held to be erroneous and prejudicial to the interest of revenue. In this regard, it may be pointed out that the case of assessee was picked up for scrutiny under CASS for the limited purpose of verifying the Chapter VI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al to the interest of the Revenue." Further in the notice issued u/s 263 did not specifically furnish any reasons to say why original order passed u/s 143(3) is erroneous sofaras prejudicial to the interest of revenue. In view of the above submissions, facts of the case, CBDT instructions and the decisions of various Benches of the Tribunal, the ld. A/R submitted that it is grossly wrong, unjustified and bad in law in holding that the view taken in the assessment order is erroneous insofar as it is prejudicial to the interest of the Revenue. 4.4. Without prejudice to the above submissions, the ld. A/R further submitted that it is evident and verifiable that A.O. made enquiries on the issues and assessee complied with the requirements and accordingly furnished the required details. Thus it is not a case where the A.O. made no enquiry or verification which should have been made. It is clear from the reading of notice u/s 263 of the IT Act, 1961 that the proceedings u/s 263 has been started on the same issue which have already been considered and examined by the then A.O. Thus the proceeding u/s 263 is a step to start again a second scrutiny/investigation of facts without there be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....issue, the assessment order passed by A.O. cannot be treated as an erroneous and prejudicial to the interest of revenue. In the case of CIT Vs. Vodafone Essar South Ltd. (2013) 2012 Taxman 184, Hon'ble Delhi High Court held that assessing officer before passing assessment order made an enquiry and directed his mind on all aspects. View adopted by him was clearly one among two plausible views that could have been taken. Commissioner did not specifically furnish any reasons to say why original order was unsupportable in law. Commissioner could not have validity exercised his revisionary power u/s 263 in instant case. 4.5. The order is not prejudicial to revenue as A.O. was correct in law and on the facts of the case. Thus the Ld. Pr. CIT is wrong in holding that A.O. did not make any enquiry or verification so as to invoke jurisdiction u/s 263. Even newly inserted Explanation 2 (a) to section 263 does not authorize or give unfettered powers to the Commissioner to revise each and every order, if in his opinion, same has been passed without making enquiries or verification which should have been made, since the Pr. CIT had not brought any material on record to substantiate his inf....
X X X X Extracts X X X X
X X X X Extracts X X X X
....), Malabar Industrial Co. Ltd. v/s PR. CIT 159 CTR(1)(SC), PR. CIT v/s Rayn Silk Mills 221 ITR 155(Guj.). Same view has been expressed in the case of Kamal Kumar Gupta v/s Pr. CIT 142 TTJ 9(Jp) wherein it has been held that "assessee was asked by the AO to file the details of trade creditors which are shown in the name of agriculturalist. In the reply, assessee filed written submission enclosing the list of creditors. Thus, the AO made the inquiry and it is not a case of lack of inquiry but can be case of insufficient enquiry. Pr. CIT was not justified in passing the order u/s 263." In the present case also the position is same and also followed in the case of Sh. Gyan Chand Jain v/s Pr. CIT 50 TW 109(Jp). 4.7. The ld. A/R submitted that there is no fix formula or limit or extent of Inquiry. Thus, here it is not the case of the Pr. CIT that no inquiry has been made by the AO on these issues. The AO has made the inquiry on the above issues although the very base of scrutiny of the case was limited issue. On perusal of the assessment order, assessee's reply and query of the AO shall reveal that the required details have been filed and explained to the AO. No one can read the mind of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Naran Vs Income Tax Officer [(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 warr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k 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 Vs ACIT [(1995) 99 ITR 375 (Del)], "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 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 ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essing Officer should, as a prudent, judicious or reasonable public servant, reasonably do bonafide in a real-life situation. It is also important to bear in mind the fact that lack of bonafides 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 coordinate bench of the Tribunal, in the case of Narayan T Rane vs 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. ClT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-a-vis its r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ove facts, legal position of law and circumstances of the case and material available on record, it cannot be said that the order of the AO is erroneous in so far as it is prejudicial to the interest of the Revenue. Thus he requested that there is no case made out for invoking Section 263 of I.T. Act, 1961 and the proceedings being wrong and bad in law, the same may kindly be quashed. 5. On the other hand, the ld. D/R has submitted that the ld. Principal Commissioner may call for and examine the records of any proceeding under the Act. For this purpose, he does not need to show any reason. It is a part of his administrative control to call for records and examine them. She further submitted that the ld. Principal Commissioner may consider that any order passed under the Act by the AO is erroneous in so far as it is prejudicial to the interests of the revenue. This consideration, having regard to the language of section 263, apparently is a consideration which he exercises by calling for and examining the records as indicated above. During this particular stage of consideration, there is no question of the assessee appearing or making any submission. If after calling for and examin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ection 263. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us. It is manifest from the record that the case of the assessee was taken up for limited scrutiny as per the notice issued under section 143(2) dated 20.09.2016, the relevant part of the said notice listing the issues identified for examination are as under :- " This is for your kind information that the return of income for Assessment Year 2015-16 filed vide ack. No. 750673821310815 on 31/08/2015 has been selected for Scrutiny. Following issues have been identified for examination :- i. Interest expenses ii. Increase in Capital 2. In view of the above, we would like to give you an opportunity to produce, or cause to be produced, any evidence which you feel is necessary in support of the said return of income on 26/09/2016 at 11:14 AM in the Office of the undersigned." Thus it is clear that the case was selected for limited scrutiny on the issue of Interest expenses and Increase in Capital. The AO also issued notice under section 142(1) dated 20.09.2016 along with a questionnaire. Thereafter upon change of incumbent of charges, notice u/s 142....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dded amounting to Rs. 11,59,55,000/- during the year has not been proved. Thus the ground for initiating the proceedings under section 263 by the ld. PCIT is that in his view the assessment order passed under section 143(3) of the IT. Act, 1961 on 21.12.2017 is erroneous in so far as it is prejudicial to the interest of the revenue. As apparent from the show cause notice that the scope of proceedings under section 263 was limited only on the issue of allowability of interest expenses out of business income and veracity of capital added amounting to Rs. 11,59,55,000/- during the year as apparent from the documentary evidence available on record and as well as the assessment order that the above said issues were duly examined by the AO and after applying his mind and taking a reasonable and possible view he was satisfied about the limited scrutiny issues raised in the show cause notice. Further, there was no allegation by the ld. PCIT about no enquiry on the part of the AO while passing the assessment order. Even otherwise, it is clear from the show cause notice issued that the case was selected for limited scrutiny only on the issue of Interest expenses and Increase in Capital. Ther....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sessee and accepted the source of addition made to the capital. Further, though the ld. PCIT has not alleged that there is inadequate enquiry on the part of the AO, however, even in case there is inadequate enquiry on the part of the AO, the ld. PCIT can give a concluding finding while passing the revision order after considering the complete record as well as conducting a necessary enquiry. In this case the assessee has contended before the ld. Pr. CIT vide letter dated 22.03.2021 at pages 71-72 of the paper book as under :- " In this connection it is submitted that as evident and verifiable from the profit & loss account and balance sheet of both the proprietorship concerns available on assessment record that there was no WIP/substantial addition to the fixed assets during the year under assessment. The assessee in his written submission filed during the course of assessment proceedings that the only additions to fixed assets during the year under consideration was of purchase of computer for Rs. 11700/- and Refrigerator and AC for Rs. 38800/- in proprietorship concern M/s. Green Leaf for which no interest was paid. Further no interest expenses of Rs. 39,94,965/- has been claim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....proprietorship concern M/s. Green Leaf the assessee produced and filed copy of his saving bank account for verification of amount transferred from his SB A/c to proprietary concern. Thus source of investment was not from outside but the transferred from one pocket to another pocket of same persons and the said facts have duly been verified by the ld. AO during the course of assessment proceedings. Thus this observation is also factually not correct. The assessee further submitted before the ld. Pr.CIT that the AO could not have travelled beyond inquiry into the increase in capital and interest expenses in view of the CBDT Instruction No. 7/2014, 20/2015 and 5/2016 and also the CBDT letter dated 30th November, 2017, and thus asking further details was beyond the purview of the assessment. The assessee has cited various decisions in support of his claim viz. CIT vs. Trustees Anupam Charitable Trust (1987) 167 ITR 129 (Raj.), CIT vs. Godawari Sugar Mills Ltd. (1993) 203 ITR 108 (Bom.), CIT vs. Shakti Charities (2000) 160 CTR 107 (Mad.), Deccan Paper Mills Co. Ltd. vs. CIT in ITA No. 1013 & 1635/Pun/2015 (Pune Bench), M/s. R.H. Property vs. PCIT in ITA No. 1906/Mum/2019 (Mumbai) and S....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act, 1961 by the ld. Pr.CIT. 7. On merits of the case, it is argued by the ld. A/R that the issue of loan creditors was not mentioned in limited scrutiny notice. However, it is submitted by the ld. A/R that during the course of proceedings under section 263 assessee filed confirmations of the family members along with copies of IT Returns and bank accounts explaining the addition made in their old loan accounts. It is also submitted by the ld. A/R that the loans were of the family members and not of outsiders. The ld. A.R also submitted that it is evident and verifiable from the order passed under section 263 by the ld. Pr.CIT that no adverse/defect and/or deficiency was pointed out by the ld. Pr. CIT regarding the said documents filed before him in his impugned order passed under section 263. Regarding the addition to capital account amounting to Rs. 11,59,55,000/-. It is further submitted by the ld. A/R that the said capital was transferred from his personal bank account, and a copy of bank account explaining the nature and source of credit which were either withdrawal from the partnership firm's capital account or realization from debtors. The said copy of bank account along w....