TaxTMI 
TaxTMI 
2023 (8) TMI 1255
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....that the assessment-order passed by AO is erroneous in so far it is prejudicial to the interest of revenue which attracts revisionary-jurisdiction u/s 263. Accordingly, Ld. PCIT issued show-cause notice dated 12.03.2022 wherein he observed that the assessee has claimed deduction of interest expenditure of Rs. 28,43,841/- to M/s Neena Motors and received interest income of Rs. 21,21,720/- from M/s Prince Motors (a partnership firm where assessee is 50% partner). He further observed that during assessment-proceeding before AO, the assessee has submitted a revised computation of total income and claimed deduction of interest expenditure of Rs. 28,43,841/- against interest income of Rs. 21,21,270/- chargeable under the head "Income from Business" but the same was not allowable since the assessee had taken loan in personal capacity and not for business. The PCIT noted that the AO has not verified this point and passed assessment-order. 4. By the aforesaid show-cause notice, the assessee was asked to explain as to why the assessment-order may not be revised. In response, the assessee filed a detailed reply which is re-produced in Para No. 3 of revision-order. But the Ld. PCIT was not sa....
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....tted that during assessment-proceeding, the AO has made sufficient queries to assessee and the assessee has also filed submissions qua the issue raised by Ld. PCIT which is very much evident from followings: (i) The AO raised specific query to assessee vide notice dated 19.06.2019 u/s 142(1) (Page No. 36-38 of Paper-Book) as under: "7. Please give the justification of claim of section 57 made by you. Please show cause why the proportionate interest should not be disallowed for diversion of interest-bearing funds for non-business purposes" The assessee filed reply dated 16.05.2019 (Page No. 51 to 64) giving details of loan taken from M/s Neena Motors and investment made in M/s Prince Motors. The assessee also explained that interest expenditure paid to M/s Neena Motors had been claimed under the head "Income from Other Source" and the interest income from M/s Prince Motors has been shown under the head "Income from Business". The assessee also filed computation of total income, Balance-Sheet and copies of Ledger A/cs. (ii) The AO issued notice dated 06.11.2019 u/s 142(1) (Page No. 42-43 of Paper-Book) raising following query: "1. In connection with the reply dated 16.05.20....
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....42(1) dated 06.11.2019, 18.11.2019 & 26.11.2019 were also issued for necessary compliance. In response to the above notices, the assessee vide reply dated 17.05.2019, 11.11.2019, 13.11.2019, 26.11.2019, 27.11.2019 and 05.12.2019, has furnished the details as per the questionnaire issued. The detail furnished are verified. Considering the details filed, the return income is accepted." 11. Clearly therefore, Ld. AR contended, the assessee had filed all details / documents during the course of assessment. Therefore, this is not a case of "no enquiry" as understood by Ld. PCIT. Still Ld. PCIT has conducted revision only because the AO has not discussed the impugned issue specifically in assessment-order. Ld. AR submitted that the order passed by PCIT is contrary to the record of proceeding and therefore not in accordance with the law of section 263, hence the same should be quashed. 12. Per contra, Ld. DR supported the revision-order. He submitted that mere raising queries before assessee and keeping response of assessee in the departmental file cannot be treated as conduct of enquiries by AO. According to Ld. DR, had the AO analysed the replies of assessee, he would have certainly....
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....ng the explanation. As for learned PCIT's observations regarding accepting the explanation "without appropriate evidence", there is nothing to question the bonafides of the Assessing Officer or to elaborate as to what should have been 'appropriate' evidence. The fact remains that the specific issue raised, in the revision order was specifically looked into, detailed submissions were made and these submissions were duly accepted by the Assessing Officer. Merely because the Assessing Officer did not write specific reasons for accepting the explanation of the assessee cannot be reason enough to invoke powers under section 263, and non-mentioning of these reasons do not render the assessment order "erroneous and prejudicial to the interest of the revenue". [Emphasis supplied] 14. Regarding introduction of Explanation 2 to section 263, as claimed by Ld. PCIT in his order, we only need to submit that the said Explanation does not give unfettered power to the PCIT to assume revisional-jurisdiction to revise every order of the Assessing Officer to re-examine the issues already examined during assessment-proceeding. It is judicially interpreted in several decisions that the in....
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....icial to the interest of the Revenue. Thus, requiring revision by Pr. CIT u/s 263 of the Act. 7.1 An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer's prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various Hon'ble High Courts in this regard. 7.2 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon'ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. The relevant observation of Hon'ble De....
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.... that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of 'lack of inquiry'." 7.3 The Hon'ble Bombay High Court in case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the following manner: "The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction....
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....ng addition to assessee's income under section 69A in respect of on-money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revised order under section 263 on ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed by Commissioner. The Hon'ble High Court upheld Tribunal's order. The Hon'ble Supreme Court while dismissing the SLP filed by the Department held as under:- "We have heard learned counsel for the Revenue and perused the documents on record....
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....application of mind. 7.8 Now in the facts before us, in the case of the assessee the AO during the course of assessment proceedings, made enquiries on this issue and after consideration of written submissions filed by the assessee and documents / evidence placed on record, framed the assessment under section 143(3) of the Act without making the addition of the amount as note above. This fact can be verified from the notice under section 142(1) of the Act by the AO and submission in reply of the assessee against such notice. XXX 7.9 From the above it is revealed that it is not the case that the AO has not made any enquiry. Indeed the Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of cash deposited during the demonization period. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the AO had made enquiries and after consideration of materials placed on record accepted the genuineness of the claim of the assessee. 7.10 At this juncture, it is als....