TaxTMI 
TaxTMI 
2023 (11) TMI 937
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....ries were not made to ascertain the genuineness and credit worthiness of the loan creditor (M/s Nikita Multitrade Pvt. Ltd) in respect of unsecured loan undertaken by the Assessee in the Assessment Year 2015-16. 4. The Ld. PCIT has erred in ignoring the records of the assessment proceedings while passing the impugned order. It is submitted that in case the authority had perused the records of the assessment proceeding, it would have considered the merit in Appellant's submission that detailed enquiry and investigation was made by the LD AO qua unsecured loan taken from M/s Nikita Multitrade Pvt. Ltd. 5. The Learned PCIT has erred in concluding that the assessment order passed by the AO is prejudicial to the interest of the revenue and is erroneous in the nature. 6. That the impugned order is contrary to the extant judicial position wherein it has been settled that the revisionary power by the LD PCIT/ CIT can be held to be correct only if the LD CIT examines and verifies the transactions under question by himself and arrives at a finding on merits that the concerned order erroneous and prejudicial to the interest of revenue. However, in the instant ca....
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....this ground alone." 2. The assessee has also raised additional grounds vide application dated 10.10.2023 filed under Rule, 11 of ITAT, Rules 1963 as under: "1.A. Whether on the facts and circumstances of the case the Ld. PCIT in justified in holding that the Assessment order passed by the Ld. AO is erroneous or prejudicial to the interest of revenue in respect to issue i.e. Verification of unsecured loan which was not a reason for selection of the case for limited scrutiny under CASS"? B. Whether PCIT was justified in passing the Order u/s 263 of the Act on the issue which was not covered under limited scrutiny under CASS?" 3. We have heard the Ld. Sr. Counsel of the assessee as well as Ld. DR on the admission of addition grounds. It was contended by the Ld. Sr. counsel that the additional grounds raised by the assessee are arising from the impugned order and the issue is purely legal and therefore, the same may be admitted for adjudication on merits. He has relied upon the judgment of Hon'ble Supreme Court in case of NTPC vs. CIT 229 ITR 383 SC. He has further pointed out that these additional grounds are only in support of ground no.1 already raised by the....
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....terest was dropped by the Pr. CIT and the impugned order was passed only on the issue of failure on the part of the AO to examine and verified the identity and genuineness of the unsecured loans. Since this issue was not part of the limited scrutiny therefore, the Pr. CIT had no jurisdiction to invoke the provisions of section 263 to hold the order of the AO is erroneous for want of proper inquiry on this issue. He has relied upon the decision of this tribunal dated 28.07.2023 in case of Parth Developers Manawar Dist. Dhar vs. Pr. CIT in ITANo.419/Ind/2022 and submitted that this tribunal has decided an identical issue by holding that when an issue was not subject matter of limited scrutiny taken up through CASS then the AO is not supposed to go beyond the subject matter of scrutiny while passing assessment order without converting the limited scrutiny into complete scrutiny. Ld. Sr. Counsel has thus submitted that by considering this fact the Tribunal has held that in case the AO proceeded within the scope of limited scrutiny the same cannot be held to be erroneous for lack of enquiry. The Tribunal has referred the CBDT, instruction no.5 of 2016 dated 14.07.2016 wherein it has bee....
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....enuineness of the transactions of unsecured loan shown by the assessee. Therefore, on the face of the assessment order it is clear that the AO has passed the impugned order without conducting proper inquiry on the issues which were prominent and apparent on record. The primiary onus is on the assessee to establish the identity and creditworthiness of the creditors and genuineness of the transactions. The AO ought to have called supporting documents and details for verification and examination of the identity, creditworthiness of the creditors and genuineness of the transactions. The assessee has shown a huge amount of unsecured loan and Pr. CIT has prima facie noted that the loan creditor M/s Nikita Multi Trade Pvt. Ltd. is not engaged in any substantial business activity. Therefore, it was incumbent upon the AO to conduct the necessary inquiry as required u/s 68 of the Act. Failure of the AO to conduct necessary and proper inquiry renders the order passed by the AO as erroneous so far as prejudicial to the interest of the revenue. He has relied upon the explanation (2) to section 263(1) of the Act. He has relied upon the impugned order of the Pr. CIT. 5. We have considered the ....
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....nsecured loan shown by the assessee was not subject matter of the limited scrutiny undertaken by the AO through CASS. The Hon'ble Calcutta High Court in case of Pr. CIT vs. Naga Dhunseri Group Ltd. (supra) while considering an identical issue has held in para 5 to 9 as under: "5. If that is the undisputed factual position, we find the reasoning given by the learned Tribunal is fully justified. That apart, the learned Tribunal has rightly pointed out that the CBDT has issued instructions as to the manner in which the limited scrutiny should be carried out. In CBDT Instruction No. 7 of 2014, dated 26th September, 2014, the relevant portion of the said Instruction reads as follows:- "3. 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 operationalised by 15th October, 2014. Further, the Assessing Officer while i....
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....here is no such averment by the Pr. CIT. Even assuming such averment is there, the order of revision would be unsustainable insofar as the issue raised by Pr. CIT is in no way connected to the issues that have been raised in the limited scrutiny assessment. Thus, the decision in the case of Sri Sushanta Kumar Choudhury (supra) is clearly distinguishable. Therefore, the prayer of the ld. CIT DR that the matter be referred to Larger Bench also does not survive insofar as the facts of the present case and in the said decision in the case of Sri Sushanta Kumar Choudhury (supra) is fully distinguishable." 9. Indeed, the Court finds that the Madras High Court has while affirming the decision of the ITAT in Smt. Padmavathi (supra) taken the view that while exercising suo motu revisional power under section 263 of the Act, the CIT cannot travel beyond the scope of the issues which form part of the 'limited scrutiny' in the original Assessment Order. This Court concurs with the above view. 10. What persuades this Court to reach this conclusion is the requirement in law that if the AO has to go beyond the scope of the issues for which 'limited scrutiny' has ....
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....ved by the Central Board of Direct Taxes; instruction dated 29.12.2015 and various other circular issued in this behalf. Since the assessee's case was selected for limited scrutiny on certain issues and Ld. AO has examined these issues and framed the assessments and the issue of examination of payment to contractors was not a part of the limited scrutiny reasons, in our considered view, Ld. Pr. CIT erred in assuming jurisdiction u/s 263 of the Act and also erred in holding that assessment order is erroneous and prejudicial to the interest of revenue. 9. We find that our view is supported by the decision of Coordinate Bench Delhi in the case of Rakesh Kumar vs. CIT ITANo.6187/Del/2015 dated 20.12.2018 which has adjudicated the similar issue observing as follows: On the 2nd Issue the learned CIT has held that the AO has failed to verify the cash payment made for purchase of goods which are not in conformity with the provisions of section 40A (3) of the income tax act. It is apparent from the audit objection filed before us at page number 30 of the paper book that the case of the assessee was selected for the scrutiny to verify only the cash deposit in the bank accou....
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....nt order as erroneous and prejudicial to the interest of revenue in respect of issue which was not a reason for selection of the case for limited scrutiny. Similar view also taken in the following decision: (i) The Deccan Paper Mills Co. Ltd. v. CIT [1013 & 1035/Pun/2014 - order dated 10.10.2017], ITAT Pune Benches. (ii) M/s.Aggarwal Promoters v. Pr.CIT [1708/Chd/2017 - order dated 16.04.2019] ITA Chandigarh Benches. (iii) Sanjeev Kr. Khemka v. Pr.CIT [1361/Kol/2016 - order dated 02.06.2017] ITAT Kolkata Benches. (iv) M/s. R & H Property Developer Pvt.Ltd. v. Pr.CIT [1906/Mum/2019 - order dated 30.07.2019] ITAT Mumbai Benches. (v) Mrs.Sonali Hemant Bhavsar v. Pr.CIT [742/Mum/2019 - order dated 17.05.2019] ITAT Mumbai Benches. 11. We, therefore, respectfully following the judicial precedents and the finding of Coordinate Bench Delhi in the case of Rakesh Kumar (supra) hold that Ld. Pr. CIT erred in assuming revisionary powers u/s 263 of the Act. The impugned order of Ld. Pr. CIT is quashed. Thus in our considered view assessment order dated 11.09.2017 u/s 143(3) of the Act is neither erroneous nor prejudicial to the interest of r....
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.... complying with mandatory requirements of the relevant CBDT Instructions dated 26.09.2014, 29.12.2015 and 14.07.2016. These instances have been viewed very seriously by the CBDT and in one case the Central Inspection Team of the CBDT was tasked with examination of assessment records on receipt of allegations of several irregularities. Amongst other irregularities, it was found that no reasons had been recorded for expanding the scope of limited scrutiny, no approval was taken from the PCIT for conversion of the limited scrutiny case to a complete scrutiny case and the order sheet was maintained very perfunctorily. This gave rise to a very strong suspicion of mala fide intentions. The Officer concerned has been placed under suspension. 4. In view of discussion in the preceding paragraphs it is once again reiterated that the Assessing Officers should abide by the instructions of CBDT white completing limited scrutiny assessments and should be scrupulous about maintenance of note sheets in assessment folders." 17. Thus, it is not open to the AO take up any issue which is not subject matter of the limited scrutiny until and unless the limited scrutiny is controverted ....
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....t in case of Investment Ltd. (supra), where their Lordships have heldy that "assessee is free to employ for the purpose of his trade, his own method of keeping accounts, and for they purpose to value his stock-in- trade either at cost or at market price. A method of accounting adopted by the trader consistently and regularly cannot be discarded by departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation. The method of accounting regularly employed may be discarded only, if, in the opinion of taxing authorities, income of the trade cannot be property deduced there from (as per provisions of 1922 Act in force at that time, presently only if case falls in sub section (3) of section 145). 30. Further in another judgment of Hon'ble Supreme Court in the case of Krishnaswami Mudaliar (supra), their Lordship's of Apex court while dealing provisions of section 13 of 1922 Act (the provisions of which are in parimateria of section 145 of 1961 Act) have held as under "Section 13 of 1922 Act merely prescribes that the computation of taxable profits shall be made according to the method of accounting regularly employ....
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....in the AO is permitted to intervene, in case it is found that true income profits and gains cannot be arrived at by the method employed by assessee. Their Lordship's further held that the position of law is further well settled that regular method adopted by assessee cannot be rejected merely because it gives benefit to assessee in certain years. 32. Examining the facts of instant appeal we in light of above judgments we find that the method of accounting along with following project completion method for treatment of advances received from proposed buyers the assessee has been consistently followed this method and appellant's assessment has been completed by the Ld AO for first two years Viz, AYS, 2010-11 & 2011-12, In both these years also the appellant has credited the advance received against proposed sales of flats to a separate account and shown as a liability in balance sheet At this stage it may be relevant to mention that in those years also the appellant has credited the advance Freceived against proposed sale of flats to the Advance against sale of Flat Aler and not treated the same a income for said years on the basis that revenue in respect of sale of ....
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.... similar issue observed as follows; "On the Revenue's appeal, the Tribunal confirmed the view of the Commissioner of Income Tax (Appeals), however, on slightly different ground, namely, that the assessee being a developer of the project, profit in his case, will arise on transfer of title of the property and receipt of any advances or booking amount cannot be treated as trading receipt of the year under consideration. The Tribunal further noted that such method of accounting followed by the assessee had been accepted by the Revenue in earlier years. The Tribunal was, therefore, of the opinion that the Assessing Officer's decision to reject the book results during the year under consideration was not justified. We are of the opinion that the Tribunal committed no error. If as per the accounting standard available, the assessee was entitled to claim the entire income on completion of the project and if such accounting standard was accepted by the Revenue in the earlier years, in the present year, the Assessing Officer could not have taken a different sand and that too, without hearing the assessee". Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/201....
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.... of Rs. 1,66,70,811 are directed to be deleted". 36. Further the co-ordinate Bench of Ahmedabad Tribunal in the case of Vraj Developers passed in ITA No.19/AHD/2008 which attained finality as it is not challenged by the department before the high forum observed as follows; "The learned Departmental representative supported the order of the learned Assessing Officer and the learned authorized representative of the assessee supported the order of the learned Commissioner of Income-tax (Appeals) and also placed reliance on the Bangalore Bench of the Tribunal in the case of Nandi Housing P. Ltd v. Deputy CIT (2003) 80 TTJ (Bang) 750, wherein the Tribunal followed the decision of the Karnataka High Curt in the case of Khoday Distillers Ltd, in ITRC Nos. 19mto 21 of 1993. This, it is observed that the issue which requires our adjudication is that the income in the instant case is to be computed as per system of accounting followed by the assessee or as per accounting followed by the assessee or as per accounting standard AS7 for the purpose of charging of income tax. We find that the issue is to be decided in accordance with the provisions of section 145 of the Act show....
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....rmissible and accepted by ICAI and the Central Board of Direct Taxes with respect to construction work, it cannot be said that the learned Appellate Tribunal has committed any error/ or Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 &686/Ind/2016 illegality, which call for the interference of this court. We see no reason to see to interfere with the impugned judgment and order passed by the learned Commissioner of Income tax (Appeals) deleting the addition of Rs. 1,66,70,881 which was made by the Assessing Officer on rejecting the accounting system on percentage completion method followed by the assessee. No question of law much less any substantial question of law arise in the present appeal. Hence, the present appeal deserves to be dismissed and is accordingly dismissed." 37. We further find the co-ordinate bench of Mumbai in the case of Prem Enterprises V Income Tax Officer (2012) 25 taxmann.com 179 (Mum.) deal with the similar issue wherein the assessee was constructing a project and was consistently following project completion method and the assessing officer rejected the method of project completion adopted by the assessee on observing that 8% of the total proj....
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....ointed out. In the case of CIT vs. Bilahari Investment (P) Ltd (2008) 299 ITR 1 SC, the Apex Court held that the completion contract method adopted by the assessee for chit discount consistently over the years, is not required to be substituted by percentage completion method. In CIT v Manish Buildwell (P) Ltd (2011) 245 CTR 397 (Del), it was enunciated that project completion method is one of the recognized methods of accounting. That Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 &686/Ind/2016 it cannot be said that the project completion method followed by the assessee would result in deferment of payment of taxes. Therefore, considering the discussion above, I do not find any merit on the part of the AO to have worked out the income by applying the percentage completion method". The Tribunal affirmed the order of the CIT(A). It was concluded that project completion method and percentage completion method are accepted standards of accounting and the assessee has option to adopt any one of them. The relevant findings recorded by the Tribunal read thus:- "We have heard the rival contentions and perused the record. The issue arising in the present ap....
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.... the method of accounting adopted by the assessee and thus, there is no reason to reject the same. The Hon'ble Delhi High Court in CIT v Manish Buildwell (P) Ltd (supra) had held that "It is well settled that the project completion method is one of the recognized methods of accounting. It cannot be said that the projection completion method followed y the assessee would result in deferment of the payment of the taxes which are to be assessed annually under the IT Act. AS-7 issued by the ICAI also recognizes the position that in the case of construction contracts, the assessee can follow either the project completion method or the percentage completion method." Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 &686/Ind/2016 Where the assessee was following a particular method of accounting consistently, which has been accepted by the department from year to year and in the absence of any defect being pointed out by the Assessing Officer that by following such method, income had escaped assessment, we find no merit in the order of the Assessing Officer in holding that percentage completion method should be applied to the assessee for the year under considerati....
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....on method". 39. This view was reiterated by the Supreme Court in CIT v. Bilahari Investment (P) Ltd. (2008) 299 ITR 1/168 Taxman 95 with the following observations: "Recognition/identification of income under the 1961 Act is attainable by several methods of accounting. It may be noted that the same result could be attained by any one of the accounting methods. The completed contract method is one such method. Similarly, the proceedings of completion method is another such method. Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 &686/Ind/2016 Under the completed contract method, the revenue is not recognized until the contract is complete. Under the said method, costs are accumulated during the course of the contract. The profit and loss is established in the last accounting period and transferred to the profit and loss account. The said method determines results only when the contract is completed. This method leads to objective assessment of the results of the contract. The On the other hand, the percentage of completion method tries to attain periodic recognition of income in order to reflect current performance. The amount of revenue recogn....
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....wner of land and he was entitled to 32% of saleable area only on completion of construction and the deadline of which was 60 Ashoka Hi-Tech Builders Pvt.Ltd ITA No.121/Ind/2016 &686/Ind/2016 months from the date of agreement i.e. from 1.4.2009. The Ld.A.O also ignored the fact that right to sale its share of constructed area with the assessee was only from April, 2014 onwards and the assessee has offered the revenue for taxation from F.Y 2014-15 onwards as and when the sale deed has been registered. As held by various courts as discussed above that the method of adopting project completion method is not ultra virus and the assessee is free to adopt either the percentage completion method or project completion method with the only rider that it should be consistently adopted and in case of any deviation the effect of profit or loss should be offered to tax as the case may be. Revenue has not disputed this fact that assessee has offered the impugned advances to tax in the subsequent years i.e. from financial year 2014-15 based on sale deed registered which proves that there has been no loss to the revenue. Mere postponement of tax as a result of method employed by assessee has not be....
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.... assessment year 2014-15 the assessment of the lender company was completed u/s 143(3) by DCIT, Central Circle, Bhopal. Thus, the Ld. Sr. Counsel has submitted that M/s Nikita Multi Trade Pvt. Ltd. is being assessed by the same AO who has passed the order in case of the assessee. He has thus submitted that identity and creditworthiness of the creditors cannot be doubted when the creditor was also subjected to scrutiny assessment for A.Y.2008-09 to 2014-15 by the same AO and there was no question raised by the AO regarding the loan given by the M/s Nikita Multi Trade Pvt. Ltd. to the assessee. The assessee produced all the supporting documents including the Tally books of account of the loan creditors, assessments orders passed u/s 143(3) as well as block assessments, bank account statements to prove the creditworthiness and genuineness of the transactions. Even in the reply to show cause notice u/s 263 the assessee explained all these facts and also produced relevant records before the Pr. CIT. However, the Pr. CIT without conducting any inquiry or verifying the record has set aside the order of the AO for fresh assessment on this issue which is contrary to the law and the jurisdic....
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....equently only one issue was the subject matter of the impugned order passed u/s 263 of the Act. The Pr. CIT has given the reasons for invoking the provisions of section 263 in respect of the said issue as under: "Further it was also noticed from the Audit report of the assessee that the assessee had claimed to have taken unsecured loan of Rs. 3,86,98,893/- from M/s Nikita Multi Trade Pvt. Ltd. It is settled legal position that to verify the unsecured loan one has to establish the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor, the onus of which is on the assessee. The AO could have called for the supporting documents for verification of the lender and his creditworthiness and the genuineness of the transactions involved. In view of the aforesaid, proceedings u/s 263 of the Income Tax Act, 1961 were initiated. Accordingly, the assessee was given an opportunity of being heard vide this office letter bearing DIN ITBA/COME/17/2020-21/1031564309(1) dated 17/03/2021 sent via speed post and sent on registered e-mail." 8.1 Thus, the Pr. CIT has observed that the AO could have called for supporting documents for ver....
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....tiny assessment for A.Y.2014-15 vide order dated 16.09.2016 wherein the AO has made disallowance on account of depreciation. Similarly for the assessment years 2009-10 to 2013-14 there was a block assessment in case of M/s Nikita Multi Trade Pvt. Ltd. which was also subject matter before the Pr. CIT and the disallowance made by the AO on account of depreciation was deleted. Therefore, the assessee as well as M/s. Nikita Multi Trade Pvt. Ltd. have been assessed by the same AO and hence the identity and financial statements of M/s Nikita Multi Trade Pvt. Ltd. cannot be doubted being subjected to scrutiny assessment. From the balance sheet of M/s Nikita Multi Trade Pvt. Ltd. it is manifest that the said company was having sufficient funds in the reserves and surplus of more than Rs. 50 crore to lend the money of Rs. 3.8 crores to the assessee. The transactions of the loan is duly reflected in the bank account of the assessee as well as bank account of M/s. Nikita Multi Trade Pvt. Ltd. which shows that there was no prior deposit of any cash in the bank account of the said lender company. Therefore, there is nothing on record to doubt the genuineness of the transactions. All these recor....
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....of inquiry then it is essential on the part of the Pr. CIT to give conclusive finding that order passed by the AO is not sustainable either it is contrary to the facts or to the law. The Hon'ble Allahabad High Court in case of Meerut Roller Flour Mills (P.) Ltd. vs. CIT(supra) while considering the jurisdiction of the Pr. CIT u/s 263 of the Act as held in para 13 to 22 as under: "13. We have heard counsel for the parties and perused the material on record. 14. As it is undisputed, that Assessing Officer after the case was selected for scrutiny had issued notice under Section 143(2) of the Act and also notice under Section 142(1) with 28 queries to the assessee, which was replied by him along with the documentary evidence, and the Assessing Officer being satisfied passed the order under Section 143(3) of the Act on 15.12.2009. The CIT while exercising power under Section 263 of the Act, partially accepted the reply submitted by the assessee as regards the investment in share capital holding that the outstanding unsecured loans of six persons to be adjusted against the share application money account, but as regards the unsecured loans and creditors, it directed the....
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....involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the Order passed by the ITO, which might set a bad trend or pattern for similar assessments, which on abroad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration". In our view, this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the ITO, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. 9. The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of 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 ....
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.... 16. Similarly, this Court in case of Anand Kumar Jain (supra) while interpreting the language of Section 263 had held that where the Assessing Officer passes an order without application of mind or an incorrect statement of fact or incorrect application of law, then the order so passed would be erroneous. But in the present case, Assessing Officer after issuing notice and raising certain queries to the assessee passed the assessment order which cannot be called as erroneous. 17. Reliance has also been placed on the judgment of Swarup Vegetable Products (supra), wherein this Court while dealing with a case, where assessee received refund of excise duty and placed the said amount in suspense account and not in profit and loss account and claimed that this amount should not be included in his income, and stated before the Assessing Officer that large part of this amount was claimed by one Sugar Mill who had filed a suit and also a writ petition claiming the said amount and as such, this amount should not be included in his taxable income. This claim was accepted by the ITO. However, when the matter came to the notice of Commissioner, he exercising power under Section 263 h....
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.... 12. Learned counsel for the Department could not place any other authority before this Court wherein any otherwise view has been taken. On the contrary, learned counsel for assessee has placed before us a decision of Bombay High Court in Income Tax Appeal No.296 of 2013 (CIT v. Fine Jewellery (India) Ltd.) [2015] 372 ITR 303/230 Taxman 641/55 taxmann.xom 514 (Bom.) decided on February 3, 2015, wherein also Bombay High Court, following its earlier decision in Idea Cellular Ltd. Vs. Dy. CIT [2008] 301 ITR 407 (Bom.) has taken a similar view and said as under (page 307 of 372 ITR): "......if a query is raised during assessment proceedings and responded to by the assessee, the mere fact that it is not dealt with in the Assessment Order would not lead to a conclusion that no mind had been applied to it." 20. In case of Mahendra Kumar Bansal (supra), this Court held that merely because the order of the ITO is not lengthy, it would not establish that the assessment order passed under Section 143(3) of the Act is erroneous and prejudicial to the intrest of the revenue. Relevant Para Nos. 11,12 and 14 are extracted hereinasunder:- "11. In the case of Goya....
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....matter at length on facts as well as on the law, we are of the considered opinion that in the present case, it is abundantly clear that the order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of the Revenue." 8.3 Once the AO has raised the query which was replied by the assessee along with documentary evidence and consequently the assessment order was passed by the AO then the same cannot be held as erroneous and prejudicial to the interest of the revenue unless the Commissioner exercising the power u/s 263 bring on record to show that the order of the AO was passed without application of mind or based on incorrect facts or incorrect application of law. The Hon'ble Supreme Court in case of Pr. CIT vs. Shreeji Prints P. Ltd. (supra) while upholding the order of the Hon'ble Gujarat High Court as well as this Tribunal has observed in para 5 to 7 as under: "5 The Tribunal has found that in the order passed by the PCIT, Explanation 2 of section 263 of the Act. 1961 is made applicable. The Tribunal observed that the PCTT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by ....
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....o the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be....
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....e CIT is that "order passed by the Assessing Officer may be erroneous". The CIT had doubts about the valuation and sale consideration received but the CIT should have examined the said aspect himself and given a finding that the order passed by the Assessing Officer was erroneous. He came to the conclusion and finding that the Assessing Officer had examined the said aspect and accepted the respondent's computation figures but he had reservations. The CIT in the order has recorded that the consideration receivable was examined by the Assessing Officer but was not properly examined and therefore the assessment order is "erroneous". The said finding will be correct, if the CIT had examined and verified the said transaction himself and given a finding on merits. As held above, a distinction must be drawn in the cases where the Assessing Officer does not conduct an enquiry; as lack of enquiry by itself renders the order being erroneous and prejudicial to the interest of the Revenue and cases where the Assessing Officer conducts enquiry but finding recorded is erroneous and which is also prejudicial to the interest of the Revenue. In latter cases, the CIT has to examine the order of ....
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....a detailed show cause notice was issued by the undersigned on 25.02.2022 mentioning as under- 01. On perusal of the relevant case records, it is observed that the return of income in the case of the assessee for AY 2017-18 was filed on 29.10.2017 declaring total income of Rs. 74,73,400/- The case was selected for complete scrutiny. In the case of the assessee notice u/s 143(2) was issued on 23.08.2018 and notice u/s 142(1) was issued on 31.10.2019 02. In response, replies were filed by the assessee and after considering the submissions made the assessee, the assessing officer after disallowing Rs 75.000/- u/s 14A and Rs. 1,20,000/- under the head Tipper Transportation Expenses passed assessment order on 26.12.2019 at assessed income of Rs 76,68,400/- 03. On examination of the assessment records, following discrepancies are noticed 03.1 On examination of the case records, it was found that as per 26AS of the assessee for the period under consideration, the total receipts of the assessee was Rs. 24.06,84,479/- However on perusal of the P&L Account it was found that the assessee has shown receipts of Rs. 22,08,86,852/- only. Thus, the assessee had suppressed....
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....s neither the assessee has furnished explanation nor the assessing officer has sought any explanation as to why this amount had been debited in P&L account. Therefore, the assessment order passed by the AO is erroneous in the sense that it is prejudicial to the interest of revenue. 4. For the reasons stated hereinabove, the order u/s 143(3) dated 26.12.2019 passed by the Assessing Officer in your case for the A. Y. 2017-18 appears to be erroneous in so far as it is prejudicial to the interest of the revenue. Accordingly, by virtue of the power vested in the undersigned as per the provisions of section 263 of the Income Tax Act 1961, the said order is proposed to be revised under the said section. 5. You are hereby given an opportunity of being heard to explain as to why the proposed revision should not be carried out. For this purpose, your case is posted for hearing on 03.03.2022 at 3.00 pm. On the scheduled date of hearing, you may either appear in person or get yourself represented by a representative duly authorized by you as per section 288 of the Act. You may also make your written submissions in lieu of personal appearance. If such written submissions are r....
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....llowance only u/s 14A and no disallowance or addition was made in respect of the other issues as raised in the show cause notice issued u/s 142(1) of the Act. Thus, it is clear that the AO has conducted an inquiry on these issues and was satisfied with the reply and explanation filed by the assessee along with supporting evidence. Hence it is not a case of complete lack of inquiry on the part of the AO while passing the assessment order and therefore, the assessment order cannot be held to be erroneous so far as the prejudicial to the interest of the revenue on the ground of lack of inquiry. Though the commissioner has jurisdiction to invoke the provision of section 263 even when the AO has conducted inquiry and taken a view but the said jurisdiction and power of commissioner is restricted only in the case, where the view taken by the AO is absolutely wrong and against provision of law. No such allegation has been made by the Pr. CIT in the impugned order that the view taken by the AO in allowing the claims and accepting the explanation of the assessee is absolutely not permissible under the law. Even otherwise we find that the assessee has duly explained discrepancies in the total....
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....e incurred on acquiring equipment of machinery require for carrying out construction work. All these details were available with the AO as filed by the assessee, therefore, this case is certainly does not fall in the category of lack of inquiry on the part of the Assessing Officer. Coordinate Bench of this Tribunal in case of Rakesh Khandelwal vs. Pr. CIT (Supra) while considering an identical issue has held as under: "8. Therefore, it is not the case where there was no enquiry at all by the A.O. The assessee had furnished certain evidences, which the assessing officer has gone through. There is no dispute that the Ld. Principal CIT can exercise the revisionary jurisdiction u/s 263 of the Act. If he considers that any order passed by the A.O. is erroneous in so far as it is prejudicial to the interest of the revenue. Explanation (2) to section 263 of the Act further clarifies that an order passed by the A.O. 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 (a) the order is passed without making enquiries or verification which should have been made (b) the order is ....
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....without a finding that the order is erroneous finding that order is erroneous the condition or requirement which must be satisfied for exercise of jurisdiction u/s 263 of the Act. In such matters, to remand the matter/issue to the A.O. would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the A.O. to decide the aspect/question. The Hon'ble Court further held that this distinction must be kept in mind by the CIT while exercising jurisdiction u/s 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the A.O., who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry. The order of the A.O. may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the A.O. to decide whether the order was erroneous. This is not permi....
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....assed by the AO under section 143(3), show cause notice issued by the ld. PCIT under section 263 of the Act as well as the impugned order passed under section 263. 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 19.09.2016, 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. 134831180300316 on 30/03/2016 has been selected for Scrutiny. Following issues have been identified for examination :- i. Purchase of Property ii. Deduction claimed under the head Capital Gains 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 11:00 AM in the Office of the undersigned." Thus it is clear that the case was selected for limited scrutiny on the issue of purchase of property and deduction claimed under the head Capital Gains. Both these issues are inter-co....
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....wability of deduction under section 54F in respect of the investment made by the assessee towards cost of agricultural land and construction of house. The sole ground for initiating the proceedings under section 263 by the ld. PCIT is that in his view the claim of deduction in respect of agricultural land is not admissible. As apparent from the show cause notice that the scope of proceedings under section 263 was limited ITA No. 246/JP/2020 Smt. Lata Phulwani, Jaipur.only on the issue of allowability of deduction under section 54F in respect of the agricultural land acquired by the assessee and used for construction of house. There was no allegation by the ld. PCIT about the lack of enquiry on the part of the AO while passing the assessment order. Even otherwise, it is clear from the assessment order that the case was selected for limited scrutiny only on the issue of investment made in the agricultural land and deduction under section 54F of the IT Act. Therefore, the question of lack of enquiry does not arise when the AO has taken up the scrutiny and issued the notice under section 142(1) along with a questionnaire calling for all the details relevant to the acquisition of the la....
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....4F in respect of the investment made for construction of house on agricultural land. Whereas in the proceedings under section 263 the ld. PCIT has travelled beyond the scope of proceedings as initiated vide show cause notice dated 4th February, 2019. Therefore, the proceedings which are beyond the scope of the revisional proceedings, are not permissible as not an issue involved in the show cause notice. 6. Further, once it is not a case of lack of enquiry or inadequate enquiry as per the show cause notice issued under section 263 of the Act, then conducting a further enquiry on the factual aspects of the investment made in purchase of agricultural land and construction of the house is beyond the jurisdiction of the ld. PCIT as assumed by issuing show cause notice under section 263. The finding of the ld. PCIT in the revision order ought to have been confined on the issue of allowability of deduction under section 54F. Since the ld. PCIT was not agreeing with the view of the AO regarding the claim of deduction under section 54F, at the outset, he was required to give a concluding finding on the issue. On the contrary, the ld. PCIT has remitted the issue to the AO in para 7 ....
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....er, the case was adjourned to 22-11-1996 and 1-12-1995. On 5-12-1995, the Assessing Officer studied the sundry creditors, unsecured loans and desired to furnish affidavits of unsecured loans and details of interest paid and the case was adjourned to 19-1- 1996. On 19-1-1996, the Assessing Officer again required the assessee to furnish the details of partners capital accounts and also to produce voucher for expenses and the matter was adjourned for 23-1-1996. On 23-1-1996, the case was discussed and finalised. After that, assessment was completed by passing assessment order. These matters clearly indicate that the Assessing Officer particularly made reference to the matters, which the CIT has opined were not inquired. Thus, according to the Tribunal, the foundation to exercise power under section 263 of the Income-tax Act, was not existing. 8. We are of the opinion in the aforesaid circumstances on the finding reached by the Assessing Officer, no question of law really arises for consideration in this appeal. 9. It is true that in a given case not holding of any enquiry, which is relevant for assessment may indicate non-application of mind by Assessing Off....
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....conducted to find something. 12. The finding of the Tribunal that the ITO had passed assessment order after relevant enquiries and considering the aspects of the matter required by the CIT to be considered by him is a finding of fact and on the basis of which, the jurisdiction assumed by the CIT being non-existent must be held to be not sustainable. Consequently, the appeal fails and is hereby dismissed." Thus the Hon'ble High Court has held that the ld. CIT can cancel the order of the AO and require the concerned AO to pass a fresh order in accordance with the law after holding a detailed enquiry. But when the enquiry in fact has been conducted and the AO has reached a particular conclusion, though reference to such enquiries has not been made in the order of assessment, but the same is apparent from the record of the proceedings, the invocation of jurisdiction by the ld. CIT was unsustainable. A similar view has been taken by the Hon'ble Delhi High Court in case of ITO vs. D.G. Housing Projects Ltd. 343 ITR 329 in para 18 as under :- "18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. v. Commissioner of Inco....
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....ssee claimed deduction of Rs. 83,54,434/- u/s 54F from the LTCG declared by it. The assessee made investment of Rs. 1,15,00,000/- in purchase of land and constructed residential house thereon. The area of land was 4090 Sq.mt. and construction thereon is of 1504 Sq. ft. The A.O. on these facts issued a show cause notice to assessee as given in assessment order to which assessee replied which is given in page -- 6 of assessment order. The A.O. on following grounds denied the claim of assessee: (a) The land is agricultural and not residential. (b) The construction of residential house without approval of plan by Govt. Authority. (c) The assessee has also not submitted any electricity and water connection evidence. (d) The land was registered in the name of assessee on 28-3-13 i.e. beyond the period specified in Section 54F (4) and so assessee not complied conditions laid down therein. The agreement to purchase land executed on 2-6-2011 claimed by assessee has no evidentiary value as payment of consideration shown in cash. (e) The bills for construction are lacking details and contain no detail of work done and each payment made therefor was....
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.... The construction on land is meant for residential house. The assessee could complete the construction of the residential house within three years and if any facility lacking in the constructed residential house the same could be completed within in that period. There is water supply from well and temporary electric connection in the residential house constructed by assessee. The construction of residential house is 1553.50 Sq.ft. and not having proper bills for construction cannot be taken adversely against him for purposes of Section 54F. These facts are evident from the valuation report of Regd. Valuer a copy of which is submitted. The Inspector of department furnished vague details without any physical inspection of building and took only photographs. The assessee has only to invest net sale consideration in purchase or construct a residential house and therefore registration or legal ownership is not necessary which is evident from Circular No. 471 dated 15-10-1986 issued by CBDT and from judgements of Balraj Vs. CIT 254 ITR 22 and CIT Vs. Laxmi Chand 211 ITR 804 and various other judgements on the issue. Thus, agreement to purchase copy of which submitted proves domain and co....